<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997
REGISTRATION NO. 333-19779
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MORGAN STANLEY ABS CAPITAL I INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE [APPLIED FOR]
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
1585 BROADWAY
2ND FLOOR
NEW YORK, NEW YORK 10036
(212) 761-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CRAIG S. PHILLIPS
PRESIDENT
MORGAN STANLEY ABS CAPITAL I INC.
1585 BROADWAY
2ND FLOOR
NEW YORK, NEW YORK 10036
(212) 761-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
<TABLE>
<S> <C>
GREGORY D. WALKER, ESQ. GEOFFREY K. HURLEY, ESQ.
MORGAN STANLEY & CO. INCORPORATED LATHAM & WATKINS
1585 BROADWAY, 38TH FLOOR 885 THIRD AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10022
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of the registration statement, as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Asset Backed Notes and Asset
Backed Certificates.......................... $1,000,000(3) 100% $1,000,000 $303.03
===================================================================================================================
</TABLE>
(1) The Registration Statement relates to the initial offering from time to time
of the Asset Backed Notes and Asset Backed Certificates and to any resales
thereof in market making transactions by Morgan Stanley & Co. Incorporated,
an affiliate of the Registrant, to the extent required.
(2) Estimated for the purpose of calculating the registration fee.
(3) Not specified as to each Class of Asset Backed Securities to be registered
pursuant to General Instruction II.D of Form S-3.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
VERSION #1
Subject to Completion, dated April 29, 1997
PROSPECTUS SUPPLEMENT (To Prospectus dated , 199 )
$
(Approximate)
Home Equity Loan Trust 199 -
Home Equity Loan Asset Backed Certificates, Series 199
Morgan Stanley ABS Capital I Inc.
Depositor
[
]
Master Servicer
Each Home Equity Loan Asset Backed Certificate, Series 199 - (collectively,
the "Certificates") will represent an undivided interest in the Home Equity Loan
Trust 199 - (the "Trust Fund") to be formed pursuant to a Pooling and Servicing
Agreement among [ ], as Master Servicer, Morgan Stanley ABS Capital I
Inc., as Depositor, and [ ], as Trustee. The property of the Trust
Fund will include a pool of [adjustable rate] home equity revolving credit line
loans made or to be made in the future (the "Mortgage Loans") under certain home
equity revolving credit line loan agreements. The Mortgage Loans are secured by
first, second and third mortgages or deeds of trusts on one- to four-family
residential properties. See "Index of Defined Terms" on page S-59 of this
Prospectus Supplement and on page 119 of the Prospectus for the location of the
definitions of certain capitalized terms.
The aggregate undivided interest in the Trust Fund represented by the
Certificates will, as of , 199 (the "Cut-off Date"), represent
approximately % of the outstanding principal balances of the Mortgage Loans.
The remaining undivided interest in the Trust Fund not represented by the
Certificates (the "Transferor Interest") will initially be equal to $ ,
which as of the Cut-off Date is % of the outstanding principal balances of the
Mortgage Loans. Only the Certificates are offered hereby.
Distributions of principal and interest on the Certificates will be made on
the day of each month or, if such date is not a Business Day, then on the
succeeding Business Day (each, a "Distribution Date"), commencing ,
199 . On each Distribution Date, holders of the Certificates will be entitled to
receive, from and to the limited extent of funds available in the Collection
Account (as defined herein), distributions with respect to interest and
principal calculated as set forth under "Summary -- Interest" and "-- Principal
Payments from Principal Collections" and "Description of the
Certificates -- Distributions on the Certificates" herein. The Certificates are
not guaranteed by the Depositor or any affiliate thereof. [However, the
Certificates will be unconditionally and irrevocably guaranteed as to the
payment of the Guaranteed Distributions (as defined herein) on each Distribution
Date pursuant to the terms of a financial guaranty insurance policy (the
"Policy") to be issued by
[INSURER]
Morgan Stanley & Co. Incorporated ("Morgan Stanley" or the "Underwriter")
intends to make a secondary market in the Certificates but is under no
obligation to do so. There can be no assurance that a secondary market for the
Certificates will develop or, if it does develop, that it will continue. See
"Risk Factors" herein and in the Prospectus. (Continued on following page)
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-15 HEREIN AND ON PAGE 17 IN THE ACCOMPANYING
PROSPECTUS.
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER, THE MASTER SERVICER,
THE TRUSTEE, OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE DEPOSITOR(3)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Per Certificate....................... % % %
Total................................. $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from , 199 .
(2) The Depositor has agreed to indemnify Morgan Stanley against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, estimated to be $ .
------------------------
The Certificates are offered subject to prior sale, when, as and if
delivered to and accepted by the Morgan Stanley and subject to Morgan Stanley's
right to reject orders in whole or in part. It is expected that delivery of the
Certificates will be made in book-entry form only through the facilities of The
Depository Trust Company, CEDEL S.A. and the Euroclear System on or about
, 199 (the "Closing Date").
------------------------
MORGAN STANLEY & CO.
Incorporated
, 199 .
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation, or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
<PAGE> 3
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or any Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that the information herein or therein
is correct at any time subsequent to the date hereof or that there has been no
change in the affairs of the Depositor since that date.
IN CONNECTION WITH THIS OFFERING, MORGAN STANLEY MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus.
This is in addition to the obligation of dealers acting as underwriters to
deliver a Prospectus Supplement and Prospectus with respect to their unsold
allotments or subscriptions.
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
Prospectus of the Depositor dated , 199 (the "Prospectus") and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Certificates may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Trustee on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus Supplement is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to in the
Prospectus under "Incorporation of Certain Documents by Reference" that have
been or may be incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee at , telephone: , facsimile
number , attention: .
S-2
<PAGE> 4
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................................................................... S-4
Risk Factors.......................................................................... S-15
The Certificate Insurer............................................................... S-17
The Master Servicer................................................................... S-17
The Home Equity Loan Program.......................................................... S-18
Description of the Mortgage Loans..................................................... S-20
Maturity and Prepayment Considerations................................................ S-28
Description of the Certificates....................................................... S-29
Description of the Purchase Agreement................................................. S-49
Use of Proceeds....................................................................... S-50
Federal Income Tax Consequences....................................................... S-50
Erisa Considerations.................................................................. S-53
Legal Investment Considerations....................................................... S-56
Underwriting.......................................................................... S-56
Legal Matters......................................................................... S-57
Experts............................................................................... S-57
Ratings............................................................................... S-57
Index of Defined Terms................................................................ S-59
Global Clearance, Settlement and Tax Documentation Procedure.......................... AI-1
PROSPECTUS
Summary of Terms...................................................................... 6
Risk Factors.......................................................................... 17
The Trust Fund........................................................................ 27
Use of Proceeds....................................................................... 41
The Depositor......................................................................... 41
Description of the Securities......................................................... 41
Credit Enhancement.................................................................... 56
Yield and Prepayment Considerations................................................... 61
The Agreements........................................................................ 64
Certain Legal Aspects of the Loans.................................................... 77
Federal Income Tax Consequences....................................................... 91
State Tax Consequences................................................................ 111
Erisa Considerations.................................................................. 111
Legal Investment...................................................................... 115
Method of Distribution................................................................ 116
Legal Matters......................................................................... 117
Financial Information................................................................. 117
Rating................................................................................ 117
Index of Defined Terms................................................................ 119
</TABLE>
S-3
<PAGE> 5
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Certain capitalized terms
used in the Summary are defined elsewhere in the Prospectus Supplement or in the
Prospectus. See "Index of Defined Terms" on page S-59 of this Prospectus
Supplement and on page 119 of the Prospectus for the location of the definitions
of certain capitalized terms.
Trust Fund................. Home Equity Loan Trust 199 (the "Trust Fund") will
be formed
pursuant to a pooling and servicing agreement (the
"Agreement") to be dated as of , 199 (the
"Cut-off Date") among , as master
servicer (together with any successor in such
capacity, the "Master Servicer"), Morgan Stanley
ABS Capital I Inc., as depositor (the "Depositor"),
and , as trustee (the "Trustee").
The property of the Trust Fund will include: a pool
of [adjustable rate] home equity revolving credit
line loans made or to be made in the future (the
"Mortgage Loans"), under certain home equity
revolving credit line loan agreements (the "Credit
Line Agreements") and secured by first, second and
third mortgages and deeds of trust on residential
properties that are one- to four-family properties
(the "Mortgaged Properties"); the collections in
respect of the Mortgage Loans received after the
Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off
Date or due in the month of ); property
that secured a Mortgage Loan which has been
acquired by foreclosure or deed in lieu of
foreclosure; an irrevocable and unconditional
limited financial guaranty insurance policy (the
"Policy"); an assignment of the Depositor's rights
under the Purchase Agreement (as defined herein);
rights under certain hazard insurance policies
covering the Mortgaged Properties; and certain
other property, as described more fully under
"Description of the Certificates -- General"
herein. On the Closing Date, the Mortgage Loans
will be purchased by the Depositor from
(the "Seller"), [an affiliate of the
Depositor,] which either directly or through its
affiliates acquired the Mortgage Loans in the
ordinary course of business from , the
originator of the Mortgage Loans.
The Trust Fund property will include the unpaid
principal balance of each Mortgage Loan as of the
Cut-off Date (the "Cut-off Date Principal Balance")
plus any additions thereto as a result of new
advances made pursuant to the applicable Credit
Line Agreement (the "Additional Balances") during
the life of the Trust Fund. With respect to any
date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage
Loans as of such date. The aggregate Cut-off Date
Principal Balance of the Mortgage Loans is $
(the "Cut-off Date Pool Balance"). The "Principal
Balance" of a Mortgage Loan (other than a
Liquidated Mortgage Loan) on any day is equal to
its Cut-off Date Principal Balance, plus (i) any
Additional Balances in respect of such Mortgage
Loan, minus (ii) all collections credited against
the Principal Balance of such Mortgage Loan in
accordance with the related Credit Line Agreement
prior to such day. The Principal Balance of a
Liquidated Mortgage Loan (as defined herein) after
final recovery of related Liquidation Proceeds (as
defined herein) will be zero.
Securities Offered......... Each of the Home Equity Loan Asset Backed
Certificates, Series 199 offered hereby (the
"Certificates") represents an undivided interest in
S-4
<PAGE> 6
the Trust Fund. Each Certificate represents the
right to receive payments of interest at the
variable rate described below (the "Certificate
Rate"), payable monthly, and payments of principal
at such time and to the extent provided herein
under "Description of the
Certificates -- Distributions on the Certificates."
The aggregate undivided interest in the Trust Fund
represented by the Certificates as of the Closing
Date will equal $ (the "Original Invested
Amount"), which represents % of the Cut-off Date
Pool Balance. The "Original Certificate Principal
Balance" will equal $ . Following the
Closing Date, the "Invested Amount" with respect to
any date will be an amount equal to the Original
Invested Amount minus (i) the amount of Investor
Principal Collections (as defined herein)
previously distributed to Certificateholders, and
minus (ii) an amount equal to the product of the
Investor Floating Allocation Percentage and the
Liquidation Loss Amounts (each as defined herein).
The Transferor (as described below) will own the
remaining undivided interest (the "Transferor
Interest") in the Mortgage Loans, which is equal to
the Pool Balance minus the Invested Amount and will
initially equal approximately % of the Cut-off
Date Pool Balance. The Transferor (the
"Transferor") as of any date is the owner of the
Transferor Interest which initially will be
. The Certificates will be issued
pursuant to the Agreement. The principal amount of
the outstanding Certificates (the "Certificate
Principal Balance") on any date is equal to the
Original Certificate Principal Balance minus the
aggregate of amounts actually distributed as
principal to the Certificateholders. See
"Description of the Certificates" herein.
Removal of Certain
Mortgage Loans;
Additional Balances...... In order to permit the Transferor to remove
Mortgage Loans from the Trust Fund at such times,
if any, as the overcollateralization exceeds the
level required to maintain the ratings on the
Certificates, on any Distribution Date the
Transferor may, but shall not be obligated to,
remove from the Trust Fund certain Mortgage Loans
without notice to the Certificateholders. The
Transferor is permitted to designate the Mortgage
Loans to be removed. Mortgage Loans so designated
will only be removed upon satisfaction of the
following conditions: (i) No Rapid Amortization
Event (as defined herein) has occurred, (ii) the
Transferor Interest as of the Transfer Date (as
defined herein) (after giving effect to such
removal) exceeds the Minimum Transferor Interest
(as defined below); (iii) the transfer of any
Mortgage Loans on any Transfer Date during the
Managed Amortization Period (as defined herein)
shall not, in the reasonable belief of the
Transferor, cause a Rapid Amortization Event to
occur or an event which with notice or lapse of
time or both would constitute a Rapid Amortization
Event; (iv) the Transferor shall have delivered to
the Trustee a "Mortgage Loan Schedule" containing a
list of all Mortgage Loans remaining in the Trust
Fund after such removal; (v) the Transferor shall
represent and warrant that no selection procedures
which are adverse to the interests of the
Certificateholders or the Certificate Insurer were
used by the Transferor in selecting such Mortgage
Loans; (vi) in connection with the first such
retransfer of Mortgage Loans, the Rating Agencies
(as defined herein) shall have been notified of the
proposed transfer and prior to the Transfer Date
shall not have notified the Transferor in writing
that such transfer would result
S-5
<PAGE> 7
in a reduction or withdrawal of the ratings
assigned to the Certificates without regard to the
Policy; and (vii) the Transferor shall have
delivered to the Trustee and the Certificate
Insurer an officer's certificate confirming the
conditions set forth in clauses (i) through (vi)
above. See "Description of the
Certificates -- Optional Transfers of Mortgage
Loans to the Transferor" herein.
The "Minimum Transferor Interest" as of any date is
an amount equal to the lesser of (a) % of the
Pool Balance on such date and (b) the Transferor
Interest as of the Closing Date.
During the term of the Trust Fund, all Additional
Balances will be transferred to and become property
of the Trust. The Pool Balance at any time will
generally fluctuate from day to day because the
amount of Additional Balances and the amount of
principal payments with respect to the Mortgage
Loans will usually differ from day to day. Because
the Transferor Interest is equal to the Pool
Balance minus the Invested Amount, the amount of
the Transferor Interest will fluctuate from day to
day as draws are made with respect to the Mortgage
Loans and as Principal Collections are received.
The Mortgage Loans......... The Mortgage Loans are secured by first, second and
third mortgages on Mortgaged Properties located in
states. On the Closing Date, will
sell the Mortgage Loans to the Depositor, pursuant
to a purchase agreement (the "Purchase Agreement").
The percentage of the Cut-off Date Principal
Balance of the Mortgage Loans secured primarily by
Mortgaged Properties located in the states of
, , , ,
and is approximately %, %,
%, % and %, respectively. The "Combined
Loan-to-Value Ratio" of each Mortgage Loan is the
ratio of (A) the sum of (i) the maximum amount the
borrower was permitted to draw down under the
related Credit Line Agreement (the "Credit Limit")
and (ii) the amounts of any related senior mortgage
loans (computed as of the date of origination of
each such Mortgage Loans) to (B) the lesser of (i)
the appraised value of the Mortgaged Property or
(ii) [in the case of a Mortgaged Property purchased
within one year of the origination of the related
Mortgage Loan,] the purchase price of such
Mortgaged Property. As of the Cut-off Date the
Combined Loan-to-Value Ratios ranged from % to
% and, as of the Cut-off Date, the weighted
average Combined Loan-to-Value Ratio of the
Mortgage Loans was approximately %
Interest on each Mortgage Loan is payable monthly
and computed on the related daily outstanding
Principal Balance for each day in the billing cycle
at a variable rate per annum (the "Loan Rate")
equal at any time (subject to maximum rates, as
described herein under "Description of the Mortgage
Loans -- Mortgage Loan Terms," and further subject
to applicable usury limitations) to the sum of (i)
[the highest prime rate published in the "Money
Rates" section of The Wall Street Journal] and (ii)
a Margin within the range of % to %. As of the
Cut-off Date, the weighted average Margin was
approximately %. Loan Rates are adjusted [monthly
on the first business day of the calendar month
preceding the Due Date]. As to each Mortgage Loan,
the "Due Date" is the fifteenth day of each month.
The Cut-off Date Principal Balances
S-6
<PAGE> 8
ranged from zero to $ and averaged
approximately $ . Credit Limits under the
Mortgage Loans as of the Cut-off Date ranged from
$ to $ and averaged approximately
$ . Each Mortgage Loan was originated in
the period from , 199 to
, 199 . As of the Cut-off Date, the
maximum Credit Limit Utilization Rate (as defined
herein) was 100% and the weighted average Credit
Limit Utilization Rate was approximately %. As
of the Cut-off Date, approximately % by
Cut-off Date Principal Balance of the Mortgage
Loans represented first liens on the related
Mortgaged Properties, approximately % by
Cut-off Date Principal Balance of the Mortgage
Loans represented second liens on the related
Mortgaged Properties and approximately % of
the Mortgage Loans represented third liens. As of
the Cut-off Date, the Mortgage Loans had remaining
terms to scheduled maturity ranging from
months to months and had a weighted average of
approximately months. See "Description of the
Mortgage Loans" herein.
Denominations.............. The Certificates will be offered for purchase in
denominations of [$1,000] and multiples of [$1] in
excess thereof. The interest in the Trust Fund
evidenced by a Certificate (the "Percentage
Interest") will be equal to the percentage derived
by dividing the denomination of such Certificate by
the Original Certificate Principal Balance.
Registration of
Certificates............... The Certificates will initially be issued in
book-entry form. Persons acquiring beneficial
ownership interests in the Certificates
("Certificate Owners") may elect to hold their
Certificate interests through The Depository Trust
Company ("DTC"), in the United States, or Centrale
de Livraison de Valeurs Mobilieres S.A. ("CEDEL")
or the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the
case may be, will be in accordance with the usual
rules and operating procedures of the relevant
system. So long as the Certificates are Book-Entry
Certificates (as defined herein), such Certificates
will be evidenced by one or more Certificates
registered in the name of Cede & Co. ("Cede"), as
the nominee of DTC or one of the relevant
depositaries (collectively, the "European
Depositaries"). Cross-market transfers between
persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding
directly or indirectly through CEDEL or Euroclear,
on the other, will be effected in DTC through
Citibank N.A. ("Citibank") or The Chase Manhattan
Bank ("Chase"), the relevant depositaries of CEDEL
or Euroclear, respectively, and each a
participating member of DTC. The Certificates will
initially be registered in the name of Cede. The
interests of the Certificateholders will be
represented by book entries on the records of DTC
and participating members thereof. No Certificate
Owner will be entitled to receive a definitive
certificate representing such person's interest,
except in the event that Definitive Certificates
(as defined herein) are issued under the limited
circumstances described herein. All references in
this Prospectus Supplement to any Certificates
reflect the rights of Certificate Owners only as
such rights may be exercised through DTC and its
participating organizations for so long as such
Certificates are held by DTC. See "Risk
Factors -- Consequences of Owning Book-Entry
Certificates," "Description of the
Certificates -- Book-Entry Certificates" herein and
"Annex I" hereto.
S-7
<PAGE> 9
Depositor.................. Morgan Stanley ABS Capital I Inc., a Delaware
corporation and a direct, wholly-owned subsidiary
of Morgan Stanley Group Inc. The principal
executive offices of the Depositor are located at
1585 Broadway, 37th Floor, New York, New York 10036
(Telephone: (212) 761-4000). See "The Depositor" in
the Prospectus.
Master Servicer of the
Mortgage Loans............. [ ] See "The Master Servicer" and
"The Home Equity Loan Program -- Servicing of the
Mortgage Loans" herein.
Collections................ All collections on the Mortgage Loans will
generally be allocated in accordance with the
Credit Line Agreements between amounts collected in
respect of interest and amounts collected in
respect of principal. As to any Distribution Date,
"Interest Collections" will be equal to the amounts
collected during the related Collection Period,
including the portion of Net Liquidation Proceeds
(as defined below) allocated to interest pursuant
to the terms of the Credit Line Agreements less
Servicing Fees for the related Collection Period.
As to any Distribution Date, "Principal
Collections" will be equal to the sum of (i) the
amounts collected during the related Collection
Period, including the portion of Net Liquidation
Proceeds allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any
Transfer Deposit Amounts (as defined herein).
"Net Liquidation Proceeds" with respect to a
Mortgage Loan are the proceeds (excluding amounts
drawn on the Policy) received in connection with
the liquidation of any Mortgage Loan, whether
through trustee's sale, foreclosure sale or
otherwise, reduced by related expenses, but not
including the portion, if any, of such amount that
exceeds the Principal Balance of the Mortgage Loan
plus any accrued and unpaid interest thereon to the
end of the Collection Period during which such
Mortgage Loan became a Liquidated Mortgage Loan.
With respect to any Distribution Date, the portion
of Interest Collections allocable to the
Certificates ("Investor Interest Collections") will
equal the product of (a) Interest Collections for
such Distribution Date and (b) the Investor
Floating Allocation Percentage. With respect to any
Distribution Date, the "Investor Floating
Allocation Percentage" is the percentage equivalent
of a fraction determined by dividing the Invested
Amount at the close of business on the preceding
Distribution Date (or at the Closing Date in the
case of the first Distribution Date) by the Pool
Balance at the beginning of the related Collection
Period. The remaining amount of Interest
Collections will be allocated to the Transferor
Interest as more fully described under "Description
of the Certificates -- Allocations and Collections"
herein.
On each Distribution Date, the Investor Interest
Collections will be applied in the following order
of priority: (i) as payment to the Trustee for its
fee for services rendered pursuant to the
Agreement; (ii) as payment for the premium for the
Policy; (iii) as payment for the accrued interest
due and any overdue accrued interest (with interest
thereon) on the Certificate Principal Balance of
the Certificates; (iv) to pay any Investor Loss
Amount (as defined herein) for such Distribution
Date; (v) as payment for any Investor Loss Amount
for a previous Distribution Date that was not
previously (a) funded by Investor Interest
Collections
S-8
<PAGE> 10
allocable to the Certificateholders, (b) absorbed
by the Overcollateralization Amount, (c) funded by
amounts on deposit in the Spread Account or (d)
funded by draws on the Policy; (vi) to reimburse
prior draws made from the Policy (with interest
thereon); (vii) to pay principal on the
Certificates until the Invested Amount exceeds the
Certificate Principal Balance by the Required
Overcollateralization Amount, each as defined
herein (such amount, if any, paid pursuant to this
clause (vii) being referred to herein as the
"Accelerated Principal Distribution Amount");
(viii) any other amounts required to be deposited
in an account for the benefit of the Certificate
Insurer and Certificateholders pursuant to the
Agreement or amounts owed to the Certificate
Insurer pursuant to the Insurance Agreement; (ix)
certain amounts that may be required to be paid to
the Master Servicer pursuant to the Agreement; and
(x) to the Transferor to the extent permitted as
described under "Description of the
Certificates -- Distributions on the Certificates"
herein.
Investor Interest Collections available after the
payment of interest on the Certificates may be
insufficient to cover any Investor Loss Amount. If
such insufficiency results in the Certificate
Principal Balance exceeding the Invested Amount, a
draw in an amount equal to such difference will be
made on the Policy in accordance with the terms of
the Policy.
The "Overcollateralization Amount" on any date of
determination is the amount, if any, by which the
Invested Amount exceeds the Certificate Principal
Balance on such day. Payments to Certificateholders
pursuant to clause (iii) above will be interest
payments on the Certificates. Payments to
Certificateholders pursuant to clauses (iv), (v)
and (vii) will be principal payments on the
Certificates and will therefore reduce the
Certificate Principal Balance, however, payments
pursuant to clause (vii) will not reduce the
Invested Amount. The Accelerated Principal
Distribution Amount is not guaranteed by the
Policy.
"Liquidation Loss Amount" means with respect to any
Liquidated Mortgage Loan, the unrecovered Principal
Balance thereof at the end of the related
Collection Period in which such Mortgage Loan
became a Liquidated Mortgage Loan, after giving
effect to the Net Liquidation Proceeds in
connection therewith. The "Investor Loss Amount"
shall be the product of the Investor Floating
Allocation Percentage and the Liquidation Loss
Amount for such Distribution Date. See "Description
of the Certificates -- Distributions on the
Certificates" herein.
Principal Collections will be allocated between the
Certificateholders and the Transferor ("Investor
Principal Collections" and "Transferor Principal
Collections", respectively) in accordance with
their percentage interests in the Mortgage Loans of
% and %, respectively, as of the Cut-off
Date (the "Fixed Allocation Percentage"), but a
lesser amount of Principal Collections may be
distributed to Certificateholders during the
Managed Amortization Period, as described below.
The "Investor Fixed Allocation Percentage" shall be
%.
The Master Servicer will deposit Interest
Collections and Principal Collections in respect of
the Mortgage Loans in an account established for
such purpose under the Agreement (the "Collection
Account"). See
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<PAGE> 11
"Description of the Certificates -- Payments on
Mortgage Loans; Deposits to Collection Account"
herein.
Collection Period.......... As to any Distribution Date other than the first
Distribution Date, the "Collection Period" is the
calendar month preceding the month of such
Distribution Date. As to the first Distribution
Date, the "Collection Period" is the period
beginning after the Cut-off Date and ending on the
last day of , 199 .
Interest................... Interest on the Certificates will be distributed
monthly on the fifteenth day of each month or, if
such day is not a Business Day, then the next
succeeding Business Day (each, a "Distribution
Date"), commencing on , 199 , at the
Certificate Rate for the related Interest Period
(as defined below). The "Certificate Rate" for an
Interest Period will generally equal the sum of
[(a) the London Interbank offered rate for
one-month Eurodollar deposits ("LIBOR") appearing
on the Telerate Screen Page 3750, as of the second
LIBOR Business Day (as defined herein) prior to the
first day of such Interest Period (or as of two
LIBOR Business Days prior to the Closing Date, in
the case of the first Interest Period) and (b)
%.] Notwithstanding the foregoing, in no event
will the amount of interest required to be
distributed in respect of the Certificates on any
Distribution Date exceed a rate equal to the
weighted average of the Loan Rates (net of the
Servicing Fee Rate, the fee payable to the Trustee
and the rate at which the premium payable to the
Certificate Insurer is calculated) weighted on the
basis of the daily balance of each Mortgage Loan
during the related billing cycle prior to the
Collection Period relating to such Distribution
Date. [Interest on the Certificates in respect of
any Distribution Date will accrue from the
preceding Distribution Date (or in the case of the
first Distribution Date, from the date of the
initial issuance of the Certificates (the "Closing
Date") through the day preceding such Distribution
Date (each such period, an "Interest Period") on
the basis of the actual number of days in the
Interest Period and a 360-day year.]
Interest payments on the Certificates will be
funded from Investor Interest Collections, any
funds on deposit in the Spread Account and from
draws on the Policy. See "Description of the
Certificates" herein.
Principal Collections...... For the period beginning on the first Distribution
Date and, unless a Rapid Amortization Event (as
defined herein) shall have earlier occurred, ending
on the Distribution Date in , 200
(the "Managed Amortization Period"), the amount of
Principal Collections payable to Certificateholders
as of each Distribution Date during the Managed
Amortization Period will equal, to the extent funds
are available therefor, the Scheduled Principal
Collections Distribution Amount for such
Distribution Date. On any Distribution Date during
the Managed Amortization Period, the "Scheduled
Principal Collections Distribution Amount" shall
equal the lesser of (i) the Maximum Principal
Payment (as defined herein) and (ii) the
Alternative Principal Payment (as defined herein).
With respect to any Distribution Date, the "Maximum
Principal Payment" will equal the product of the
Investor Fixed Allocation Percentage and Principal
Collections for such Distribution Date. With
respect to any Distribution Date, the "Alternative
Principal Payment" will equal the greater of (x) %
of the Certificate Principal Balance immediately
prior to such Distribution Date and
S-10
<PAGE> 12
(y) the amount, but not less than zero, of
Principal Collections for such Distribution Date
less the aggregate of Additional Balances created
during the related Collection Period.
Beginning with the first Distribution Date
following the end of the Managed Amortization
Period, the amount of Principal Collections payable
to Certificateholders on each Distribution Date
will be equal to the Maximum Principal Payment. See
"Description of the Certificates -- Distributions
on the Certificates" herein.
In addition, to the extent funds are available
therefor (including funds available under the
Policy), on the Distribution Date in
20 , Certificateholders will be
entitled to receive as payment of principal an
amount equal to the outstanding Certificate
Principal Balance.
Distributions of Principal Collections based upon
the Investor Fixed Allocation Percentage may result
in distributions of principal to Certificateholders
in amounts that are greater relative to the
declining Pool Balance than would be the case if
the Investor Floating Allocation Percentage were
used to determine the percentage of Principal
Collections distributed in respect of the Invested
Amount. The aggregate distributions of principal to
Certificateholders will not exceed the Original
Certificate Principal Balance.
The Certificate Insurer.... [Insurer] (the "Certificate Insurer") is a
insurance company engaged
exclusively in the business of writing financial
guaranty insurance, principally in respect of
securities offered in domestic and foreign markets.
The Certificate Insurer's claims-paying ability is
rated by and
by . See "The
Certificate Insurer" herein.
Policy..................... On or before the Closing Date, the Policy will be
issued by the Certificate Insurer pursuant to the
provisions of the Insurance and Indemnity Agreement
(the "Insurance Agreement") to be dated as of
, 199 , among the Seller, the
Depositor, the Master Servicer and the Certificate
Insurer.
The Policy will irrevocably and unconditionally
guarantee payment on each Distribution Date to the
Trustee for the benefit of the Certificateholders
the full and complete payment of (i) the Guaranteed
Principal Distribution Amount (as defined herein)
with respect to the Certificates for such
Distribution Date and (ii) accrued and unpaid
interest due on the Certificates (together, the
"Guaranteed Distributions"), with such Guaranteed
Distributions having been calculated in accordance
with the original terms of the Certificates or the
Agreement except for amendments or modifications to
which the Certificate Insurer has given its prior
written consent. The effect of the Policy is to
guarantee the timely payment of interest on, and
the ultimate payment of the principal amount of,
all of the Certificates.
The "Guaranteed Principal Distribution Amount" for
any Distribution Date shall be the amount by which
the Certificate Principal Balance (after giving
effect to all other amounts distributable and
allocable to principal on the Certificates on such
Distribution Date) exceeds the Invested Amount for
such Distribution Date. In addition, the Policy
will guarantee the payment of the outstanding
Certificate Principal Balance
S-11
<PAGE> 13
on the Distribution Date in , 20
(after giving effect to all other amounts
distributable and allocable to principal on such
Distribution Date).
In accordance with the Agreement, the Trustee will
be required to establish and maintain an account
(the "Spread Account") for the benefit of the
Certificate Insurer and the Certificateholders. The
Trustee shall deposit the amounts into the Spread
Account as required by the Agreement.
In the absence of payments under the Policy,
Certificateholders will directly bear the credit
and other risks associated with their undivided
interest in the Trust Fund. See "Description of the
Certificates -- The Policy" herein.
Overcollateralization
Amount..................... The distribution of Accelerated Principal
Distribution Amounts, if any, to Certificateholders
may result in the Invested Amount being greater
than the Certificate Principal Balance, thereby
creating the Overcollateralization Amount. The
Overcollateralization Amount, if any, will be
available to absorb any Investor Loss Amount not
covered by Investor Interest Collections. Payments
of Accelerated Principal Distribution Amounts are
not covered by the Policy. Any Investor Loss
Amounts not covered by such overcollateralization,
amounts on deposit in the Spread Account or
Investor Interest Collections will be covered by
draws on the Policy to the extent provided therein.
Record Date................ The last day preceding a Distribution Date or, if
the Certificates are no longer Book-Entry
Certificates, the last day of the month preceding a
Distribution Date.
Servicing.................. The Master Servicer will be responsible for
servicing, managing and making collections on the
Mortgage Loans. The Master Servicer will deposit
all collections in respect of the Mortgage Loans
into the Collection Account as described under
"Description of the Certificates -- Payments on
Mortgage Loans; Deposits to Collection Account"
herein. On the third Business Day prior to each
Distribution Date (the "Determination Date"), the
Master Servicer will calculate, and instruct the
Trustee regarding the amounts available to be paid,
as described under "Description of the
Certificates -- Payments on Mortgage Loans;
Deposits to Collection Account" herein, to the
Certificateholders on such Distribution Date. See
"Description of the Certificates -- Distributions
on the Certificates" herein. With respect to each
Collection Period, the Master Servicer will receive
from collections in respect of interest on the
Mortgage Loans, on behalf of itself, a portion of
such collections as a monthly servicing fee (the
"Servicing Fee") in the amount of approximately %
per annum (the "Servicing Fee Rate") on the
aggregate Principal Balances of the Mortgage Loans
as of the first day of each such Collection Period.
See "Description of the Certificates -- Servicing
Compensation and Payment of Expenses" herein. In
certain limited circumstances, the Master Servicer
may resign or be removed, in which event either the
Trustee or a third-party servicer will be appointed
as a successor Master Servicer. See "Description of
the Certificates -- Certain Matters Regarding the
Master Servicer and the Transferor" herein.
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<PAGE> 14
Final Payment of Principal;
Termination.............. The Trust Fund will terminate on the Distribution
Date following the later of (A) payment in full of
all amounts owing to the Certificate Insurer and
(B) the earliest of (i) the Distribution Date on
which the Certificate Principal Balance has been
reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust
Fund, (iii) the optional retransfer to the
Transferor of the Certificates, as described below
and (iv) the Distribution Date in ,
20 . The Certificates will be subject to optional
retransfer to the Transferor on any Distribution
Date after the Certificate Principal Balance is
reduced to an amount less than or equal to $( % of
the Original Certificate Principal Balance) and all
amounts due and owing to the Certificate Insurer
and unreimbursed draws on the Policy, together with
interest thereon, as provided under the Insurance
Agreement, have been paid. The retransfer price
will be equal to the sum of the outstanding
Certificate Principal Balance and accrued and
unpaid interest thereon at the Certificate Rate
through the day preceding the final Distribution
Date. See "Description of the
Certificates -- Termination; Retirement of the
Certificates" herein and "The
Agreements -- Termination; Optional Termination" in
the Prospectus.
In addition, the Trust Fund may be liquidated as a
result of certain events of bankruptcy, insolvency
or receivership relating to the Transferor. See
"Description of the Certificates -- Rapid
Amortization Events" herein.
Trustee.................... [ ], a
(the "Trustee") will act as Trustee on behalf of
the Certificateholders.
Mandatory Retransfer of
Certain Mortgage Loans..... The Seller will make certain representations and
warranties in the Agreement with respect to the
Mortgage Loans. If the Seller breaches certain of
its representations and warranties with respect to
any Mortgage Loan and such breach materially and
adversely affects the interests of the
Certificateholders or the Certificate Insurer and
is not cured within the specified period, the
Mortgage Loan will be removed from the Trust Fund
upon the expiration of a specified period from the
date on which the Seller becomes aware or receives
notice of such breach and will be reassigned to the
Seller. See "Description of the Certificates --
Assignment of Mortgage Loans" herein.
Federal Income Tax
Consequences............. Subject to the qualifications set forth in "Federal
Income Tax Consequences" herein, upon the issuance
of the Certificates, special tax counsel to the
Depositor will issue an opinion generally to the
effect that, under existing law, a Certificate will
be treated as a debt instrument for Federal income
tax purposes as of the Closing Date. Under the
Agreement, the Transferor, the Depositor and the
Certificateholders will agree to treat the
Certificates as indebtedness for federal income tax
purposes. Furthermore, ,
special tax counsel to the Depositor will issue an
opinion generally to the effect that the Trust Fund
will not be treated as either an association or a
publicly traded partnership taxable as a
corporation. See "Federal Income Tax Consequences"
herein and in the Prospectus for additional
information concerning the application of federal
income tax laws.
S-13
<PAGE> 15
ERISA Considerations....... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully
review with its legal advisors whether the purchase
or holding of Certificates could give rise to a
transaction prohibited or not otherwise permissible
under ERISA or the Code. Certain exemptions from
the prohibited transaction rules could be
applicable to the acquisition of the Certificates.
See "ERISA Considerations." [The U.S. Department of
Labor has issued an individual exemption,
Prohibited Transaction Exemption 90-24, to Morgan
Stanley & Co. Incorporated that generally exempts
from the application of certain of the prohibited
transaction provisions ERISA and the Code,
transactions relating to the purchase, sale and
holding of pass-through certificates underwritten
by such Underwriter such as the Certificates and
the servicing and operation of asset pools,
provided that certain conditions are satisfied.]
Certain classes of Certificates may not be
transferred unless the Trustee and the Depositor
are furnished with a letter of representation or an
opinion of counsel to the effect that such transfer
will not result in a violation of the prohibited
transaction provisions and will not subject the
Trustee, the Depositor or the Master Servicer to
additional obligations. See "Description of the
Securities -- General" and "ERISA Considerations."
Legal Investment
Considerations........... The Certificates will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"),
because not all of the Mortgages securing the
Mortgage Loans are first mortgages. Accordingly,
many institutions with legal authority to invest in
comparably rated securities based solely on first
mortgages may not be legally authorized to invest
in the Certificates. See "Legal Investment
Considerations" herein and "Legal Investment" in
the Prospectus.
Certificate Rating......... It is a condition to the issuance of the
Certificates that they be rated " " by
and " " by (each
a "Rating Agency"). In general, ratings address
credit risk and do not address the likelihood of
prepayments. See "Ratings" herein and "Risk
Factors -- Ratings are not Recommendations" in the
Prospectus.
Risk Factors............... For a discussion of certain risks associated with
an investment in the Certificates, see "Risk
Factors" on page S-15 herein and on page 17 in the
Prospectus.
S-14
<PAGE> 16
RISK FACTORS
[DESCRIPTION WILL DEPEND ON THE PARTICULARS OF THE MORTGAGE LOANS]
Investors should consider the following risks in connection with the
purchase of Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary trading market since investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates. See
"Description of the Certificates -- Book-Entry Certificates" herein and "Risk
Factors -- Book-Entry Registration May Reduce Liquidity" in the Prospectus.
Since transactions in the Certificates can be effected only through DTC,
CEDEL, Euroclear, participating organizations, indirect participants and certain
banks, the ability of a Certificate Owner to pledge a Certificate to persons or
entities that do not participate in the DTC, CEDEL or Euroclear system may be
limited due to lack of a physical certificate representing the Certificates. See
"Description of the Certificates -- Book-Entry Certificates" herein and "Risk
Factors -- Book-Entry Registration May Reduce Liquidity" in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. Certificate Owners will not be
recognized as Certificateholders as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants. See
"Description of the Certificates -- Book-Entry Certificates" herein and "Risk
Factors -- Book-Entry Registration May Reduce Liquidity" in the Prospectus.
Cash Flow Considerations and Risks. Minimum monthly payments on the
Mortgage Loans will at least equal and may exceed accrued interest. Even
assuming that the Mortgaged Properties provide adequate security for the
Mortgage Loans, substantial delays could be encountered in connection with the
liquidation of Mortgage Loans that are delinquent and resulting shortfalls in
distributions to Certificateholders could occur if the Certificate Insurer were
unable to perform on its obligations under the Policy. Further, liquidation
expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the proceeds payable to Certificateholders
and thereby reduce the security for the Mortgage Loans. In the event any of the
Mortgaged Properties fail to provide adequate security for the related Mortgage
Loans, Certificateholders could experience a loss if the Certificate Insurer
were unable to perform its obligations under the Policy.
Prepayment Considerations and Risks. Substantially all of the Mortgage
Loans may be prepaid in whole or in part at any time without penalty. Home
equity loans, such as the Mortgage Loans, have been originated in significant
volume only during the past few years and neither the Depositor nor the Master
Servicer is aware of any publicly available studies or statistics on the rate of
prepayment of such loans. Generally, home equity loans are not viewed by
borrowers as permanent financing. Accordingly, the Mortgage Loans may experience
a higher rate of prepayment than traditional loans. The Trust Fund's prepayment
experience may be affected by a wide variety of factors, including general
economic conditions, interest rates, the availability of alternative financing
and homeowner mobility. In addition, substantially all of the Mortgage Loans
contain due-on-sale provisions and the Master Servicer intends to enforce such
provisions unless (i) such enforcement is not permitted by applicable law or
(ii) the Master Servicer, in a manner consistent with reasonable commercial
practice, permits the purchaser of the related Mortgaged Property to assume the
Mortgage Loan. To the extent permitted by applicable law, such assumption will
not release the original borrower from its obligation under any such Mortgage
Loan. See "Description of the Certificates" herein and "Certain Legal Aspects of
Loans -- Due-on-Sale Clauses" in the Prospectus for a description of certain
provisions of the Credit Line Agreements that may affect the prepayment
experience on the Mortgage Loans. The yield to maturity and weighted average
life of the Certificates will be affected primarily by the rate and timing of
prepayments on the Mortgage Loans. Any reinvestment risks resulting from a
faster or slower
S-15
<PAGE> 17
incidence of prepayment of Mortgage Loans will be borne entirely by the
Certificateholders. See "Maturity and Prepayment Considerations" herein and
"Yield and Prepayment Considerations" in the Prospectus.
Certificate Rating. The rating of the Certificates will depend primarily
on an assessment by the Rating Agencies of the Mortgage Loans and upon the
claims-paying ability of the Certificate Insurer. Any reduction in a rating
assigned to the claims-paying ability of the Certificate Insurer below the
rating initially given to the Certificates may result in a reduction in the
rating of the Certificates. The rating by the Rating Agencies of the
Certificates is not a recommendation to purchase, hold or sell the Certificates,
inasmuch as such rating does not comment as to the market price or suitability
for a particular investor. There is no assurance that the ratings will remain in
place for any given period of time or that the ratings will not be lowered or
withdrawn by the Rating Agencies. In general, the ratings address credit risk
and do not address the likelihood of prepayments. The ratings of the
Certificates do not address the possibility of the imposition of United States
withholding tax with respect to non-U.S. persons.
Legal Considerations -- Lien Priority. The Mortgage Loans are secured by
mortgages or deeds of trust (which generally are first, second and third
mortgages). With respect to Mortgage Loans that are secured by first mortgages,
the Master Servicer has the power under certain circumstances to consent to a
new mortgage lien on the Mortgaged Property having priority over such Mortgage
Loan. Mortgage Loans secured by second and third mortgages are entitled to
proceeds that remain from the sale of the related Mortgaged Property after any
related senior mortgage loan and prior statutory liens have been satisfied. In
the event that such proceeds are insufficient to satisfy such loans and prior
liens in the aggregate and the Certificate Insurer is unable to perform its
obligations under the Policy, the Certificateholders will bear (i) the risk of
delay in distributions while a deficiency judgment against the borrower is
obtained and (ii) the risk of loss if the deficiency judgment cannot be obtained
or is not realized upon. See "Certain Legal Aspects of Loans" in the Prospectus.
Under the terms of the Agreement, so long as the long-term senior unsecured
debt of the Master Servicer is rated at least " " by and " "
by , the Master Servicer will be entitled to maintain possession of
the documentation relating to each Mortgage Loan sold by it, including the
Credit Line Agreements and the Related Documents or other evidence of
indebtedness signed by the borrower, and the assignments of the related
mortgages to the Trust Fund will not be required to be recorded. Failure to
deliver the Related Documents to the Trustee will have the result in most (if
not all) of the states in which the Related Documents will be held, and failure
to record the assignments of the related mortgages to the Trustee will have the
result in certain states in which the Mortgaged Properties are located, of
making the sale of the Cut-off Date Principal Balances, Additional Balances and
Related Documents potentially ineffective against (i) any creditors of the
[Master Servicer], who may have been fraudulently or inadvertently induced to
rely on the Mortgage Loans as assets of the Master Servicer, or (ii) any
purchaser of a Mortgage Loan who had no notice of the prior conveyance to the
Trust Fund if such purchaser perfects his interest in the Mortgage Loan by
taking possession of the Related Documents or other evidence of indebtedness or
otherwise. In such event, the Trust Fund will be an unsecured creditor of the
[Master Servicer].
BANKRUPTCY AND INSOLVENCY RISKS
The sale of the Mortgage Loans from the Seller to the Depositor pursuant to
the Purchase Agreement will be treated as a sale of the Mortgage Loans. The
Seller will warrant that such transfer is either a sale of its interest in the
Mortgage Loans or a grant of a first priority perfected security interest
therein. However, in the event of an insolvency of the Seller, the receiver of
the Seller may attempt to recharacterize the sale of the Mortgage Loans as a
borrowing by the Seller, secured by a pledge of the applicable Mortgage Loans.
If the receiver decided to challenge such transfer, (i) if the Mortgage Loans
have not been delivered to the Trustee, the interest of the Trust Fund in the
Mortgage Loans will be that of an unperfected security interest and (ii) even if
the Mortgage Loans have been delivered to the Trustee, delays in payments of the
Certificates and reductions in the amounts thereof could occur. The Depositor
will warrant in the Agreement that the transfer of the Mortgage Loans by it to
the Trust Fund is either a valid transfer and assignment of such Mortgage Loans
to the Trust Fund or the grant to the Trust Fund of a security interest in such
Mortgage Loans.
S-16
<PAGE> 18
If a conservator, receiver or trustee were appointed for the Transferor, or
if certain other events relating to the bankruptcy or insolvency of the
Transferor were to occur, Additional Balances would not be sold to the Trust
Fund. In such an event, the Rapid Amortization Period would commence and the
Trustee would attempt to sell the Mortgage Loans (unless Certificateholders
holding Certificates evidencing undivided interests aggregating at least 51% of
the Certificate Principal Balance instruct otherwise), thereby causing early
payment of the Certificate Principal Balance. The net proceeds of such sale will
first be paid to the Certificate Insurer to the extent of unreimbursed draws
under the Policy and other amounts owing to the Certificate Insurer pursuant to
the Insurance Agreement. The Investor Fixed Allocation Percentage of remaining
amounts will be distributed to the Certificateholders and the Policy will cover
any amount by which such remaining net proceeds are insufficient to pay the
Certificate Principal Balance in full.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Certificateholders from appointing a successor Master Servicer.
[Geographic Concentration. As of the Cut-off Date, approximately %
(by Cut-off Date Principal Balance) of the Mortgaged Properties are located in
the State of . An overall decline in the residential real
estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans such that the Principal Balances of the related
Mortgage Loans, together with any primary financing on such Mortgaged
Properties, could equal or exceed the value of such Mortgaged Properties. As the
residential real estate market is influenced by many factors, including the
general condition of the economy and interest rates, no assurances may be given
that the residential real estate market will not weaken. If the
residential real estate market should experience an overall decline in
property values after the dates of origination of the Mortgage Loans, the rates
of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.]
[Master Servicer's Ability to Change the Terms of the Mortgage Loans. The
Master Servicer may agree to changes in the terms of a Credit Line Agreement,
provided that such changes (i) do not adversely affect the interest of the
Certificateholders or the Certificate Insurer, and (ii) are consistent with
prudent business practice. There can be no assurance that changes in applicable
law or the marketplace for home equity loans or prudent business practice will
not result in changes in the terms of the Mortgage Loans. In addition, the
Agreement permits the Master Servicer, within certain limitations described
therein, to increase the Credit Limit of the related Mortgage Loan or reduce the
Margin for such Mortgage Loan. Any such increase in the Credit Line of a
Mortgage Loan would increase the Loan-to-Value Ratio of such Mortgage Loan and,
accordingly, would increase the risk of the Trust Fund's investment in such
Mortgage Loan. In addition, any reduction in the Margin of a Mortgage Loan would
reduce the excess cash flow available to absorb losses.]
Delinquent Mortgage Loans. The Trust Fund will include Mortgage Loans
which are or fewer days delinquent as of the Cut-off Date. The Cut-off Date
Principal Balance of such delinquent Mortgage Loan was $ .
For a discussion of additional risks pertaining to the Certificates, see
"Risk Factors" in the Prospectus.
THE CERTIFICATE INSURER
The following information set forth in this section has been provided by
the Certificate Insurer. Accordingly, neither the Depositor nor the Master
Servicer makes any representation as to the accuracy and completeness of such
information.
[Description of Certificate Insurer]
THE MASTER SERVICER
GENERAL
[The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Agreement. The Master Servicer may perform any of its
obligations under the Agreement through one or
S-17
<PAGE> 19
more subservicers. Notwithstanding any such subservicing arrangement, the Master
Servicer will remain liable for its servicing duties and obligations under the
Agreement as if the Master Servicer alone were servicing the Mortgage Loans. As
of the Closing Date, the Master Servicer will service the Mortgage Loans without
subservicing arrangements.]
THE MASTER SERVICER
[ ] will act as Master Servicer for the Mortgage Loans pursuant to
the Agreement. [Description of Master Servicer]
At , 199 , provided servicing for approximately
$ [million] aggregate principal amount of first-lien mortgage loans,
substantially all of which are being serviced for unaffiliated persons. At
, 199 , provided servicing for approximately $ [million]
aggregate principal amount of first and second lien mortgage loans originated
under home equity lines of credit.
The principal executive offices of the Master Servicer are located at
(telephone ( ) .
THE HOME EQUITY LOAN PROGRAM
UNDERWRITING PROCEDURES RELATING TO HOME EQUITY LOANS
The following is a description of the underwriting procedures customarily
employed by the Seller with respect to home equity loans.
[Each revolving home equity line of credit is originated after a review by
the Seller in accordance with its established underwriting procedures, which are
intended to assess the applicant's ability to assume and repay such home equity
lines of credit and the adequacy of the real property which serves as collateral
for such home equity lines of credit. The maximum home equity line of credit
provided by the Seller is $ .
Each applicant for a home equity line of credit is required to complete an
application which lists the applicant's assets, liabilities, income, credit and
employment history and other demographic and personal information. If
information in the loan application demonstrates that there is sufficient income
and equity to justify making a home equity line of credit, the Seller will
conduct a further credit investigation of the applicant. This investigation
includes (i) obtaining and reviewing an independent credit bureau report on the
credit history of the borrower in order to evaluate the borrower's ability to
repay; (ii) obtaining a verification of employment from the applicant's
employer; (iii) obtaining and reviewing pay stubs, income tax returns and/or W-2
forms in order to verify the applicant's income; and (iv) in the case of all
home equity lines of credit originated with a Credit Limit in excess of
$ or with any Credit Limit, if originated after ,
obtaining a drive-by appraised value (a "Drive-By Appraised Value") of the
property to be mortgaged through an independent frontal exterior inspection and
neighborhood observation (a "Drive-By Appraisal") of the property or, in the
case of home equity lines of credit originated prior to in an
amount of $ or less, making an estimate of the value (the "Estimated
Value") of the property to be mortgaged through, (a) in the case of home equity
lines of credit originated for such properties located in the State of
, the use of a formula that assumed that the then current value
of the property was equal to the amount the applicant paid for the property
together with appreciation of % of the purchase price for each year since the
applicant purchased the property and (b) in the case of home equity lines of
credit originated for such properties located in , a property tax
bill which reflected a 100% assessment on the property.
Although no complete title search of the property to be mortgaged is
required, a bring-down to the date of origination of the home equity lines of
credit of the complete title search obtained by the borrower at the time of his
original purchase of the mortgaged property must be delivered.
The Seller calculates the maximum amount of the loan that the customer may
obtain by taking % (or, in the case of home equity lines of credit originated
prior to , %) of the Drive-By Appraised
S-18
<PAGE> 20
Value or Estimated Value, as the case may be, of the property and subtracting
any outstanding senior mortgage balance. Financial insurance premiums and fees
are not considered in the loan amount when making such computation.
Applications for loans exceeding the maximum amount calculated in the
preceding paragraph require regional manager approval. Overrides of other
criteria may be authorized by branch managers up to their lending limits. Among
the reasons that the Seller grants overrides are the existence of compensating
balances of the borrower in accounts held by the Seller (which balances will not
necessarily be available in the event of a default or delinquency of any
Mortgage Loan in the Pool) and relationships between the borrower and the trust
department of the Seller.
No information is available with respect to the portion of the home equity
lines of credit in the Seller's portfolio as to which overrides of underwriting
criteria were granted.]
SERVICING OF THE MORTGAGE LOANS
[Centralized controls and standards have been established by the Master
Servicer for the servicing and collection of home equity lines of credit.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance processing, collections and liquidations.
The collection process is initiated ten days after the payment due date
with the computer generation of a late notice. To make payment arrangements, a
collector attempts to contact the borrower when the home equity line of credit
is 15 to 30 days past due.
During the period when an account is 45 to 60 days past due, a credit
bureau report is obtained, homeowner's insurance is verified, the status of
senior mortgages and property taxes is checked and a title search and "drive-by"
appraisal are ordered.
If arrangements have not been made to cure the delinquency within 60 days
of the line becoming past due, drawing privileges are cancelled. The line is
referred to outside counsel and is placed on a "non-accrual" status after 90
days of delinquency. All legal expenses are assessed to the account and become
the responsibility of the borrower. When it is determined by the Master Servicer
that there is no possibility of recovery from the mortgaged property or from
other leviable assets or wage attachments, the line is charged-off.
Reinstatement arrangements can be made up until the point of sale. Any
foreclosures initiated on a junior mortgage are subject to the senior mortgage
or mortgages and any outstanding property taxes. If the Servicer purchases the
property through the foreclosure action, the account is transferred to the
Master Servicer's REO Department which is maintained at . The REO
Department is responsible for maintaining and marketing the property.
The Master Servicer may not foreclose on the property securing a junior
mortgage loan unless the Master Servicer forecloses subject to any senior
mortgages, in which case the Master Servicer may pay the entire amount due on
the senior mortgage to the senior mortgagees at or prior to the foreclosure
sale. If a senior mortgage is in default after the Servicer has initiated its
foreclosure action, the Master Servicer may advance funds to keep senior
mortgages current until such time as the Master Servicer satisfies such senior
mortgages. In the event that foreclosure proceedings have been instituted on a
senior mortgage prior to the initiation of the Master Servicer's foreclosure
action, the Master Servicer may either satisfy the senior mortgage at the time
of the foreclosure sale or take other action to protect the Trust Fund's
interest in the related property.]
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Master Servicer's portfolio of home equity lines of
credit. The Master Servicer believes that there have been no material trends or
anomalies in the historical delinquency and loss experience as represented in
the following tables. The information in the tables below has not been adjusted
to eliminate the effect of the growth in the size of the Master Servicer's
portfolio during the periods shown. Accordingly, loss and
S-19
<PAGE> 21
delinquency as percentages of aggregate principal balance of such loans for each
period may be higher than those shown if a group of such loans were artificially
isolated at a point in time and the information showed the activity only in that
isolated group. The data presented in the following tables are for illustrative
purposes only, and there is no assurance that the delinquency and loss
experience of the Mortgage Loans will be similar to that set forth below.
DELINQUENCY STATUS AS OF , 199 *
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Current............................................ $ % %
30-59 days.........................................
60-89 days.........................................
90+ days...........................................
Total.................................... $ 100.00% 100.00%
</TABLE>
- ---------------
* Delinquencies are reported on a contractual basis.
As of , 199 , loans with an aggregate balance of
$ are in bankruptcy and loans with an aggregate balance of
$ are in foreclosure. Of the loans in foreclosure, there will be a
, 199 charge off of $ . [In addition to this charge
off, there is an anticipated charge off of approximately $ which may
also be realized in .]
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are either first or second mortgages or deeds
of trust, on Mortgaged Properties located in states. The Mortgaged Properties
securing the Mortgage Loans consist of residential properties that are one- to
four-family properties. See "-- Mortgage Loan Terms" below.
The Cut-off Date Pool Balance is $ , which is equal to the
aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date. As of
the Cut-off Date, the Mortgage Loans were not more than days delinquent. The
average Cut-off Date Principal Balance was approximately $ , the
minimum Cut-off Date Principal Balance was zero, the maximum Cut-off Date
Principal Balance was $ , the minimum Loan Rate and the maximum Loan
Rate as of the Cut-off Date were % and % per annum, respectively, and the
weighted average Loan Rate as of the Cut-off Date was approximately % per
annum. As of the Cut-off Date, the weighted average Credit Limit Utilization
Rate was approximately %, the minimum Credit Limit Utilization Rate was zero
and the maximum Credit Limit Utilization Rate was 100%. The "Credit Limit
Utilization Rate" is determined by dividing the Cut-off Date Principal Balance
of a Mortgage Loan by the Credit Limit of the related Credit Line Agreement. The
remaining term to scheduled maturity for the Mortgage Loans as of the Cut-off
Date ranged from months to months and the weighted average remaining
term to scheduled maturity was approximately months. As of the Cut-off
Date, the Combined Loan-to-Value Ratio of the Mortgage Loans ranged from % to
% and the weighted average Combined Loan-to-Value Ratio was approximately %.
The Combined Loan-to-Value Ratio for a Mortgage Loan is the ratio (expressed as
a percentage) of (A) the sum of (i) the Credit Limit of the Mortgage Loan and
(ii) any outstanding principal balances of mortgage loans senior to such
Mortgage Loan (calculated at the date of origination of the Mortgage Loan) to
(B) the lesser of (i) the appraised value of the related Mortgaged Property as
set forth in the loan files at such date of origination or (ii) [in the case of
a Mortgaged Property purchased within one year of the origination of the related
Mortgage Loan,] the purchase price of such Mortgaged Property. Credit Limits
under the Mortgage Loans as of the Cut-off Date ranged from $ to
$ and averaged approximately $ . The weighted average second
mortgage ratio (which is the Credit Limit for the related Mortgage Loan,
provided such Mortgage Loan was in the second lien position,
S-20
<PAGE> 22
divided by the sum of such Credit Limit and the outstanding principal balance of
any mortgage loan senior to the related Mortgage Loan) was approximately %.
The weighted average third mortgage ratio (which is the Credit Limit for the
related Mortgage Loan, provided such Mortgage Loan was in the third lien
position, divided by the sum of such Credit Limit and the outstanding principal
balance of any mortgage loan senior to the related Mortgage Loan) was
approximately %. As of the Cut-off Date, approximately % by Cut-off Date
Principal Balance of the Mortgage Loans represented first liens on the related
Mortgaged Properties, approximately % of the Mortgage Loans represented second
liens and approximately % of the Mortgage Loans represented third liens. As of
the Cut-off Date, approximately % of the Mortgage Loans are secured by
Mortgaged Properties which are single-family residences and % were
owner-occupied. As of the Cut-off Date, approximately %, %, %, %, %
and % by Cut-off Date Principal Balance are located in , ,
, , and ], respectively.
MORTGAGE LOAN TERMS
A borrower may access a Mortgage Loan by writing a check in a minimum
amount of [$250]. The Mortgage Loans bear interest at a variable rate which
changes monthly on the first business day of the related month with changes in
the applicable Index Rate. The Mortgage Loans are subject to a maximum per annum
interest rate (the "Maximum Rate") ranging from % to % per annum and subject
to applicable usury limitations. As of the Cut-off Date, the weighted average
Maximum Rate was approximately %. See "Certain Legal Aspects of the
Loans -- Applicability of Usury Laws" in the Prospectus. The daily periodic rate
on the Mortgage Loans (the "Loan Rate") is the sum of the Index Rate plus the
spread (the "Margin") which generally ranges between % and % and had a
weighted average, as of the Cut-off Date, of approximately %, divided by 365
days. The "Index Rate" is based on [the highest "prime rate" published in the
"Money Rates" table of The Wall Street Journal as of the first business day of
each calendar month] [other applicable index].
In general, the home equity loans may be drawn upon for a period (the "Draw
Period") of either five years (which may be extendible for an additional five
years, upon the approval of or three years. Home equity loans
with an initial Draw Period of five years, which constitute approximately % of
the Mortgage Loans by Cut-off Date Principal Balance, are subject to a fifteen
year repayment period (the "Repayment Period") following the end of the Draw
Period during which the outstanding principal balance of the loan will be repaid
in monthly installments equal to 1/180 of the outstanding principal balance as
of the end of the Draw Period. Mortgage Loans with a Draw Period of three years,
which constitute approximately % of the Mortgage Loans by Cut-off Date
Principal Balance, are subject to a ten year Repayment Period following the end
of the Draw Period during which the outstanding principal balance of the loan
will be paid in monthly installments equal to 1/120 of the outstanding principal
balance as of the end of the Draw Period.
The minimum payment due during the Draw Period will be equal to the finance
charges accrued on the outstanding principal balance of the home equity loan
during the related billing period. The minimum payment due during the repayment
period will be equal to the sum of the finance charges accrued on the
outstanding principal balance of the Mortgage Loan during the related billing
period and the principal payment described above.
S-21
<PAGE> 23
Set forth below is a description of certain characteristics of the Mortgage
Loans as of the Cut-off Date:
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF PRINCIPAL BALANCES LOANS BALANCE BALANCE
- --------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ...................................... $ %
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ and over.........................................
------ ------ ------
Total $ 100.00%
====== ====== ======
</TABLE>
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS BALANCE BALANCE
- --------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ %
------ ------ ------
Total.......................................... $ 100.00%
====== ====== ======
</TABLE>
- ---------------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
S-22
<PAGE> 24
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF COMBINED MORTGAGE PRINCIPAL PRINCIPAL
LOAN-TO-VALUE RATIOS LOANS BALANCE BALANCE
- --------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ...................................... $ %
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ to $ ......................................
$ and over.........................................
------ ------ ------
Total.......................................... $ 100.00%
====== ====== ======
</TABLE>
- ---------------
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the Credit Limit
of the Mortgage Loans and (ii) any outstanding principal balances of
mortgage loans senior to the Mortgage Loans (calculated at the date of
origination of the Mortgage Loans) to (B) the lesser of (i) the appraised
value of the related Mortgaged Property as set forth in loan files at such
date of origination or (ii) in the case of a Mortgaged Property purchased
within one year of the origination of the related Mortgage Loan, the
purchase price of such Mortgaged Property.
PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Single Family.................................... $ %
Two- to Four-Family..............................
Condominium......................................
PUD..............................................
------ ------- ------
Total.................................. $ 100.00%
====== ======= ======
</TABLE>
S-23
<PAGE> 25
LIEN PRIORITY
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
LIEN PRIORITY LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
First Lien....................................... $ %
Second Lien......................................
Third Lien.......................................
------ ------- ------
Total.................................. $ 100.00%
====== ======= ======
</TABLE>
LOAN RATES(1)
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF LOAN RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
------ ------- ------
Total.................................. $ 100.00%
====== ======= ======
</TABLE>
- ---------------
(1) Approximately % of the Mortgage Loans by Cut-Off Date Principal Balance are
subject to an introductory rate of % per annum.
S-24
<PAGE> 26
MARGIN
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF LOAN RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
------ ------- ------
Total.................................. $ 100.00%
====== ======= ======
</TABLE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CREDIT LIMIT MORTGAGE PRINCIPAL PRINCIPAL
UTILIZATION RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
------ ------- ------
Total.................................. $ 100.00%
====== ======= ======
</TABLE>
S-25
<PAGE> 27
CREDIT LIMITS
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF CREDIT LIMITS LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ and over..............................
------ ------- ------
Total.................................. $ 100.00%
====== ======= ======
</TABLE>
MAXIMUM RATES
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
MAXIMUM RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ ........................ $ %
$ ........................
$ ........................
$ ........................
------
Total.................................. $ 100.00%
======
</TABLE>
S-26
<PAGE> 28
MONTHS REMAINING TO SCHEDULED MATURITY(1)
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MONTHS MORTGAGE PRINCIPAL PRINCIPAL
REMAINING TO SCHEDULED MATURITY LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
to ............................. $ %
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
to .............................
------
Total.................................. $ 100.00%
======
</TABLE>
ORIGINATION YEAR
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINATION YEAR LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ ........................ $ %
$ ........................
------
Total.................................. $ 100.00%
======
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
NUMBER OF DAYS DELINQUENT LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
0 to 29......................................... $ %
30 to 59.........................................
60 to 89.........................................
------
Total.................................. $ 100.00%
======
</TABLE>
S-27
<PAGE> 29
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreement, except as otherwise described herein, provides that the
Certificateholders will be entitled to receive on each Distribution Date
distributions of principal, in the amounts described herein under "Description
of the Certificates -- Distributions on the Certificates," until the Certificate
Principal Balance is reduced to zero. During the Managed Amortization Period,
Certificateholders will receive amounts from Principal Collections based upon
their Fixed Allocation Percentage subject to reduction as described below.
During the Rapid Amortization Period, Certificateholders will receive amounts
from Principal Collections based solely upon their Fixed Allocation Percentage.
Because prior distributions of Principal Collections to Certificateholders serve
to reduce the Investor Floating Allocation Percentage but do not change their
Fixed Allocation Percentage, allocations of Principal Collections based on the
Fixed Allocation Percentage may result in distributions of principal to the
Certificateholders in amounts that are, in most cases, greater relative to the
declining balance of the Mortgage Loans than would be the case if the Investor
Floating Allocation Percentage were used to determine the percentage of
Principal Collections distributed to Certificateholders. This is especially true
during the Rapid Amortization Period when the Certificateholders are entitled to
receive Investor Principal Collections and not a lesser amount. In addition,
Investor Interest Collections may be distributed as principal to
Certificateholders in connection with the Accelerated Principal Distribution
Amount, if any. Moreover, to the extent of losses allocable to the
Certificateholders, Certificateholders may also receive as payment of principal
the amount of such losses either from Investor Interest Collections or, in some
instances, draws under the Policy. The level of losses may therefore affect the
rate of payment of principal on the Certificates.
To the extent obligors make more draws than principal payments, the
Transferor Interest may grow. Because during the Rapid Amortization Period the
Certificateholders share of Principal Collections is based upon its Fixed
Allocation Percentage (without reduction), an increase in the Transferor
Interest due to additional draws may also result in Certificateholders receiving
principal at a greater rate. The Agreement permits the Transferor, at its
option, but subject to the satisfaction of certain conditions specified in the
Agreement, including the conditions described below, to remove certain Mortgage
Loans from the Trust Fund at any time during the life of the Trust Fund, so long
as the Transferor Interest (after giving effect to such removal) is not less
than the Minimum Transferor Interest. Such removals may affect the rate at which
principal is distributed to Certificateholders by reducing the overall Pool
Balance and thus the amount of Principal Collections. See "Description of the
Certificates -- Optional Retransfers of Mortgage Loans to the Transferor"
herein.
All of the Mortgage Loans may be prepaid in full or in part at any time.
[However, Mortgage Loans secured by Mortgaged Properties in California are
subject to an account termination fee equal to the lesser of $350 and six months
interest on the amount prepaid, to the extent the prepaid amount exceeds 20% of
the unpaid principal balance, if the account is terminated on or before its
fifth year anniversary. In addition, Mortgage Loans secured by Mortgaged
Properties in other jurisdictions may be subject to account termination fees to
the extent permitted by law. In general, such account termination fees do not
exceed $350 and do not apply to accounts terminated subsequent to a date
designated in the related Mortgage Note which, depending on the jurisdiction,
ranges between [six months and five years] following origination.] The
prepayment experience with respect to the Mortgage Loans will affect the
weighted average life of the Certificates.
The rate of prepayment on the Mortgage Loans cannot be predicted. Neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such Mortgage Loans. Generally, home
equity revolving credit lines are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described under "Description of the Mortgage
Loans -- Mortgage Loan Terms" herein, rates of principal payment on the Mortgage
Loans will generally be slower than those of traditional fully-amortizing first
mortgages in the absence of prepayments on such Mortgage Loans. The prepayment
experience of the Trust Fund with respect to the Mortgage Loans may be affected
by a wide variety of factors, including general economic conditions, prevailing
interest rate levels, the availability of alternative financing, homeowner
mobility, the frequency and amount of any future draws on the Credit Line
Agreements and changes affecting the deductibility for Federal income tax
purposes of
S-28
<PAGE> 30
interest payments on home equity credit lines. Substantially all of the Mortgage
Loans contain "due-on-sale" provisions, and, with respect to the Mortgage Loans,
the Master Servicer intends to enforce such provisions, unless such enforcement
is not permitted by applicable law. The enforcement of a "due-on-sale" provision
will have the same effect as a prepayment of the related Mortgage Loan. See
"Certain Legal Aspects of The Loans -- Due-on-Sale Clauses" in the Prospectus.
The yield to an investor who purchases the Certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Mortgage Loans is actually different than the rate
anticipated by such investor at the time such Certificates were purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the Mortgage Loans
may vary due to seasonal purchasing and payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust Fund and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree. See "Yield and
Prepayment Considerations" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form of the
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and the Prospectus is a part. The following is a
description of the material provisions of the Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, such sections or
defined terms are hereby incorporated herein by reference.
GENERAL
The Certificates will be issued in denominations of [$1,000] and multiples
of [$1] in excess thereof and will evidence specified undivided interests in the
Trust Fund. The property of the Trust Fund will consist of, to the extent
provided in the Agreement: (i) each of the Mortgage Loans that from time to time
are subject to the Agreement; (ii) collections on the Mortgage Loans received
after the Cut-off Date (exclusive of payments in respect of accrued interest due
on or prior to the Cut-off Date or due in the month of ); (iii)
Mortgaged Properties relating to the Mortgage Loans that are acquired by
foreclosure or deed in lieu of foreclosure; (iv) the Collection Account and the
Security Account for the Certificates (excluding net earnings thereon); (v) the
Policy; (vi) the Spread Account (for the benefit of the Certificate Insurer and
the Certificateholders); and (vii) an assignment of the Depositor's rights under
the Purchase Agreement. Definitive Certificates (as defined below), if issued,
will be transferable and exchangeable at the corporate trust office of the
Trustee, which will initially maintain the Security Register for the
Certificates. See "-- Book-Entry Certificates" below. No service charge will be
made for any registration of exchange or transfer of Certificates, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
The aggregate undivided interest in the Trust Fund represented by the
Certificates as of the Closing Date will equal $ (the "Original
Invested Amount"), which represents % of the Cut-off Date Pool Balance. The
"Original Certificate Principal Balance" will equal $ . Following the
Closing Date, the "Invested Amount" with respect to any Distribution Date will
be an amount equal to the Original Invested Amount minus (i) the amount of
Investor Principal Collections previously distributed to Certificateholders, and
minus (ii) an amount equal to the product of the Investor Floating Allocation
Percentage and the Liquidation Loss Amounts (each as defined herein). The
principal amount of the outstanding Certificates (the "Certificate Principal
Balance") on any Distribution Date is equal to the Original Certificate
Principal Balance minus the aggregate of amounts actually distributed as
principal to the Certificateholders. See
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"-- Distributions on the Certificates" below. Each Certificate represents the
right to receive payments of interest at the Certificate Rate and payments of
principal as described below.
The Transferor will own the remaining undivided interest in the Mortgage
Loans (the "Transferor Interest"), which is equal to the Pool Balance less the
Invested Amount. The Transferor Interest will initially equal $ , which
represents % of the Cut-off Date Pool Balance. The Transferor as of any
date is the owner of the Transferor Interest which initially will be the Seller.
In general, the Pool Balance will vary each day as principal is paid on the
Mortgage Loans, liquidation losses are incurred, Additional Balances are drawn
down by borrowers and Mortgage Loans are transferred to the Trust Fund.
The Transferor has the right to sell or pledge the Transferor Interest at
any time, provided (i) the Rating Agencies (as defined herein) have notified the
Transferor and the Trustee in writing that such action will not result in the
reduction or withdrawal of the ratings assigned to the Certificates, and (ii)
certain other conditions specified in the Agreement are satisfied.
BOOK-ENTRY CERTIFICATES
The Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the
Certificates ("Certificate Owners") may elect to hold their Certificates through
the Depository Trust Company ("DTC") in the United States, or CEDEL or Euroclear
(in Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates which equal the
aggregate principal balance of the Certificates and will initially be registered
in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank will act as
depositary for CEDEL and Chase will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing Certificate
Principal Balances of [$1,000] and in multiples of [$1] in excess thereof.
Except as described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Certificates will be Cede & Co., as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
Agreement. Certificate Owners are only permitted to exercise their rights
indirectly through the participating organizations that utilize the services of
DTC, including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ("Participants") and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Certificates from the Trustee through DTC and DTC participants.
While the Certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Certificates and
is required to receive and transmit distributions of principal of, and interest
on, the Certificates. Participants and organizations that have indirect access
to the DTC system, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants") with whom Certificate Owners
have accounts with respect to Certificates are similarly required to make
book-entry transfers and
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receive and transmit such distributions on behalf of their respective
Certificate Owners. Accordingly, although Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Certificate Owners will
receive distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Certificates, except under the
limited circumstances described below. Unless and until Definitive Certificates
are issued, Certificate Owners who are not Participants may transfer ownership
of Certificates only through Participants and Indirect Participants by
instructing such Participants and Indirect Participants to transfer
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Certificates, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of Certificates will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited. Similarly, the Participants and Indirect Participants will make debits
or credits, as the case may be, on their records on behalf of the selling and
purchasing Certificate Owners.
Because of time zone differences, credits of securities received in CEDEL,
or Euroclear as a result of a transaction with a Participant will be made
during, subsequent securities settlement processing and dated the business day
following, the DTC settlement date. Such credits or any transactions in such
securities, settled during such processing will be reported to the relevant
Euroclear or, CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as, a result of sales of securities by or through a CEDEL Participant
(as defined, below) or Euroclear Participant (as defined below) to a DTC
Participant will be, received with value on the DTC settlement date but will be
available in the, relevant CEDEL or Euroclear cash account only as of the
business day following, settlement in DTC. For information with respect to tax
documentation procedures, relating to the Certificates, see "Federal Income Tax
Consequences -- Foreign Investors" and "-- Backup Withholding" herein and
"Global, Clearance, Settlement And Tax Documentation Procedures -- Certain U.S.
Federal, Income Tax Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance
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and settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to CEDEL is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Certificates
held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Federal Income Tax
Consequences -- Foreign Investors" and "-- Backup Withholding" herein. Because
DTC can only act on behalf of Financial Intermediaries, the ability of a
beneficial owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance
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of the Book-Entry Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary market since certain potential investors may
be unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust Fund provided by the Master
Servicer to CEDE, as nominee of DTC, may be made available to beneficial owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Transferor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. CEDEL or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the Agreement on
behalf of a CEDEL Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC. DTC may take
actions, at the direction of the related Participants, with respect to some
Certificates which conflict with actions taken with respect to other
Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Transferor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the Book-Entry Certificates and the Transferor or the
Trustee is unable to locate a qualified successor, (b) the Transferor, at its
sole option, elects to terminate a book-entry system through DTC or (c) after
the occurrence of an Event of Servicing Termination (as defined herein),
beneficial owners having Percentage Interests aggregating not less than 51% of
the Certificate Principal Balance of the Book-Entry Certificates advise the
Trustee and DTC through the Financial Intermediaries and the DTC participants in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Depositor will transfer to
the Trust Fund all of its right, title and interest in and to each Mortgage Loan
(including any Additional Balances arising in the future), related Credit Line
Agreements, mortgages and other related documents (collectively, the "Related
Documents"), including all collections received on or with respect to each such
Mortgage Loan after the Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off Date or due in the month of
). The Trustee, concurrently with such transfer, will deliver the
Certificates to the Depositor and the Transferor Certificate (as defined in the
Agreement) to the Transferor. Each Mortgage Loan transferred to the Trust Fund
will be identified on a schedule (the "Mortgage Loan Schedule") delivered to the
Trustee pursuant to the Agreement. Such schedule will include information as to
the Cut-off Date Principal Balance of each Mortgage Loan, as well as information
with respect to the Loan Rate.
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The Agreement will permit the Seller to maintain possession of the Related
Documents and certain other documents relating to the Mortgage Loans (the
"Mortgage Files") and assignments of the Mortgage Loans to the Trustee will not
be required to be recorded for so long as the long-term senior unsecured debt of
is rated at least " " by and " " by . In the event
that the long-term senior unsecured debt rating of does not
satisfy the above-described standards (an "Assignment Event"),
will have 90 days to record assignments of the mortgages for each such Mortgage
Loan in favor of the Trustee and 60 days to deliver the Mortgage Files
pertaining to each such Mortgage Loan to the Trustee (unless opinions of counsel
satisfactory to the Rating Agencies and the Certificate Insurer to the effect
that recordation of such assignments or delivery of such documentation is not
required in the relevant jurisdiction to protect the interest of and the Trustee
in the Mortgage Loans).
Within [90] days of an Assignment Event, the Trustee will review the
Mortgage Loans and the Related Documents and if any Mortgage Loan or Related
Document is found to be defective in any material respect and such defect is not
cured within [90] days following notification thereof to the Seller and the
Depositor by the Trustee, the Seller will be obligated to accept the transfer of
such Mortgage Loan from the Trust Fund. Upon such transfer, the Principal
Balance of such Mortgage Loan will be deducted from the Pool Balance, thus
reducing the amount of the Transferor Interest. If the deduction would cause the
Transferor Interest to become less than the Minimum Transferor Interest at such
time (a "Transfer Deficiency"), the Seller will be obligated to either
substitute an Eligible Substitute Mortgage Loan or make a deposit into the
Collection Account in the amount (the "Transfer Deposit Amount") equal to the
amount by which the Transferor Interest would be reduced to less than the
Minimum Transferor Interest at such time. Any such deduction, substitution or
deposit, will be considered a payment in full of such Mortgage Loan. Any
Transfer Deposit Amount will be treated as a Principal Collection.
Notwithstanding the foregoing, however, prior to all required deposits to the
Collection Account being made no such transfer shall be considered to have
occurred unless such deposit is actually made. The obligation of the Seller to
accept a transfer of a Defective Mortgage Loan is the sole remedy regarding any
defects in the Mortgage Loans and Related Documents available to the Trustee or
the Certificateholders.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Depositor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not % more or less than the Transfer Deficiency
relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than
the Loan Rate of the Defective Mortgage Loan and not more than % in excess of
the Loan Rate of such Defective Mortgage Loan; [(iii) have a Loan Rate based on
the same Index with adjustments to such Loan Rate made on the same Interest Rate
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that
is not less than the Margin of the Defective Mortgage Loan and not more than
basis points higher than the Margin for the Defective Mortgage Loan;] (v) have a
mortgage of the same or higher level of priority as the mortgage relating to the
Defective Mortgage Loan; (vi) have a remaining term to maturity not more than
months earlier and not more than months later than the remaining term to
maturity of the Defective Mortgage Loan; (vii) comply with each representation
and warranty as to the Mortgage Loans set forth in the Agreement (deemed to be
made as of the date of substitution); (viii) in general, have an original
Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; and (ix) satisfy certain other conditions specified in the Agreement. To
the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less
than the Principal Balance of the related Defective Mortgage Loan and to the
extent that the Transferor Interest would be reduced below the Minimum
Transferor Interest, the Seller will be required to make a deposit to the
Collection Account equal to such difference.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Seller has
transferred or assigned all of its rights, title and interest in each Mortgage
Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the
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Certificateholders or the Certificate Insurer in the related Mortgage Loan and
Related Documents, the Seller will have a period of [90] days after discovery or
notice of the breach to effect a cure. If the breach cannot be cured within the
[90-day] period, the Seller will be obligated to accept a transfer of the
Defective Mortgage Loan from the Trust Fund. The same procedure and limitations
that are set forth in the second preceding paragraph for the transfer of
Defective Mortgage Loans will apply to the transfer of a Mortgage Loan that is
required to be transferred because of such breach of a representation or
warranty in the Agreement that materially and adversely affects the interests of
the Certificateholders.
Mortgage Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as "Defective Mortgage Loans."
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the Master Servicer may change the terms of the
Credit Line Agreements at any time provided that such changes (i) do not
adversely affect the interest of the Certificateholders or the Certificate
Insurer, and (ii) are consistent with prudent business practice. In addition,
the Agreement permits the Master Servicer, within certain limitations described
therein, to increase the Credit Limit of the related Mortgage Loan or reduce the
Margin for such Mortgage Loan.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
In order to permit the Transferor to remove Mortgage Loans from the Trust
Fund at such times, if any, as the overcollateralization exceeds the level
required to maintain the ratings on the Certificates, on any Distribution Date
the Transferor may, but shall not be obligated to, remove on such Distribution
Date (the "Transfer Date") from the Trust Fund, certain Mortgage Loans without
notice to the Certificateholders. The Transferor is permitted to designate the
Mortgage Loans to be removed. Mortgage Loans so designated will only be removed
upon satisfaction of the following conditions: (i) no Rapid Amortization Event
(as defined herein) has occurred; (ii) the Transferor Interest as of such
Transfer Date (after giving effect to such removal) exceeds the Minimum
Transferor Interest; (iii) the transfer of any Mortgage Loans on any Transfer
Date during the Managed Amortization Period (as defined herein) shall not, in
the reasonable belief of the Transferor, cause a Rapid Amortization Event to
occur or an event which with notice or lapse of time or both would constitute a
Rapid Amortization Event; (iv) the Transferor shall have delivered to the
Trustee a "Mortgage Loan Schedule" containing a list of all Mortgage Loans
remaining in the Trust Funds after such removal; (v) the Transferor shall
represent and warrant that no selection procedures which the Transferor
reasonably believes are adverse to the interests of the Certificateholders or
the Certificate Insurer were used by the Transferor in selecting such Mortgage
Loans; (vi) in connection with the first such retransfer of Mortgage Loans, the
Rating Agencies shall have been notified of the proposed transfer and prior to
the Transfer Date shall not have notified the Transferor in writing that such
transfer would result in a reduction or withdrawal of the ratings assigned to
the Certificates without regard to the Policy; and (vii) the Transferor shall
have delivered to the Trustee and the Certificate Insurer an officer's
certificate confirming the conditions set forth in clauses (i) through (vi)
above.
As of any date of determination, the "Minimum Transferor Interest" is an
amount equal to the lesser of (a) % of the Pool Balance on such date and (b)
the Transferor Interest as of the Closing Date.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT
The Trustee shall establish and maintain on behalf of the Master Servicer
an account (the "Collection Account") for the benefit of the Certificateholders
and the Transferor, as their interests may appear. The Collection Account will
be an Eligible Account (as defined herein). Subject to the investment provision
described in the following paragraphs, within two days of receipt by the Master
Servicer of amounts in respect of the Mortgage Loans (excluding amounts
representing administrative charges, annual fees, taxes, assessments, credit
insurance charges, insurance proceeds to be applied to the restoration or repair
of a Mortgaged Property or similar items), the Master Servicer will deposit such
amounts in the Collection Account. Amounts so deposited may be invested in
Eligible Investments (as described in the Agreement) maturing no later than
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one Business Day prior to the date on which the amount on deposit therein is
required to be deposited in the Collection Account or on such Distribution Date
if approved by the Rating Agencies and the Certificate Insurer. Not later than
the third Business Day prior to each Distribution Date (the "Determination
Date"), the Master Servicer will notify the Trustee of the amount of such
deposit to be included in funds available for the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit therein
have the highest short-term debt rating by the Rating Agencies, (ii) one or more
accounts with a depository institution having a minimum long-term unsecured debt
rating of " " by and " " by , which accounts are
fully insured by either the Savings Association Insurance Fund ("SAIF") or the
Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
established by such fund, (iii) a segregated trust account maintained with the
Trustee or an Affiliate of the Trustee in its fiduciary capacity or (iv)
otherwise acceptable to each Rating Agency and the Certificate Insurer as
evidenced by a letter from each Rating Agency and the Certificate Insurer to the
Trustee, without reduction or withdrawal of their then current ratings of the
Certificates.
Eligible Investments are specified in the Agreement and are limited to (i)
obligations of the United States or any agency thereof, provided such
obligations are backed by the full faith and credit of the United States; (ii)
general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the Certificates, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each such Rating Agency; (iii) commercial or finance company
paper which is then receiving the highest commercial or finance company paper
rating of each such Rating Agency, or such lower rating as will not result in
the downgrading or withdrawal of the ratings then assigned to the Certificates
by each such Rating Agency; (iv) certificates of deposit, demand or time
deposits, or bankers' 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 long term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's Investors Service, Inc. ("Moody's") is not a Rating Agency) are then
rated one of the two highest long-term and the highest short-term ratings of
each such Rating Agency for such securities, or such lower ratings as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency; (iv) demand or time deposits or
certificates of deposit issued by any bank or trust company or savings
institution to the extent that such deposits are fully insured by the FDIC; (v)
guaranteed reinvestment agreements issued by any bank, insurance company or
other corporation containing, at the time of the issuance of such agreements,
such terms and conditions as will not result in the downgrading or withdrawal of
the rating then assigned to the Certificates by any such Rating Agency; (vi)
repurchase obligations with respect to any security described in clauses (i) and
(ii) above, in either case entered into with a depository institution or trust
company (acting as principal) described in clause (iv) above; (vii) securities
(other than stripped bonds, stripped coupons or instruments sold at a purchase
price in excess of 115% of the face amount thereof) bearing interest or sold at
a discount issued by any corporation incorporated under the laws of the United
States or any state thereof which, at the time of such investment, have one of
the two highest ratings of each Rating Agency (except if the Rating Agency is
Moody's, such rating shall be the highest commercial paper rating of Moody's for
any such securities), or such lower rating as will not result in the downgrading
or withdrawal of the rating then assigned to the Certificates by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
and (viii) such other investments having a specified stated maturity and bearing
interest or sold at a discount acceptable to each Rating Agency as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency, as evidenced by a signed writing
delivered by each such Rating Agency; provided that no such instrument shall be
a Permitted Investment if such instrument evidences the right to receive
interest only payments with respect to the obligations underlying such
instrument.
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ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in with
the Credit Line Agreements between amounts collected in respect of interest and
amounts collected in respect of principal. As to any Distribution Date,
"Interest Collections" will be equal to the amounts collected during the related
Collection Period, including such portion of Net Liquidation Proceeds allocated
to interest pursuant to the terms of the Credit Line Agreements less Servicing
Fees for the related Collection Period.
As to any Distribution Date, "Principal Collections" will be equal to the
sum of (i) the amounts collected during the related Collection Period, including
such portion of Net Liquidation Proceeds allocated to principal pursuant to the
terms of the Credit Line Agreements and (ii) any Transfer Deposit Amounts. "Net
Liquidation Proceeds" with respect to a Mortgage Loan are equal to the
Liquidation Proceeds, reduced by related expenses, but not including the
portion, if any, of such amount that exceeds the Principal Balance of the
Mortgage Loan plus accrued and unpaid interest thereon to the end of the
Collection Period during which such Mortgage Loan became a Liquidated Mortgage
Loan. "Liquidation Proceeds" are the proceeds (excluding any amounts drawn on
the Policy) received in connection with the liquidation of any Mortgage Loan,
whether through trustee's sale, foreclosure sale or otherwise.
With respect to any Distribution Date, the portion of Interest Collections
allocable to the Certificates ("Investor Interest Collections") will equal the
product of (a) Interest Collections for such Distribution Date and (b) the
Investor Floating Allocation Percentage. With respect to any Distribution Date,
the "Investor Floating Allocation Percentage" is the percentage equivalent of a
fraction determined by dividing the Invested Amount at the close of business on
the preceding Distribution Date (or the Closing Date in the case of the first
Distribution Date) by the Pool Balance at the beginning of the related
Collection Period. The remaining amount of Interest Collections will be
allocated to the Transferor Interest.
Principal Collections will be allocated between the Certificateholders and
the Transferor ("Investor Principal Collections" and "Transferor Principal
Collections", respectively) as described herein.
The Trustee will deposit any amounts drawn under the Policy into the
Collection Account.
With respect to any date, the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as of such date. The Principal
Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is
equal to the Cut-off Date Principal Balance thereof, plus (i) any Additional
Balances in respect of such Mortgage Loan minus (ii) all collections credited
against the Principal Balance of such Mortgage Loan in accordance with the
related Credit Line Agreement prior to such day. The Principal Balance of a
Liquidated Mortgage Loan after final recovery of related Liquidation Proceeds
shall be zero.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the first Distribution Date (which will occur on ,
199 ), distributions on the Certificates will be made by the Trustee or the
Paying Agent on each Distribution Date to the persons in whose names such
Certificates are registered at the close of business on the day prior to each
Distribution Date or, if the Certificates are no longer Book-Entry Certificates,
at the close of business on the last day of the month preceding such
Distribution Date (the "Record Date"). The term "Distribution Date" means the
fifteenth day of each month or, if such day is not a Business Day, then the next
succeeding Business Day. Distributions will be made by check or money order
mailed (or upon the request of a Certificateholder owning Certificates having
denominations aggregating at least $ , by wire transfer or otherwise)
to the address of the person entitled thereto (which, in the case of Book-Entry
Certificates, will be DTC or its nominee) as it appears on the Certificate
Register in amounts calculated as described herein on the Determination Date.
However, the final distribution in respect of the Certificates will be made only
upon presentation and surrender thereof at the office or the agency of the
Trustee specified in the notice to Certificateholders of such final
distribution. For purposes of the Agreement, a "Business Day" is any day other
than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New
York State are required or authorized by law to be closed.
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Application of Interest Collections. On each Distribution Date, the
Trustee or the Paying Agent will apply the Investor Interest Collections in the
following manner and order of priority:
(i) as payment to the Trustee for its fee for services rendered
pursuant to the Agreement;
(ii) as payment for the premium for the Policy;
(iii) as payment for the accrued interest due and any overdue accrued
interest (with interest thereon to the extent permitted by law) on the
Certificate Principal Balance of the Certificates;
(iv) to pay Certificateholders the Investor Loss Amount for such
Distribution Date;
(v) as payment for any Investor Loss Amount for a previous
Distribution Date that was not previously (a) funded by Investor Interest
Collections, (b) absorbed by the Overcollateralization Amount, (c) funded
by amounts on deposit in the Spread Account or (d) funded by draws on the
Policy;
(vi) to reimburse prior draws made from the Policy (with interest
thereon);
(vii) to pay principal on the Certificates until the Invested Amount
exceeds the Certificate Principal Balance by the Required
Overcollateralization Amount (such amount so paid, the "Accelerated
Principal Distribution Amount");
(viii) to deposit any other amounts required to be deposited in an
account for the benefit of the Certificate Insurer and the
Certificateholders or owed to the Certificate Insurer pursuant to the
Insurance Agreement;
(ix) to pay certain amounts that may be required to be paid to the
Master Servicer pursuant to the Agreement; and
(x) to the Transferor to the extent permitted as described herein.
Payments to Certificateholders pursuant to clause (iii) will be interest
payments on the Certificates. Payments to Certificateholders pursuant to clauses
(iv), (v) and (vii) will be principal payments on the Certificates and will
therefore reduce the Certificate Principal Balance, however, payments pursuant
to clause (vii) will not reduce the Invested Amount. The Accelerated Principal
Distribution Amount is not guaranteed by the Policy.
To the extent that Investor Interest Collections are applied to pay the
interest on the Certificates, Investor Interest Collections may be insufficient
to cover Investor Loss Amounts. If such insufficiency results in the Certificate
Principal Balance exceeding the Invested Amount, a draw will be made on the
Policy in accordance with the terms of the Policy.
The "Required Overcollateralization Amount" shall be an amount set forth in
the Agreement. "Liquidation Loss Amount" means with respect to any Liquidated
Mortgage Loan, the unrecovered Principal Balance thereof during the Collection
Period in which such Mortgage Loan became a Liquidated Mortgage Loan, after
giving effect to the Net Liquidation Proceeds in connection therewith. The
"Investor Loss Amount" shall be the product of the Investor Floating Allocation
Percentage and the Liquidation Loss Amount for such Distribution Date.
A "Liquidated Mortgage Loan" means, as to any Distribution Date, any
Mortgage Loan in respect of which the Master Servicer has determined, based on
the servicing procedures specified in the Agreement, as of the end of the
preceding Collection Period that all Liquidation Proceeds which it expects to
recover with respect to the disposition of the related Mortgaged Property have
been recovered. The Investor Loss Amount will be allocated to the
Certificateholders.
As to any Distribution Date other than the first Distribution Date, the
"Collection Period" is the calendar month preceding each Distribution Date. As
to the first Distribution Date, the "Collection Period" is the period beginning
after the Cut-off Date and ending on the last day of 199 .
Interest will be distributed on each Distribution Date at the Certificate
Rate for the related Interest Period (as defined below). The "Certificate Rate"
for a Distribution Date will generally equal the sum of
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[(a) LIBOR, calculated as specified below, as of the second LIBOR Business Day
prior to the immediately preceding Distribution Date (or as of two LIBOR
Business Days prior to the Closing Date, in the case of the first Distribution
Date) plus (b) % per annum.] Notwithstanding the foregoing, in no event will
the amount of interest required to be distributed in respect of the Certificates
on any Distribution Date exceed a rate equal to the weighted average of the Loan
Rates (net of the Servicing Fee Rate, the fee payable to the Trustee and the
rate at which the premium payable to the Certificate Insurer is calculated)
weighted on the basis of the daily balance of each Mortgage Loan during the
related billing cycle prior to the Collection Period relating to such
Distribution Date.
[Interest on the Certificates in respect of any Distribution Date will
accrue on the Certificate Principal Balance from the preceding Distribution Date
(or in the case of the first Distribution Date, from the date of the initial
issuance of the Certificates (the "Closing Date")) through the day preceding
such Distribution Date (each such period, an "Interest Period") on the basis of
the actual number of days in the Interest Period and 360-day year.] Interest
payments on the Certificates will be funded from Investor Interest Collections
and, if necessary, from draws on the Policy.
[Calculation of the LIBOR Rate. On each Distribution Date, LIBOR shall be
established by the Trustee and as to any Interest Period, LIBOR will equal the
rate for United States dollar deposits for [one month] which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. "Telerate Screen
Page 3750" means the display designated as page 3750 on the Telerate Service (or
such other page as may replace page 3750 on that service for the purpose of
displaying London interbank offered rates of major banks). If such rate does not
appear on such page (or such other page as may replace that page on that
service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be selected by the Depositor after
consultation with the Trustee), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
[three] major banks that are engaged in transactions in the London interbank
market, selected by the Depositor after consultation with the Trustee) as of
11:00 A.M., London time, on the day that is two LIBOR Business Days prior to the
immediately preceding Distribution Date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the principal
amount of the Certificates then outstanding. The Trustee will request the
principal London office of each of the reference banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate will be the
arithmetic mean of the quotations. If on such date fewer than two quotations are
provided as requested, the rate will be the arithmetic mean of the rates quoted
by one or more major banks in New York City, selected by the Depositor after
consultation with the Trustee, as of 11:00 A.M., New York City time, on such
date for loans in U.S. Dollars to leading European banks for a period of one
month in amounts approximately equal to the principal amount of the Certificates
then outstanding. If no such quotations can be obtained, the rate will be LIBOR
for the prior Distribution Date. "LIBOR Business Day" means any day other than
(i) a Saturday or a Sunday or (ii) a day on which banking institutions in the
State of New York or in the city of London, England are required or authorized
by law to be closed.]
Transferor Collections. Collections allocable to the Transferor Interest
that are not distributed to Certificateholders will be distributed to the
Transferor only to the extent that such distribution will not reduce the amount
of the Transferor Interest as of the related Distribution Date below the Minimum
Transferor Interest. Amounts not distributed to the Transferor because of such
limitations will be retained in the Collection Account until the Transferor
Interest exceeds the Minimum Transferor Interest, at which time such excess
shall be released to the Transferor. If any such amounts are still retained in
the Collection Account upon the commencement of the Rapid Amortization Period,
such amounts will be paid to the Certificateholders as a reduction of the
Certificate Principal Balance.
Overcollateralization. The distribution of the aggregate Accelerated
Principal Distribution Amount, if any, to Certificateholders may result in the
Invested Amount being greater than the Certificate Principal Balance, thereby
creating overcollateralization. The Overcollateralization Amount, if any, will
be available to absorb any Investor Loss Amount that is not covered by Investor
Interest Collections.
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Distributions of Principal Collections. For the period beginning on the
first Distribution Date and, unless a Rapid Amortization Event shall have
earlier occurred, ending on the Distribution Date in 20 (the
"Managed Amortization Period"), the amount of Principal Collections payable to
Certificateholders as of each Distribution Date during the Managed Amortization
Period will equal, to the extent funds are available therefor, the Scheduled
Principal Collections Distribution Amount for such Distribution Date. On any
Distribution Date during the Managed Amortization Period, the "Scheduled
Principal Collections Distribution Amount" shall equal the lesser of (i) the
Maximum Principal Payment (as defined herein) and (ii) the Alternative Principal
Payment (as defined herein). With respect to any Distribution Date, the "Maximum
Principal Payment" will equal the product of the Investor Fixed Allocation
Percentage and Principal Collections for such Distribution Date. With respect to
any Distribution Date, the "Alternative Principal Payment" will equal the
greater of (x) % of the Certificate Principal Balance immediately prior to
such Distribution Date and (y) the amount, but not less than zero, of Principal
Collections for such Distribution Date less the aggregate of Additional Balances
created during the related Collection Period.
Beginning with the first Distribution Date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to
Certificateholders on each Distribution Date will be equal to the Maximum
Principal Payment.
The amount of Principal Collections to be distributed to Certificateholders
on the first Distribution Date will reflect Principal Collections and Additional
Balances during the first Collection Period which is the period beginning after
the Cut-off Date through the last day of 199 .
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
Certificateholders in amounts that are greater relative to the declining Pool
Balance than would be the case if the Investor Floating Allocation Percentage
were used to determine the percentage of Principal Collections distributed in
respect of the Invested Amount. Principal Collections not allocated to the
Certificateholders will be allocated to the Transferor Interest. The aggregate
distributions of principal to the Certificateholders will not exceed the
Original Certificate Principal Balance.
In addition, to the extent of funds available therefor (including funds
available under the Policy), on the Distribution Date in 20 ,
Certificateholders will be entitled to receive as a payment of principal an
amount equal to the outstanding Certificate Principal Balance.
The Paying Agent. The Paying Agent shall initially be the Trustee,
together with any successor thereto in such capacity (the "Paying Agent"). The
Paying Agent shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions to the
Certificateholders.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue through
the Distribution Date in 20 , unless a Rapid Amortization Event
occurs prior to such date in which case the Rapid Amortization Period will
commence prior to such date. "Rapid Amortization Event" refers to any of the
following events:
(a) failure on the part of the Seller (i) to make a payment or deposit
required under the Agreement within three Business Days after the date such
payment or deposit is required to be made or (ii) to observe or perform in
any material respect any other covenants or agreements of the Seller set
forth in the Purchase Agreement, which failure continues unremedied for a
period of 60 days after written notice;
(b) any representation or warranty made by the Seller in the Purchase
Agreement proves to have been incorrect in any material respect when made
and continues to be incorrect in any material respect for a period of 60
days after written notice and as a result of which the interests of the
Certificate holders are materially and adversely affected; provided,
however, that a Rapid Amortization Event shall not be deemed to occur if
the Seller has purchased or made a substitution for the related Mortgage
Loan or Mortgage Loans if applicable during such period (or within an
additional 60 days with the consent of the Trustee) in accordance with the
provisions of the Agreement;
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(c) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Transferor; or
(d) the Trust Fund becomes subject to regulation by the Securities and
Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the applicable
grace period, if any, described in such clauses, either the Trustee or
Certificateholders holding Certificates evidencing more than 51% of the
Percentage Interests or the Certificate Insurer (so long as there is no default
by the Certificate Insurer in the performance of its obligations under the
Policy), by written notice to the Depositor and the Master Servicer (and to the
Trustee, if given by the Certificateholders) declare that a Rapid Amortization
Event has occurred as of the date of such notice. In the case of any event
described in clause (c) or (d), a Rapid Amortization Event will be deemed to
have occurred without any notice or other action on the part of the Trustee or
the Certificateholders immediately upon the occurrence of such event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the Transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
Transferor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the Trust, the Transferor will immediately cease
to transfer Additional Balances to the Trust Fund and the Transferor will
promptly give notice to the Trustee of any such filing or appointment. Within 15
days, the Trustee will publish a notice of the liquidation or the filing or
appointment stating that the Trustee intends to sell, dispose of or otherwise
liquidate the Mortgage Loans in a commercially reasonable manner and to the best
of its ability. Unless otherwise instructed within a specified period by
Certificateholders representing undivided interests aggregating more than 51% of
the aggregate principal amount of the Certificates, the Trustee will sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner and on commercially reasonable terms. Any proceeds will be
treated as collections allocable to the Certificateholders and the Investor
Fixed Allocation Percentage of such remaining proceeds and will be distributed
to the Certificateholders on the date such proceeds are received (the
"Dissolution Distribution Date"). If the portion of such proceeds allocable to
the Certificateholders are not sufficient to pay in full the remaining amount
due on the Certificates, the Policy will cover such shortfall.
Notwithstanding the foregoing, if a conservator, receiver or
trustee-in-bankruptcy is appointed for the Transferor and no Rapid Amortization
Event exists other than such conservatorship, receivership or insolvency of the
Transferor, the conservator, receiver or trustee-in-bankruptcy may have the
power to prevent the commencement of the Rapid Amortization Period or the sale
of Mortgage Loans described above.
THE POLICY
[On or before the Closing Date, the Policy will be issued by the
Certificate Insurer pursuant to the provisions of the Agreement and the
Insurance and Indemnity Agreement (the "Insurance Agreement") to be dated as of
, 199 , among the Seller, the Depositor, the Master Servicer and
the Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment on each
Distribution Date to the Trustee for the benefit of the Certificateholders the
full and complete payment of (i) the Guaranteed Principal Distribution Amount
(as defined herein) with respect to the Certificates for such Distribution Date
and (ii) accrued and unpaid interest due on the Certificates (together, the
"Guaranteed Distributions"), with such Guaranteed Distributions having been
calculated in accordance with the original terms of the Certificates or the
Agreement except for amendments or modifications to which the Certificate
Insurer has given its prior written consent. The effect of the Policy is to
guarantee the timely payment of interest on, and the ultimate payment of the
principal amount of, all of the Certificates.
The "Guaranteed Principal Distribution Amount" shall be the amount, if any,
by which the Certificate Principal Balance (after giving effect to all other
amounts distributable and allocable to principal on the Certificates) exceeds
the Invested Amount as of such Distribution Date (after giving effect to all
other
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<PAGE> 43
amounts distributable and allocable to principal on the Certificates for such
Distribution Date). In addition, the Policy will guarantee the payment of the
outstanding Certificate Principal Balance on the Distribution Date in
20 (after giving effect to all other amounts distributable and
allocable to principal on such Distribution Date).
In accordance with the Agreement, the Trustee will be required to establish
and maintain an account (the "Spread Account") for the benefit of the
Certificate Insurer and the Certificateholders. The Trustee shall deposit the
amounts into the Spread Account as required by the Agreement.
Payment of claims on the Policy will be made by the Certificate Insurer
following Receipt by the Certificate Insurer of the appropriate notice for
payment on the later to occur of (i) 12:00 noon, New York City time, on the
second Business Day following Receipt of such notice for payment and (ii) 12:00
noon, New York City time, on the relevant Distribution Date.
If payment of any amount guaranteed by the Certificate Insurer pursuant to
the Policy is avoided as a preference payment under applicable bankruptcy,
insolvency, receivership or similar law, the Certificate Insurer will pay such
amount out of the funds of the Certificate Insurer on the later of (a) the date
when due to be paid pursuant to the Order referred to below or (b) the first to
occur of (i) the fourth Business Day following Receipt by the Certificate
Insurer from the Trustee of (A) a certified copy of the order (the "Order") of
the court or other governmental body which exercised jurisdiction to the effect
that the Certificateholder is required to return the amount of any Guaranteed
Distributions distributed with respect to the Certificates during the term of
the related Policy because such distributions were avoidable preference payments
under applicable bankruptcy law, (B) a certificate of the Certificateholder that
the Order has been entered and is not subject to any stay and (C) an assignment
duly executed and delivered by the Certificateholder, in such form as is
reasonably required by the Certificate Insurer and provided to the
Certificateholder by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Certificateholder relating to
or arising under the Certificates against the debtor which made such preference
payment or otherwise with respect to such preference payment, or (ii) the date
of Receipt by the Certificate Insurer from the Trustee of the items referred to
in clauses (A), (B) and (C) above if, at least four Business Days prior to such
date of Receipt, the Certificate Insurer shall have Received written notice from
the Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or any Certificateholder directly (unless a
Certificateholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order in which case
such payment shall be disbursed to the Trustee for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to the
Certificate Insurer).
The terms "Receipt" and "Received", with respect to the Policy, mean actual
delivery to the Certificate Insurer and to its fiscal agent appointed by the
Certificate Insurer at its option, if any, prior to 12:00 noon, New York City
time, on a Business Day; delivery either on a day that is not a Business Day or
after 12:00 noon, New York City time, shall be deemed to be Receipt on the next
succeeding Business Day. If any notice or certificate given under the Policy by
the Trustee is not in proper form or is not properly completed, executed or
delivered it shall be deemed not to have been Received, and the Certificate
Insurer or the fiscal agent shall promptly so advise the Trustee and the Trustee
may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in The City of New York, New
York are authorized or obligated by law or executive order to be closed.
The Certificate Insurer's obligations under the Policy in respect of
Guaranteed Distributions shall be discharged to the extent funds are transferred
to the Trustee as provided in the Policy, whether or not such funds are properly
applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each
Certificateholder to receive payments of principal and interest, as applicable,
with respect to distributions on the Certificates to the extent of any payment
by the Certificate Insurer under the Policy. To the extent the Certificate
Insurer makes Guaranteed
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Distributions, either directly or indirectly (as by paying through the Trustee),
to the Certificateholders, the Certificate Insurer will be subrogated to the
rights of the Certificateholders, as applicable, with respect to such Guaranteed
Distributions, shall be deemed to the extent of the payments so made to be a
registered Certificateholder for purposes of payment and shall receive all
future Guaranteed Distributions until all such Guaranteed Distributions by the
Certificate Insurer have been fully reimbursed, provided that the
Certificateholders have received the full amount of the Guaranteed
Distributions.
The terms of the Policy cannot be modified, altered or affected by any
other agreement or instrument, or by the merger, consolidation or dissolution of
the Seller. The Policy by its terms may not be cancelled or revoked. The Policy
is governed by the laws of the State of .
The Policy is not covered by the Property/Casualty Insurance Security fund
specified in Article 76 of the New York Insurance Law. The Policy is not covered
by the Florida Insurance Guaranty Association created under Part II of Chapter
631 of the Florida Insurance Code. In the event the Certificate Insurer were to
become insolvent, any claims arising under the Policy are excluded from coverage
by the California Insurance Guaranty Association, established pursuant to
Article 14.2 of Chapter 1 of part 2 of Division 1 of the California Insurance
Code.
Pursuant to the terms of the Agreement, unless a Certificate Insurer
default exists, the Certificate Insurer shall be deemed to be the Holder of the
Certificates for certain purposes (other than with respect to payment on the
Certificates), will be entitled to exercise all rights of the Certificateholders
thereunder, without the consent of such Holders and the Holders of the
Certificates may exercise such rights only with the prior written consent of the
Certificate Insurer. In addition, the Certificate Insurer will have certain
additional rights as third party beneficiary to the Agreement.
In the absence of payments under the Policy, Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the Certificateholders, the Master
Servicer will forward to the Trustee for mailing to such Certificateholder a
statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for the preceding
Collection Period;
(ii) the amount being distributed to Certificateholders;
(iii) the amount of interest included in such distribution and the
related Certificate Rate;
(iv) the amount, if any, of overdue accrued interest included in such
distribution (and the amount of interest thereon);
(v) the amount, if any, of the remaining overdue accrued interest
after giving effect to such distribution;
(vi) the amount, if any, of principal included in such distribution;
(vii) the amount, if any, of the reimbursement of previous Liquidation
Loss Amounts included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed Liquidation
Loss Amounts after giving effect to such distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount and the Certificate Principal Balance, each
after giving effect to such distribution;
(xi) the Pool Balance as of the end of the preceding Collection
Period;
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<PAGE> 45
(xii) the number and aggregate Principal Balances of the Mortgage
Loans as to which the minimum monthly payment is delinquent for 30-59 days,
60-89 days and 90 or more days, respectively, as of the end of the
preceding Collection Period;
(xiii) the book value of any real estate which is acquired by the
Trust Fund through foreclosure or grant of deed in lieu of foreclosure; and
(xiv) the amount of any draws on the Policy.
In the case of information furnished pursuant to clauses (iii), (iv), (v),
(vi), (vii) and (viii) above, the amounts shall be expressed as a dollar amount
per Certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year commencing in 1996, the
Master Servicer will be required to forward to the Trustee a statement
containing the information set forth in clauses (iii) and (vi) above aggregated
for such calendar year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the Agreement,
follow such collection procedures as it follows from time to time with respect
to the home equity loans in its servicing portfolio comparable to the Mortgage
Loans. Consistent with the above, the Master Servicer may in its discretion
waive any late payment charge or any assumption or other fee or charge that may
be collected in the ordinary course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange with a
borrower a schedule for the payment of interest due and unpaid for a period,
provided that any such arrangement is consistent with the Master Servicer's
policies with respect to the home equity mortgage loans it owns or services. In
accordance with the terms of the Agreement, the Master Servicer may consent
under certain circumstances to the placing of a subsequent senior lien in
respect of a Mortgage Loan.
HAZARD INSURANCE
The Agreement provides that the Master Servicer maintain certain hazard
insurance on the Mortgaged Properties relating to the Mortgage Loans. While the
terms of the related Credit Line Agreements generally require borrowers to
maintain certain hazard insurance, the Master Servicer will not monitor the
maintenance of such insurance.
The Agreement requires the Master Servicer to maintain for any Mortgaged
Property relating to a Mortgage Loan acquired upon foreclosure of a Mortgage
Loan, or by deed in lieu of such foreclosure, hazard insurance with extended
coverage in an amount equal to the lesser of (a) the maximum insurable value of
such Mortgaged Property or (b) the outstanding balance of such Mortgage Loan
plus the outstanding balance on any mortgage loan senior to such Mortgage Loan
at the time of foreclosure or deed in lieu of foreclosure, plus accrued interest
and the Master Servicer's good faith estimate of the related liquidation
expenses to be incurred in connection therewith. The Agreement provides that the
Master Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a blanket policy insuring against losses on such
Mortgaged Properties. If such blanket policy contains a deductible clause, the
Master Servicer will be obligated to deposit in the Collection Account the sums
which would have been deposited therein but for such clause. The Master Servicer
will initially satisfy these requirements by maintaining a blanket policy. As
set forth above, all amounts collected by the Master Servicer (net of any
reimbursements to the Master Servicer) under any hazard policy (except for
amounts to be applied to the restoration or repair of the Mortgaged Property)
will ultimately be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers and therefore will not
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contain identical terms and conditions, the basic terms thereof are dictated by
state laws and most of such policies typically do not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods and
other water-related causes, earth movement (including earthquakes, landslides
and mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive or an exact description of the insurance policies relating to the
Mortgaged Properties.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default when, in accordance with applicable servicing procedures under the
Agreement, no satisfactory arrangements can be made for the collection of
delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the Master Servicer will not be required to expend its own
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, such foreclosure, correction or restoration will increase Net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Certificateholders or the Transferor.
OPTIONAL PURCHASE OF DEFAULTED LOAN
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Principal Balance of such
Mortgage Loan plus accrued interest thereon at the applicable Loan Rate from the
date through which interest was last paid by the related mortgagor to the first
day of the month in which such amount is to be distributed to
Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, the Master Servicer will receive
from interest collections in respect of the Mortgage Loans a portion of such
interest collections as a monthly Servicing Fee in the amount equal to
approximately % per annum ("Servicing Fee Rate") on the aggregate Principal
Balances of the Mortgage Loans as of the first day of the related Collection
Period (or at the Cut-off Date for the first Collection Period). All assumption
fees, late payment charges and other fees and charges, to the extent collected
from borrowers, will be retained by the Master Servicer as additional servicing
compensation.
The Master Servicer will pay certain ongoing expenses associated with the
Trust Fund and incurred by it in connection with its responsibilities under the
Agreement. In addition, the Master Servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with defaulted Mortgage Loans
and in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive any
related Net Liquidation Proceeds.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery on or before in each
year, beginning in , 199 , to the Trustee of an annual
statement signed by an officer of the Master Servicer to the effect that the
Master Servicer has fulfilled its material obligations under the Agreement
throughout the preceding fiscal year, except as specified in such statement.
On or before of each year, beginning , 199
, the Master Servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other services to
the Master Servicer or the Transferor) to the Trustee, the Certificate Insurer
and the Rating Agencies to the effect that such firm has examined certain
documents and the records relating to servicing of the Mortgage Loans under the
Agreement and that, on the basis of such examination, such firm
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believes that such servicing was conducted in compliance with the Agreement
except for (a) such exceptions as such firm believes to be immaterial and (b)
such other exceptions as shall be set forth in such report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The Agreement provides that the Master Servicer may not resign from its
obligations and duties thereunder, except in connection with a permitted
transfer of servicing, unless (i) such duties and obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it or its affiliate or (ii) upon the satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Trustee; (b) the Rating Agencies have confirmed to the Trustee that the
appointment of such proposed successor servicer as the Master Servicer will not
result in the reduction or withdrawal of the then current rating of the
Certificates; and (c) such proposed successor servicer is reasonably acceptable
to the Certificate Insurer. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Agreement.
The Master Servicer may perform any of its duties and obligations under the
Agreement through one or more subservicers or delegates, which may be affiliates
of the Master Servicer. Notwithstanding any such arrangement, the Master
Servicer will remain liable and obligated to the Trustee and the
Certificateholders for the Master Servicer's duties and obligations under the
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
The Agreement provides that the Master Servicer will indemnify the Trust
Fund and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained as a result of the Master Servicer's actions or
omissions in connection with the servicing and administration of the Mortgage
Loans which are not in accordance with the provisions of the Agreement. Under
the Agreement,the Transferor will indemnify an injured party for the entire
amount of any losses, claims, damages or liabilities arising out of or based on
the Agreement (other than losses resulting from defaults under the Mortgage
Loans). In the event of an Event of Servicing Termination (as defined below)
resulting in the assumption of servicing obligations by a successor Master
Servicer, the successor Master Servicer will indemnify the Transferor for any
losses, claims,damages and liabilities of the Transferor as described in this
paragraph arising from the successor Master Servicer's actions or omissions. The
Agreement provides that neither the Depositor, the Transferor nor the Master
Servicer nor their directors, officers, employees or agents will be under any
other liability to the Trust Fund, the Trustee, the Certificateholders or any
other person for any action taken or for refraining from taking any action
pursuant to the Agreement. However, neither the Depositor, the Transferor nor
the Master Servicer will be protected against any liability which would
otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence of the Depositor, the Transferor or the Master Servicer in the
performance of its duties under the Agreement or by reason of reckless disregard
of its obligations thereunder. In addition, the Agreement provides that the
Master Servicer will not be under any obligation to appear in, prosecute or
defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability. The Master Servicer may, in its sole discretion,
undertake any such legal action which it may deem necessary or desirable with
respect to the Agreement and the rights and duties of the parties thereto and
the interest of the Certificateholders thereunder.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any corporation
succeeding to the business of the Master Servicer shall be the successor of the
Master Servicer hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything in the Agreement
to the contrary notwithstanding.
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EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" will consist of: (i) any failure by the
Master Servicer to deposit in the Collection Account any deposit required to be
made under the Agreement, which failure continues unremedied for five business
days 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 Certificate
Insurer or Certificateholders evidencing an aggregate, undivided interest in the
Trust Fund of at least 25% of the Certificate Principal Balance; (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 Agreement which, in each
case, materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer and continues unremedied for 60 days 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 Certificate Insurer or
Certificateholders evidencing an aggregate, undivided interest in the Trust Fund
of at least 25% of the Certificate Principal Balance; or (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings relating to the Master Servicer and certain actions by the
Master Servicer indicating insolvency, reorganization or inability to pay its
obligations. Under certain other circumstances, the Certificate Insurer with the
consent of holders of Investor Certificates evidencing an aggregate, undivided
interest in the Trust Fund of at least 51% of the Certificate Principal Balance
may deliver written notice to the Master Servicer terminating all the rights and
obligations of the Master Servicer under the Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten Business Days or referred
to under clause (ii) above for a period of 60 Business Days, shall not
constitute an Event of Servicing Termination if such delay or failure could not
be prevented by the exercise of reasonable diligence by the Master Servicer and
such delay or failure was caused by an act of God or other similar occurrence.
Upon the occurrence of any such event the Master Servicer shall not be relieved
from using its best efforts to perform its obligations in a timely manner in
accordance with the terms of the Agreement and the Master Servicer shall provide
the Trustee, the Depositor, the Transferor, the Certificate Insurer and the
Certificateholders prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an Event of Servicing Termination remains unremedied, either the
Trustee, or Certificateholders evidencing an aggregate, undivided interest in
the Trust Fund of at least 51% of the Certificate Principal Balance or the
Certificate Insurer, may terminate all of the rights and obligations of the
Master Servicer under the Agreement and in and to the Mortgage Loans, whereupon
the Trustee will succeed to all the responsibilities, duties and liabilities of
the Master Servicer under the Agreement and will be entitled to similar
compensation arrangements. In the event that the Trustee would be obligated to
succeed the Master Servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
housing and home finance institution or other mortgage loan or home equity loan
servicer with all licenses and permits required to perform its obligations under
the Agreement and having a net worth of at least $ and acceptable to
the Certificate Insurer to act as successor to the Master Servicer under the
Agreement. Pending such appointment, the Trustee will be obligated to act in
such capacity unless prohibited by law. Such successor will be entitled to
receive the same compensation that the Master Servicer would otherwise have
received (or such lesser compensation as the Trustee and such successor may
agree). A receiver or conservator for the Master Servicer may be empowered to
prevent the termination and replacement of the Master Servicer where the only
Event of Servicing Termination that has occurred is an Insolvency Event.
AMENDMENT
The Agreement may be amended from time to time by the Master Servicer, the
Depositor and the Trustee and with the consent of the Certificate Insurer, but
without the consent of the Certificateholders, to cure any ambiguity, to correct
or supplement any provisions therein which may be inconsistent with any other
provisions of the Agreement, to add to the duties of the Depositor, the
Transferor or the Master Servicer or to
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add or amend any provisions of the Agreement as required by the Rating Agencies
in order to maintain or improve any rating of the Certificates (it being
understood that, after obtaining the ratings in effect on the Closing Date,
neither the Transferor, the Trustee nor the Master Servicer is obligated to
obtain, maintain, or improve any such rating) or to add any other provisions
with respect to matters or questions arising under the Agreement which shall not
be inconsistent with the provisions of the Agreement, provided that such action
will not, as evidenced by an opinion of counsel, materially and adversely affect
the interests of any Certificateholder or the Certificate Insurer; provided,
that any such amendment will not be deemed to materially and adversely affect
the Certificateholders and no such opinion will be required to be delivered if
the person requesting such amendment obtains a letter from the Rating Agencies
stating that such amendment would not result in a downgrading of the then
current rating of the Certificates. The Agreement may also be amended from time
to time by the Master Servicer, the Depositor, and the Trustee, with the consent
of Certificateholders evidencing an aggregate, undivided interest in the Trust
Fund of at least 51% of the Certificate Principal Balance and the Certificate
Insurer for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any manner
the rights of the Certificateholders, provided that no such amendment will (i)
reduce in any manner the amount of, or delay the timing of, collections of
payments on the Certificates or distributions or payments under the Policy which
are required to be made on any Certificate without the consent of the holder of
such Certificate or (ii) reduce the aforesaid percentage required to consent to
any such amendment, without the consent of the holders of all Certificates then
outstanding.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The Trust Fund will terminate on the Distribution Date following the later
of (A) payment in full of all amounts owing to the Certificate Insurer and (B)
the earliest of (i) the Distribution Date on which the Certificate Principal
Balance has been reduced to zero, (ii) the final payment or other liquidation of
the last Mortgage Loan in the Trust Fund, (iii) the optional transfer to the
Transferor of the Certificates, as described below and (iv) the Distribution
Date in 20 .
The Certificates will be subject to optional transfer to the Transferor on
any Distribution Date after the Certificate Principal Balance is reduced to an
amount less than or equal to % of the Original Certificate Principal Balance and
all amounts due and owing to the Certificate Insurer and unreimbursed draws on
the Policy, together with interest thereon, as provided under the Insurance
Agreement, have been paid. The transfer price will be equal to the sum of the
outstanding Certificate Principal Balance and accrued and unpaid interest
thereon at the Certificate Rate through the day preceding the final Distribution
Date. In no event, however, will the Trust Fund created by the Agreement
continue for more than 21 years after the death of certain individuals named in
the Agreement. Written notice of termination of the Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency appointed
by the Trustee which will be specified in the notice of termination.
In addition, the Trust Fund may be liquidated as a result of certain events
of bankruptcy, insolvency or receivership relating to the Transferor. See
"-- Rapid Amortization Events" herein.
THE TRUSTEE
[ ], a with its principal place of business in
, has been named Trustee pursuant to the Agreement.
The commercial bank or trust company serving as Trustee may own
Certificates and have normal banking relationships with the Depositor, the
Master Servicer, the Seller and the Certificate Insurer and/or their affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. The Depositor may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Agreement or if the Trustee becomes
insolvent. Upon becoming aware of such circumstances, the Depositor will be
obligated to appoint a successor Trustee, as
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approved by the Certificate Insurer. Any resignation or removal of the Trustee
and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders evidencing an aggregate, undivided interest in the Trust Fund
of at least 51% of the Certificate Principal Balance have made written requests
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. The
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred therein or thereby.
CERTAIN ACTIVITIES
The Trust Fund will not: (i) borrow money; (ii) make loans; (iii) invest in
securities for the purpose of exercising control; (iv) underwrite securities;
(v) except as provided in the Agreement, engage in the purchase and sale (or
turnover) of investments; (vi) offer securities in exchange for property (except
Certificates for the Mortgage Loans); or (vii) repurchase or otherwise reacquire
its securities. See "-- Evidence as to Compliance" above for information
regarding reports as to the compliance by the Master Servicer with the terms of
the Agreement.
DESCRIPTION OF THE PURCHASE AGREEMENT
The Mortgage Loans to be transferred to the Trust Fund by the Depositor
will be purchased by the Depositor from pursuant to the Purchase
Agreement to be entered into between the Depositor, as purchaser of the Mortgage
Loans, and , as Seller of the Mortgage Loans. Under the Purchase
Agreement, the Seller will agree to transfer the Mortgage Loans and related
Additional Balances to the Depositor. Pursuant to the Agreement, the Mortgage
Loans will be immediately transferred by the Depositor to the Trust Fund, and
the Depositor will assign its rights in, to and under the Purchase Agreement to
the Trust Fund. The following is a description of the material provisions of the
Purchase Agreement.
TRANSFERS OF MORTGAGE LOANS
Pursuant to the Purchase Agreement, the Seller will transfer and assign to
the Depositor, all of its right, title and interest in and to the Mortgage Loans
and all of the Additional Balances thereafter created. The purchase price of the
Mortgage Loans is a specified percentage of the face amount thereof as of the
time of transfer and is payable by the Depositor in cash. The purchase price of
each Additional Balance comprising the Principal Balance of a Mortgage Loan is
the amount of such Additional Balance.
REPRESENTATIONS AND WARRANTIES
The Seller will represent and warrant to the Depositor that, among other
things, as of the Closing Date, it is duly organized and in good standing and
that it has the authority to consummate the transactions contemplated by the
Purchase Agreement. The Seller will also represent and warrant to the Depositor
that, among other things, immediately prior to the sale of the Mortgage Loans to
the Depositor, the Seller was the sole owner and holder of the Mortgage Loans
free and clear of any and all liens and security interests. The Seller will make
similar representations and warranties in the Agreement. The Seller will also
represent and warrant to the Depositor that, among other things, as of the
Closing Date, (a) the Purchase Agreement constitutes a legal, valid and binding
obligation of the Seller and (b) the Purchase Agreement constitutes a valid sale
to the Depositor of all right, title and interest of the Seller in and to the
Mortgage Loans and the proceeds thereof.
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ASSIGNMENT TO TRUST FUND
The Seller expressly acknowledges and consents to the Depositor's transfer
of its rights relating to the Mortgage Loans under the Agreement to the Trust
Fund. The Seller also agrees to perform its obligations under the Purchase
Agreement for the benefit of the Trust Fund.
TERMINATION
The Purchase Agreement will terminate upon the termination of the Trust
Fund.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor towards the purchase of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal income
tax aspects of the purchase, ownership and disposition of the Certificates, is
based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations thereunder, and published rulings and court
decisions in effect as of the date hereof, all of which are subject to change,
possibly retroactively. This discussion does not address every aspect of the
U.S. federal income tax laws which may be relevant to Certificate Owners in
light of their personal investment circumstances or to certain types of
Certificate Owners subject to special treatment under the U.S. federal income
tax laws (for example, banks and life insurance companies). Accordingly,
investors should consult their tax advisors regarding U.S. federal, state,
local, foreign and any other tax consequences to them of investing in the
Certificates.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in the
Agreement and other relevant documents and assuming compliance with the terms of
the Agreement as in effect on the date of issuance of the Certificates,
, special tax counsel to the Depositor ("Tax Counsel"),
will, upon the issuance of the Certificates, issue an opinion generally to the
effect that the Certificates will be treated as debt instruments for Federal
income tax purposes as of such date. Accordingly, upon issuance, the
Certificates will be treated as "Debt Securities" as described in the
Prospectus. See "Federal Income Tax Consequences" in the Prospectus. The
Transferor and the Certificateholders express in the Agreement their intent
that, for applicable tax purposes, the Certificates will be indebtedness secured
by the Mortgage Loans. The Transferor, the Depositor and the Certificateholders,
by accepting the Certificates, and each Certificate Owner by its acquisition of
a beneficial interest in a Certificate, have agreed to treat the Certificates as
indebtedness for U.S. federal income tax purposes. However, because different
criteria are used to determine the non-tax accounting characterization of the
transaction, the Transferor intends to treat this transaction as a sale of an
interest in the Asset Balances of the Mortgage Loans for financial accounting
and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service (the "IRS") and the
courts have set forth several factors to be taken into account in determining
whether the substance of a transaction is a sale of property or a secured loan,
the primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Tax Counsel has analyzed and
relied on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the Mortgage Loans has been retained by the
Transferor and has not been transferred to the Certificate Owners.
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In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form of
the transaction as reflected in the operative provisions of the documents either
accords with the characterization of the Certificates as debt or otherwise makes
the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
Assuming that the Certificate Owners are holders of debt obligations for
U.S. federal income tax purposes, the Certificates generally will be taxable as
Debt Securities. See "Federal Income Tax Consequences" in the Prospectus.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the Certificates could nevertheless be deemed
to have been issued with original issue discount ("OID") if the interest were
not treated as "unconditionally payable" under the OID Regulations. If such
regulations were to apply, all of the taxable income to be recognized with
respect to the Certificates would be includible in income of Certificate Owners
as OID, but would not be includible again when the interest is actually
received. See "Federal Income Tax Consequences -- Taxation of Debt Securities;
Interest and Acquisition Discount" in the Prospectus for a discussion of the
application of the OID rules if the Certificates are in fact issued at a greater
than de minimis discount or are treated as having been issued with OID under the
OID Regulations. For purposes of calculating OID, it is likely that the
Certificates will be treated as Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS A PARTNERSHIP OR ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this Prospectus with respect to the Certificates
constitutes a sale of the Mortgage Loans (or an interest therein) to the
Certificate Owners and that the proper classification of the legal relationship
between the Transferor and the Certificate Owners resulting from this
transaction is that of a partnership, a publicly traded partnership treated as a
corporation, or an association taxable as a corporation. Since Tax Counsel has
advised that the Certificates will be treated as indebtedness in the hands of
the Certificateholders for U.S. federal income tax purposes, the Transferor will
not attempt to comply with U.S. federal income tax reporting requirements
applicable to partnerships or corporations, as such requirements would not apply
if the Certificates were treated as indebtedness.
If it were determined that this transaction created an entity classified as
a corporation (including a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the Mortgage Loans,
which would reduce the amounts available for distribution to the Certificate
Owners. Cash distributions to the Certificate Owners generally would be treated
as dividends for tax purposes to the extent of such corporation's earnings and
profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as a
publicly traded partnership taxable as a corporation); rather, the Transferor
and each Certificate Owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
Certificate Owner could differ if the Certificates were held to constitute
partnership interests rather than indebtedness. Upon the issuance of the
Certificates, and assuming that all of the provisions of the Agreement as in
effect on the date of issuance, are complied with, Tax Counsel will issue an
opinion generally to the effect that the Trust Fund will not be treated as
either an association or publicly traded partnership taxable as a corporation.
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POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity (or
a portion of an entity) that is a "taxable mortgage pool" will be classified as
a taxable corporation and will not be permitted to file a consolidated U.S.
federal income tax return with another corporation. Subject to a grandfather
provision for existing entities, any entity (or a portion of any entity) will be
a taxable mortgage pool if (i) substantially all of its assets consist of debt
instruments, more than 50% of which are real estate mortgages, (ii) the entity
is the obligor under debt obligations with two or more maturities, and (iii)
under the terms of the entity's debt obligations (or an underlying arrangement),
payments on such debt obligations bear a relationship to the debt instruments
held by the entity.
Upon the issuance of the Certificates, and assuming that all of the
provisions of the Agreement as in effect on the date of issuance, are complied
with, Tax Counsel will issue an opinion generally to the effect that the
arrangement created by the Agreement will not be a taxable mortgage pool under
Section 7701(i) of the Code because only one class of indebtedness secured by
the Mortgage Loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If the
IRS were to contend successfully (or future regulations were to provide) that
the arrangement created by the Agreement is a taxable mortgage pool, such
arrangement would be subject to U.S. federal corporate income tax on its taxable
income generated by ownership of the Mortgage Loans. Such a tax might reduce
amounts available for distributions to Certificate Owners. The amount of such a
tax would depend upon whether distributions to Certificate Owners would be
deductible as interest expense in computing the taxable income of such an
arrangement as a taxable mortgage pool.
FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID) paid on
a Certificate to a nonresident alien individual, foreign corporation or other
non-United States person is not subject to U.S. federal income tax, provided
that such interest is not effectively connected with a trade or business of the
recipient in the United States and the Certificate Owner provides the required
foreign person information certification. See "Federal Income Tax
Consequences -- Tax Treatment of Foreign Investors" in the Prospectus.
If the interests of the Certificate Owners were deemed to be partnership
interests, the partnership would be required, on a quarterly basis, to pay
withholding tax equal to the product, for each foreign partner, of such foreign
partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest rate of tax applicable to that foreign
partner. In addition, such foreign partner would be subject to branch profits
tax. Each non-foreign partner would be required to certify to the partnership
that it is not a foreign person. The tax withheld from each foreign partner
would be credited against such foreign partner's U.S. income tax liability.
If the Trust Fund were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
BACKUP WITHHOLDING; INFORMATION REPORTING
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Certificates if the Certificate
Owners, upon issuance, fail to supply the Trustee or his broker with his
taxpayer identification number, furnish an incorrect taxpayer identification
number, fail to report interest, dividends, or other "reportable payments" (as
defined in the Code) properly, or, under certain circumstances, fail to provide
the Trustee or his broker with a certified statement, under penalty of perjury,
that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the Certificates (and the amount of interest withheld for U.S. federal
income taxes, if any) for each calendar year, except as to exempt holders
(generally, holders that are corporations, certain tax-exempt organizations or
nonresident aliens who provide certification as to their
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status as nonresidents). As long as the only "Certificateholder" of record is
Cede, as nominee for DTC, Certificate Owners and the IRS will receive tax and
other information including the amount of interest paid on the Certificates
owned from Participants and Indirect Participants rather than from the Trustee.
(The Trustee, however, will respond to requests for necessary information to
enable Participants, Indirect Participants and certain other persons to complete
their reports.) Each non-exempt Certificate Owner will be required to provide,
under penalty of perjury, a certificate on IRS Form W-9 containing his or her
name, address, correct Federal taxpayer identification number and a statement
that he or she is not subject to backup withholding. Should a nonexempt
Certificate Owner fail to provide the required certification, the Participants
or Indirect Participants (or the Paying Agent) will be required to withhold 31%
of the interest (and principal) otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income tax
liability.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws of any
state. Investors considering an investment in the Certificates should consult
their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the Federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts in which such plans
or arrangements are invested (all of which are hereinafter referred to as a
"Plan"). Generally, ERISA applies to investments made by Plans. Among other
things, ERISA requires that the assets of Plans be held in trust and that the
trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant).
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Certificates should determine whether such an investment is permitted under the
governing Plan instruments and is prudent and appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. More generally, any Plan fiduciary which proposes to cause a Plan to
acquire any of the Certificates or any other person proposing to use the assets
of a Plan to acquire any of the Certificates should consult with its counsel
with respect to the potential consequences under ERISA and the Code (including
under the prohibited transactions rules described below) of the acquisition and
ownership of such Certificates.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below, subject
to other applicable federal and state law. However, any such governmental or
church plan which is qualified under section 401(a) of the Code and exempt from
taxation under section 501(a) of the Code is subject to the prohibited
transaction rules set forth in section 503 of the Code.
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PROHIBITED TRANSACTIONS
GENERAL
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" (within
the meaning of the Code) and "parties in interest" (within the meaning of ERISA,
collectively "Parties in Interest") who have certain specified relationships to
the Plan, unless an exemption applies (see below). Therefore, a Plan fiduciary
or any other person using the assets of a Plan considering an investment in the
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code, or whether there
is an applicable exemption.
PLAN ASSET REGULATION
The United States Department of Labor ("DOL") has issued final regulations
defining the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (29 C.F.R. sec. 2510.3-101, the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan acquires
an "equity interest" in an entity that is neither a "publicly-offered security"
(defined as a security which is widely held, freely transferable and registered
under the Securities Exchange Act of 1934, as amended) nor a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended, the assets of the entity will be treated as assets of the Plan unless
certain exceptions apply. If the Certificates were deemed to be equity interests
and no statutory, regulatory or administrative exemption applies, the Trust Fund
could be considered to hold plan assets by reason of a Plan's investment in the
Certificates. Such plan assets would include an undivided interest in any assets
held by the Trust Fund. In such an event, the Trustee and other persons, in
providing services with respect to the Trust Fund's assets, may be Parties in
Interest with respect to such Plans, subject to the fiduciary responsibility
provisions of ERISA, including the prohibited transaction provisions with
respect to transactions involving the Trust Fund's assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, the
DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
THE UNDERWRITER'S EXEMPTION
The DOL has granted to Morgan Stanley & Co. Incorporated ("Morgan Stanley")
an administrative exemption (Prohibited Transaction Exemption 90-24, 55 Fed.
Reg. 20,548 (1990) (the "Exemption") from certain of the prohibited transaction
rules of ERISA and the related excise tax provisions of Section 4975 of the Code
with respect to the initial purchase, the holding and the subsequent resale by
Plans of certificates in pass-through trusts that consist of certain
receivables, loans, and other obligations that meet the conditions and
requirements of the Exemption. Morgan Stanley believes that the Exemption will
[not] apply to the acquisition and holding of Certificates by Plans.
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<PAGE> 56
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the Certificates by a Plan is on terms
(including the price for such 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 the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust Fund;
(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 one of Standard & Poor's Ratings Group ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc. ("Duff &
Phelps") or Fitch Investors Service, L.P. ("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 the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the
assignment of the Mortgage Loans to the Trust Fund represents not more than
the fair market value of such Mortgage Loans; the sum of all payments made
to and retained by the Master Servicer and any other servicer represents
not more than reasonable compensation for such person's services under the
Agreement and reimbursements of such person's reasonable expenses in
connection therewith; and
(6) the Plan investing in the Certificates is 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.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories of S&P,
Moody's, Fitch or Duff & Phelps 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.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations or receivables contained in the trust; (ii) the Plan is not a plan
with respect to which any member of the Restricted Group (as defined below) is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA); (iii) in the case
of an acquisition in connection with the initial issuance of certificates, at
least fifty percent of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group (as defined below)
and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) 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 (v) immediately after the acquisition, no more than twenty-five
percent of the assets of the Plan with respect to which such person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Seller, the Depositor, the Underwriter, the Trustee, the Master
Servicer, the Certificate Insurer, any obligor with respect to Mortgage Loans
included in the Trust Fund constituting more than five percent of the aggregate
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<PAGE> 57
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of any of such parties (the "Restricted Group").
The Exemption may apply to the acquisition, holding and transfer of the
Certificates by Plans if all of the conditions of the Exemption are met,
including those within the control of the investor. [Notwithstanding any of the
foregoing, the Exemption will not apply with respect to any Certificates until
such time as the balance of the related Pre-Funding Account is reduced to zero.
Accordingly, until such time, the Certificates may not be purchased by Plans
pursuant to the Exemption.] As of the date hereof, there is no single Mortgage
Loan included in the Trust Fund that constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust Fund.
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult with their legal
advisors with respect to the applicability of Prohibited Transaction Class
Exemption ("PTE") 95-60, regarding transactions by insurance company general
accounts. In addition to any exemption that may be available under PTE 95-60 for
the purchase and holding of Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the Code, for
transactions involving an insurance company general account. Pursuant to Section
401(c) of ERISA, the DOL is required to issue final regulations ("401(c)
Regulations") no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute plan assets, unless (i) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (ii)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as plan assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Certificates should consult with their legal counsel with
respect to the applicability of Section 401(c) of ERISA, including the general
account's ability to continue to hold the Certificates after the date which is
18 months after the date the 401(c) Regulations become final.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Certificates will be rated
in the [highest] rating category of the Rating Agencies, the Certificates will
not constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not all of the
Mortgages securing the Mortgage Loans are first mortgages. Accordingly, many
institutions with legal authority to invest in comparably rated securities based
on first mortgage loans may not be legally authorized to invest in the
Certificates, which because they evidence interests in a pool that includes
junior mortgage loans are not "mortgage related securities" under SMMEA. See
"Legal Investment" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated , 199 , (the "Underwriting Agreement"), between the
Depositor and the Underwriter, an affiliate of the Depositor,
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<PAGE> 58
the Depositor has agreed to sell to the Underwriter, and the Underwriter has
agreed to purchase from the Depositor all the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates offered
hereby if any of the Certificates are purchased.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public in Europe and the United
States at the offering price set forth on the cover page hereof and to certain
dealers at such price less a discount not in excess of % of the Certificate
denominations. The Underwriter may allow and such dealers may reallow a discount
not in excess of % of the Certificate denominations to certain other
dealers. After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
The distribution of the Certificates by the Underwriter will be effected
from time to time in one or more negotiated transactions or otherwise at varying
prices to be determined, in each case, at the time of sale. The Underwriter may
effect such transactions by selling the Certificates to or through dealers, and
such dealers may receive from the Underwriter compensation in the form of
underwriting discounts, concessions or commissions. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the
Certificates may be deemed to be underwriters, and any discounts, commissions or
concessions received by them, and any profit on the resale of the Certificates
purchased by them, may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Act").
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor by , and for the Underwriter by
.
EXPERTS
The consolidated balance sheets of [Insurer] and Subsidiaries as of
, 199 and 199 and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended , 199 , incorporated by reference in this
Prospectus Supplement, have been incorporated herein in reliance on the report
of , independent accountants, given on the authority of that
firm as experts in accounting and auditing.
RATINGS
It is a condition to the issuance of the Certificates that they be rated
by (" ") and, by (" "
and, together with , the "Rating Agencies").
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however, constitute statements regarding the likelihood or
frequency of prepayments on the Mortgage Loans or the possibility that
Certificateholders might realize a lower than anticipated yield.
The ratings assigned to the Certificates will depend primarily upon the
creditworthiness of the Certificate Insurer. Any reduction in a rating assigned
to the claims-paying ability of the Certificate Insurer below the ratings
initially assigned to the Certificates may result in a reduction of one or more
of the ratings assigned to the Certificates.
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<PAGE> 59
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Certificates by any rating
agency other than the Rating Agencies; there can be no assurance, however, as to
whether any other rating agency will rate the Certificates or, if it does, what
rating would be assigned by such other rating agency. The rating assigned by
such other rating agency to the Certificates could be lower than the respective
ratings assigned by the Rating Agencies.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
401(c) Regulations............................................................. S-56
Act............................................................................ S-57
Accelerated Principal Distribution Amount...................................... S-9, 38
Additional Balances............................................................ S-4
Agreement...................................................................... S-4
Alternative Principal Payment.................................................. S-10, 40
Assignment Event............................................................... S-34
BIF............................................................................ S-36
Book-Entry Certificates........................................................ S-30
Business Day................................................................... S-42
Cede........................................................................... S-7
CEDEL.......................................................................... S-7
CEDEL Participants............................................................. S-30
Certificate Insurer............................................................ S-11
Certificate Owners............................................................. S-7, 30
Certificate Principal Balance.................................................. S-5, 29
Certificate Rate............................................................... S-5, 10, 38
Certificates................................................................... S-1, 4
Chase.......................................................................... S-7
Citibank....................................................................... S-7
Closing Date................................................................... S-1, 10, 39
Code........................................................................... S-50
Collection Account............................................................. S-9, 35
Collection Period.............................................................. S-10, 38
Combined Loan-to-Value Ratio................................................... S-6
Cooperative.................................................................... S-32
Credit Limit................................................................... S-6
Credit Limit Utilization Rate.................................................. S-20
Credit Line Agreements......................................................... S-4, 20
Cut-off Date................................................................... S-1, 4
Cut-off Date Pool Balance...................................................... S-4
Cut-off Date Principal Balance................................................. S-4
Defective Mortgage Loans....................................................... S-35
Definitive Certificate......................................................... S-30
Depositor...................................................................... S-4
Determination Date............................................................. S-12, 36
Dissolution Distribution Date.................................................. S-41
Distribution Date.............................................................. S-1, 10, 37
DOL............................................................................ S-54
Draw Period.................................................................... S-21
Drive-By Appraisal............................................................. S-18
Drive-By Appraisal Value....................................................... S-18
DTC............................................................................ S-7, 30
Due Date....................................................................... S-6
Eligible Account............................................................... S-36
Eligible Substitute Mortgage Loan.............................................. S-34
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
ERISA.......................................................................... S-14, 53
Estimated Value................................................................ S-18
Euroclear...................................................................... S-7
Euroclear Operator............................................................. S-32
Euroclear Participants......................................................... S-32
European Depositaries.......................................................... S-7, 30
Events of Servicing Termination................................................ S-47
Exemption...................................................................... S-54
Financial Intermediary......................................................... S-30
Fixed Allocation Percentage.................................................... S-9
Guaranteed Distributions....................................................... S-11, 41
Guaranteed Principal Distribution Amount....................................... S-11, 41
Index Rate..................................................................... S-21
Indirect Participants.......................................................... S-30
Insurance Agreement............................................................ S-11, 41
Interest Collections........................................................... S-37
Interest Period................................................................ S-10, 39
Invested Amount................................................................ S-29
Investor Fixed Allocation Percentage........................................... S-9
Investor Floating Allocation Percentage........................................ S-8, 37
Investor Interest Collections.................................................. S-37
Investor Loss Amount........................................................... S-9, 38
Investor Principal Collections................................................. S-9, 37
IRS............................................................................ S-50
LIBOR.......................................................................... S-10
LIBOR Business Day............................................................. S-39
Liquidated Mortgage Loan....................................................... S-38
Liquidation Loss Amount........................................................ S-9, 38
Liquidation Proceeds........................................................... S-37
Loan Rate...................................................................... S-6, 21
Managed Amortization Period.................................................... S-10, 40
Margin......................................................................... S-21
Maximum Principal Payment...................................................... S-10, 40
Maximum Rate................................................................... S-21
Minimum Transferor Interest.................................................... S-35
Morgan Stanley................................................................. S-1, 54
Mortgage File.................................................................. S-34
Mortgage Loan Schedule......................................................... S-5, 33
Mortgage Loans................................................................. S-1, 4
Mortgaged Properties........................................................... S-4
Net Liquidation Proceeds....................................................... S-8
OID............................................................................ S-51
OID Regulations................................................................ S-51
Order.......................................................................... S-42
Original Certificate Principal Balance......................................... S-29
Original Invested Amount....................................................... S-5, 29
Overcollateralization Amount................................................... S-9
Participants................................................................... S-30
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Parties in Interest............................................................ S-54
Paying Agent................................................................... S-40
Percentage Interest............................................................ S-7
Plan........................................................................... S-53
Plan Asset Regulation.......................................................... S-54
Policy......................................................................... S-1, 4
Pool Balance................................................................... S-37
Principal Balance.............................................................. S-4
Principal Collections.......................................................... S-8, 37
Prospectus..................................................................... S-2
PTE............................................................................ S-56
Purchase Agreement............................................................. S-6
Rapid Amortization Event....................................................... S-40
Rating Agency.................................................................. S-14
Receipt........................................................................ S-42
Received....................................................................... S-42
Record Date.................................................................... S-37
Reference Bank Rate............................................................ S-39
Related Documents.............................................................. S-33
Relevant Depositary............................................................ S-30
Repayment Period............................................................... S-21
Required Overcollateralization Amount.......................................... S-38
Restricted Group............................................................... S-56
Rules.......................................................................... S-30
SAIF........................................................................... S-36
Scheduled Principal Collections Distribution Amount............................ S-10, 40
Seller......................................................................... S-4
Servicing Fee.................................................................. S-12
Servicing Fee Rate............................................................. S-12, 45
SMMEA.......................................................................... S-14, 56
Spread Account................................................................. S-12, 42
Tax Counsel.................................................................... S-50
Telerate Screen Page 3750...................................................... S-39
Terms and Conditions........................................................... S-32
Transfer Date.................................................................. S-35
Transfer Deficiency............................................................ S-34
Transfer Deposit Amount........................................................ S-34
Transferor..................................................................... S-5
Transferor Interest............................................................ S-1, 5, 30
Transferor Principal Collections............................................... S-9, 37
Trust Fund..................................................................... S-1, 4
Trustee........................................................................ S-4, 13
Underwriter.................................................................... S-1
Underwriting Agreement......................................................... S-56
</TABLE>
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<PAGE> 63
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURE
Except in certain limited circumstances, the globally offered Home Equity
Loan Asset Backed Certificates, Series 199 - (the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of DTC, CEDEL or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset Backed
Certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Home Equity Loan Asset Backed
Certificates issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset Backed Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
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<PAGE> 64
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depositary of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
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<PAGE> 65
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owners
or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
AI-3
<PAGE> 66
VERSION #2
Subject to Completion, dated April 29, 1997
PROSPECTUS SUPPLEMENT (To Prospectus dated , 199 )
$
(Approximate)
Home Equity Loan Trust 199
$ Home Equity Loan Asset Backed Notes, Series 199 -
$ Home Equity Loan Asset Backed Certificates, Series 199 -
Morgan Stanley ABS Capital I Inc.
Depositor
[ ]
Master Servicer
The Home Equity Loan Trust 199 (the "Trust Fund") will be formed pursuant to
a trust agreement to be dated as of , 199 (the "Trust Agreement")
and entered into by Morgan Stanley ABS Capital I Inc. (the "Depositor"),
and , as owner trustee (the "Owner Trustee"). The Trust
Fund will issue $ aggregate principal amount of Home Equity Loan Asset
Backed Notes (the "Notes"). The Notes will be issued pursuant to an indenture to
be dated as of , 199 (the "Indenture"), between the Trust Fund and
, as indenture trustee (the "Indenture Trustee"). The Trust Fund
will also issue $ aggregate principal amount of Home Equity Loan Asset
Backed Certificates, Series 199 - (the "Certificates" and, together with the
Notes, the "Securities"). See "Index of Defined Terms" on Page S-42 of this
Prospectus Supplement and on Page 119 of the Prospectus for the location of the
definitions of certain capitalized terms.
The property of the Trust Fund will include a pool of [adjustable rate] home
equity revolving credit line loans made or to be made in the future (the
"Mortgage Loans") under certain home equity revolving credit line loan
agreements. The Mortgage Loans are secured by first, second and third mortgages
or deeds of trust on one-to four-family residential properties. [In addition,
the Securities will have the benefit of an irrevocable and unconditional limited
financial guaranty insurance policy (the "Policy") issued by
(the "Certificate Insurer") covering [describe].]
Distributions of principal and interest on the Notes will be made on the
day of each month or, if such date is not a Business Day, then on the
succeeding Business Day (each a "Distribution Date"), commencing on
, 199 to the extent described under "Summary of Terms -- Description
of the Securities" and "Description of the Securities" herein. Interest will
accrue on the Notes at a rate (the "Note Rate") equal to % per annum from the
Closing Date to the first Distribution Date and at [a floating rate equal to
[LIBOR] (as defined herein) plus % per annum] [ % per annum] thereafter.
The Certificates will represent fractional undivided interests in the Trust
Fund. Distribution of principal and interest on the Certificates will be made on
each Distribution Date to the extent described herein. Interest will accrue on
the Certificates at a rate (the "Pass-Through Rate") equal to % per annum from
the Closing Date to the first Distribution Date and at [a floating rate equal to
[LIBOR] plus % per annum] [ % per annum] thereafter.
Payments of interest and principal on the Notes will have equal priority
with payments of principal and interest (and will be made pro rata) on the
Certificates.
There is currently no market for the Securities offered hereby and there can
be no assurance that such a market will develop or if it does develop that it
will continue. See "Risk Factors" herein.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-11 HEREIN AND ON PAGE 17 IN THE ACCOMPANYING
PROSPECTUS.
------------------------
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, OWNER TRUSTEE,
INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED
HEREIN. THE SECURITIES ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities offered hereby will be purchased by Morgan Stanley & Co.
Incorporated ("Morgan Stanley") from the Depositor and will, in each case, be
offered by Morgan Stanley from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The aggregate proceeds to the Depositor from the sale of the Notes are
expected to be $ and from the sale of the Certificates are expected to be
$ before deducting expenses payable by the Depositor of $ . The
Securities are offered subject to prior sale and subject to Morgan Stanley's
right to reject orders in whole or in part. It is expected that the Notes will
be delivered in book-entry form through the facilities of The Depository Trust
Company, [Cedel, S.A. and the Euroclear System] on or about , 199 .
------------------------
MORGAN STANLEY & CO.
Incorporated
, 199 .
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 67
------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or any Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that the information herein or therein
is correct at any time subsequent to the date hereof or that there has been no
change in the affairs of the Depositor since that date.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus
to investors. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments or subscriptions.
This Prospectus Supplement does not contain complete information about the
offering of the Securities. Additional information is contained in the
Prospectus of the Depositor dated , 199 (the "Prospectus") and
purchaser are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Securities may not be consummated unless the purchaser has
received both this Prospectus Supplement and the Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Trustee on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus Supplement is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to in the
Prospectus under "Incorporation of Certain Documents by Reference" that have
been or may be incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee at , telephone: , facsimile
number: , attention: .
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<PAGE> 68
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Summary of Terms............................................................... S-4
Risk Factors................................................................... S-11
The Trust Fund................................................................. S-13
The [Letter of Credit] [Surety Bond] Issuer.................................... S-14
The Master Servicer............................................................ S-14
The Home Equity Loan Program................................................... S-14
Maturity and Prepayment Considerations......................................... S-25
Description of the Master Servicing Agreement.................................. S-26
Description of the Securities.................................................. S-29
The Depositor.................................................................. S-30
The Indenture.................................................................. S-30
The Trust Agreement............................................................ S-33
Administration Agreement....................................................... S-35
The Indenture Trustee.......................................................... S-35
The Owner Trustee.............................................................. S-35
Use of Proceeds................................................................ S-35
Federal Income Tax Consequences................................................ S-35
State Tax Consequences......................................................... S-36
ERISA Considerations........................................................... S-37
Legal Investment Considerations................................................ S-40
Underwriting................................................................... S-40
Legal Matters.................................................................. S-41
Ratings........................................................................ S-41
Index of Defined Terms......................................................... S-42
PROSPECTUS
Summary of Terms............................................................... 6
Risk Factors................................................................... 17
The Trust Fund................................................................. 27
Use of Proceeds................................................................ 41
The Depositor.................................................................. 41
Description Of the Securities.................................................. 41
Credit Enhancement............................................................. 56
Yield and Prepayment Considerations............................................ 61
The Agreements................................................................. 64
Certain Legal Aspects of the Loans............................................. 77
Federal Income Tax Consequences................................................ 91
State Tax Consequences......................................................... 111
Erisa Considerations........................................................... 111
Legal Investment............................................................... 115
Method of Distribution......................................................... 116
Legal Matters.................................................................. 117
Financial Information.......................................................... 117
Rating......................................................................... 117
Index of Defined Terms......................................................... 119
</TABLE>
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<PAGE> 69
SUMMARY OF TERMS
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus. Certain capitalized
terms used herein are defined elsewhere in the Prospectus Supplement or in the
Prospectus. See "Index of Defined Terms" on page S-42 of this Prospectus
Supplement and on page 119 of the Prospectus for the location of the definition
of certain capitalized terms.
Title of Securities........ Home Equity Loan Asset Backed Notes, Series 199 -
(the "Notes") and Home Equity Loan Asset Backed
Certificates, Series 199 - (the "Certificates"
and, together with the Notes, the "Securities").
Securities Offered......... All of the Securities, including the Class ,
Class and Class Notes and the Class , Class
and Class Certificates. Each Security
represents the right to receive payments of
interest at the variable rate described below,
payable monthly, and payments of principal at such
time and to the extent provided below.
Trust Fund................. Home Equity Loan Trust 199 - (the "Trust Fund"), a
Delaware business trust established pursuant to the
Trust Agreement (as defined herein), dated as of
, 199 (the "Cut-off Date"). The
property of the Trust Fund will include: a pool of
[adjustable rate] home equity revolving credit line
loans made or to be made in the future (the
"Mortgage Loans"), under certain home equity
revolving credit line loan agreements (the "Credit
Line Agreements") and secured by first, second and
third liens on one- to four-family residential
properties that are one-to four-family properties
(the "Mortgaged Properties"); the collections in
respect of the Mortgage Loans received after the
Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off
Date or due in the month of ); property
that secured a Mortgage Loan which has been
acquired by foreclosure or deed in lieu of
foreclosure; [an irrevocable and unconditional
limited financial guaranty insurance policy (the
"Policy")]; an assignment of the Depositor's rights
under the Purchase Agreement (as defined herein);
rights under certain hazard insurance policies
covering the Mortgaged Properties; and certain
other property, as described more fully under "The
Trust Fund" herein.
The Trust Fund will include the unpaid principal
balance of each Mortgage Loan as of the Cut-off
Date (the "Cut-off Date Principal Balance") plus
any additions thereto as a result of new advances
made pursuant to the applicable Credit Line
Agreement (the "Additional Balances") during the
life of the Trust Fund. With respect to any date,
the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as
of such date. The "Principal Balance" of a Loan
(other than a Liquidated Loan) on any day is equal
to its Cut-off Date Principal Balance, plus (i) any
Additional Balances in respect of such Mortgage
Loan minus (ii) all collections credited against
the Principal Balance of such Mortgage Loan in
accordance with the related Credit Line Agreement
prior to such day. The Principal Balance of a
Liquidated Loan after the final recovery of related
Liquidation Proceeds shall be zero.
Indenture.................. The Notes will be issued pursuant to an indenture
dated as of , 199 (the "Indenture")
between the Trust Fund and the Indenture Trustee.
The Indenture Trustee will allocate distributions
of
S-4
<PAGE> 70
principal and interest to holders of the Notes (the
"Noteholders") in accordance with the Indenture.
Trust Agreement............ Pursuant to a trust agreement dated as of
, 199 (the "Trust Agreement"), among
the Depositor, and the Owner Trustee, the
Trust Fund will issue the Certificates in an
initial aggregate amount of $ . The
Certificates will represent fractional undivided
interests in the Trust Fund.
Depositor.................. Morgan Stanley ABS Capital I Inc., a Delaware
corporation and a direct wholly-owned subsidiary of
the Morgan Stanley Group Inc.
Master Servicer............ [ ]. The Master Servicer will
service the Mortgage Loans pursuant to a Master
Servicing Agreement dated , 199 between
the Issuer and the Master Servicer.
Indenture Trustee.......... (the "Indenture Trustee").
Owner Trustee.............. (the "Owner Trustee").
Cut-off Date............... , 199 .
Closing Date............... On or about , 199 .
Determination Date......... The business day, but no later than the
calendar day, of each month (the "Determination
Date").
The Mortgage Loans......... The Mortgage Loans are secured by first, second and
third liens on Mortgaged Properties. The Mortgage
Loans were originated or acquired in the normal
course of its business by [ ]
(in such capacity, the "Seller"). On the Closing
Date, [ ] will sell the Mortgage
Loans to the Depositor, pursuant to a purchase
agreement (the "Purchase Agreement"). The aggregate
Principal Balance of the Mortgage loans as of the
Cut-off Date is $ (the "Cut-off Date Pool
Principal Balance").
The percentage of the Cut-off Date Principal
Balance of the Mortgage Loans secured primarily by
Mortgaged Properties located in the states of
[ , , , ,
and ] is approximately %, %,
%, %, % and %, respectively.
The "Combined Loan-to-Value Ratio" of each Mortgage
Loan is the ratio of (A) the sum of (i) the maximum
amount the borrower was permitted to draw down
under the related Credit Line Agreement (the
"Credit Limit") and (ii) the amounts of any related
senior mortgage loans (computed as of the date of
origination of each such Mortgage Loans) to (B) the
lesser of (i) the appraised value of the Mortgaged
Property or (ii) [in the case of a Mortgaged
Property purchased within one year of the
origination of the related Mortgage Loan], the
purchase price of such Mortgaged Property. As of
the Cut-off Date the Combined Loan-to-Value Ratios
ranged from % to % and, as of the Cut-off
Date, the weighted average Combined Loan-to-Value
Ratio of the Mortgage Loans was approximately
%. Interest on each Mortgage Loan is payable
monthly and computed on the related daily
outstanding Principal Balance for each day in the
billing cycle at a variable rate per annum (the
"Loan Rate") equal at any time (subject to maximum
rates, as described herein under "Description of
the Mortgage Loans -- Mortgage Loan Terms," and
further subject to applicable usury limitations) to
the sum of [(i) the highest prime rate published in
the "Money Rates" section of The Wall Street
Journal] and (ii) a Margin within the range of
% to %. As of the Cut-off Date, the
weighted average
S-5
<PAGE> 71
Margin was approximately %. Loan Rates are
adjusted [monthly] on the [first business day of
the calendar month] preceding the Due Date. As to
each Mortgage Loan, the "Due Date" is the
day of each month. The Cut-off Date
Principal Balances ranged from zero to $
and averaged approximately $ . Credit
Limits under the Mortgage Loans as of the Cut-off
Date ranged from $ to $ and
averaged approximately $ . Each Mortgage
Loan was originated in the period from
, 19 to , 19 . As of the Cut-off
Date, the maximum Credit Limit Utilization Rate (as
defined herein) was [100%] and the weighted average
Credit Limit Utilization Rate was approximately
%. As of the Cut-off Date, approximately
% by Cut-off Date Principal Balance of the
Mortgage Loans represented first liens on the
related Mortgaged Properties, approximately %
of the Mortgage Loans represented second liens and
approximately % of the Mortgage Loans
represented third liens. As of the Cut-off Date,
the Mortgage Loans had remaining terms to scheduled
maturity ranging from months to months and had
a weighted average of approximately months. See
"The Home Equity Loan Program" and "Description of
the Mortgage Loans" herein.
Distribution Date.......... The day of each month or, if such day is not a
Business Day, the next succeeding Business Day,
commencing with , 199 . A "Business
Day" is any day other than a Saturday or Sunday or
another day on which banking institutions in New
York, New York [and ] are authorized or
obligated by law, regulations or executive order to
be closed.
Final Scheduled
Distribution Dates......... With respect to the Class Certificates,
. To the extent not previously
paid, the principal balance (the "Security
Principal Balance") of the Notes will be due on the
Distribution Date in , 199 . Failure to
pay the full principal balance of Notes on or
before the applicable final scheduled payment dates
constitutes an Event of Default under the
Indenture.
Record Date................ The last day preceding a Distribution Date or, if
the Securities are no longer Book-Entry Securities,
the last day of the month preceding a Distribution
Date.
Collections................ All collections on the Mortgage Loans will be
allocated by the Master Servicer in accordance with
the Loan Agreements between amounts collected in
respect of interest ("Interest Collections") and
amounts collected in respect of principal
("Principal Collections" and collectively with
Interest Collections, the "Collections"). The
Master Servicer will generally deposit Collections
distributable to the Holders in an account
established for such purpose under the Servicing
Agreement (the "Collection Account"). See
"Description of the Master Servicing
Agreement -- Allocations and Collections" herein
and "The Agreements -- Payments on Loans; Deposits
to Security Account" and "-- Collection Procedures"
in the Prospectus.
Description of the
Securities
A. Distributions......... On each Distribution Date, collections on the
Mortgage Loans will be applied in the following
order of priority:
(i) [to the Master Servicer, the Servicing Fee];
S-6
<PAGE> 72
(ii) as payment for the accrued interest due and
any overdue accrued interest (with interest
thereon) on the respective Security Principal of
the Notes and the Certificates;
(iii) as principal on the Securities, the excess of
Principal Collections over Additional Balances
created during the preceding Collection Period,
such amount to be allocated between the Notes and
Certificates, pro rata, based on their respective
Security Principal Balances;
(iv) as principal on the Securities, as payment for
any Liquidation Loss Amounts on the Mortgage Loans;
(v) as payment for the premium on the Policy;
(vi) to reimburse prior draws made on the Policy;
and
(vii) any remaining amounts to the Seller.
As to any Distribution Date, the "Collection
Period" is the calendar month preceding the month
of such Distribution Date. "Liquidation Loss
Amount" means with respect to any Liquidated
Mortgage Loan, the unrecovered Principal Balance
thereof at the end of the related Collection Period
in which such Mortgage Loan became a Liquidated
Mortgage Loan after giving effect to the Net
Liquidation Proceeds received in connection
therewith.
B. Note Rate............. Interest will accrue on the unpaid Security
Principal Balance of the Notes at the per annum
rate (the "Note Rate") equal to % per annum
from the Closing Date to the first Distribution
Date and thereafter interest will accrue on the
Notes from and including the preceding Distribution
Date to but excluding such current Distribution
Date (each, an "Interest Accrual Period") at [a
floating rate equal to LIBOR (as defined herein)
plus %] [ %]. [Interest will be
calculated on the basis of the actual number of
days in each Interest Accrual Period divided by
360.] A failure to pay interest on any Notes on any
Distribution Date that continues for [five] days
constitutes an Event of Default under the
Indenture.
C. Pass-Through Rate..... Interest will accrue on the unpaid Principal
Balance of the Certificates at the per annum rate
(the "Pass-Through Rate") equal to % per annum
from the Closing Date to the first Distribution
Date and thereafter interest will accrue on the
Certificates for each Interest Accrual Period at [a
floating rate equal to LIBOR (as defined herein)
plus %] [ %]. [Interest will be calculated
on the basis of the actual number of days in each
Interest Accrual Period divided by 360.] A failure
to pay interest on any Certificates on any
Distribution Date that continues for five days
constitutes an Event of Default under the Trust
Agreement.
D. Form and
Registration............... The Securities will initially be delivered in
book-entry form ("Book-Entry Securities"). Holders
of such Securities may elect to hold their
interests through The Depository Trust Company
("DTC"), [in the United States, or Centrale de
Livraison de Valeurs Mobilieres S.A. or the
Euroclear System ("Euroclear"), in Europe].
Transfers within DTC [, Cedel or Euroclear, as the
case may be,] will be in accordance with the usual
rules and operating procedures of the relevant
system. So long as the Securities are Book-Entry
Securities, such Securities will be evidenced by
one or more securities registered in the name of
Cede & Co. ("Cede"), as the nominee of DTC [or one
of the relevant deposita-
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<PAGE> 73
ries (collectively, the "European Depositaries")].
Cross-market transfers between persons holding
directly or indirectly through DTC[, on the one
hand, and counterparties holding directly or
indirectly through Cedel or Euroclear, on the
other,] will be effected in DTC through Citibank
N.A. ("Citibank") or The Chase Manhattan Bank
("Chase") the relevant depositaries of Cedel and
Euroclear, respectively, and each a participating
member of DTC. The Securities will initially be
registered in the name of Cede. The interests of
such Holders will be represented by book entries on
the records of DTC and participating members
thereof. No Holder of a Security will be entitled
to receive a definitive note representing such
person's interest, except in the event that
Securities in fully registered, certificated form
("Definitive Securities") are issued under the
limited circumstances described in "Description of
the Securities -- Book-Entry Registration of
Securities" in the Prospectus. All references in
this Prospectus Supplement to Securities reflect
the rights of Holders of such Notes only as such
rights may be exercised through DTC and its
participating organizations for so long as such
Securities are held by DTC. See "Risk
Factors -- Book-Entry Securities" herein and "Risk
Factors -- Book-Entry Registration May Reduce
Liquidity" in the Prospectus.
E. Denominations......... The Securities will be issued in minimum
denominations of $[1,000] and integral multiples of
$[1] in excess thereof.
[Final Payment of
Principal; Termination..... The Trust Fund will terminate on the Distribution
Date following the earlier of (i)
and (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust
Fund. The Mortgage Loans will be subject to
optional repurchase by the Master Servicer on any
Distribution Date after the Principal Balance is
reduced to an amount less than or equal to
$ ( % of the initial Principal
Balance). The repurchase price will be equal to the
sum of the outstanding Principal Balance and
accrued and unpaid interest thereon at the weighted
average of the Loan Rates through the day preceding
the final Distribution Date. See "Description of
the Securities -- Optional Termination" herein and
"The Agreements -- Termination; Optional
Termination" in the Prospectus.
[Letter of Credit]
[Surety Bond] Issuer..... (the "[Letter of Credit] [Surety Bond]
Issuer"). See "The [Letter of Credit] [Surety Bond]
Issuer" herein.
[Letter of Credit]
[Surety Bond]............ On the Closing Date, the [Letter of Credit] [Surety
Bond] Issuer will issue a [letter of credit]
[surety bond] (the "[Letter of Credit] [Surety
Bond]") in favor of the Owner Trustee on behalf of
the Trust Fund. In the event that, on any
Distribution Date, available amounts on deposit in
the Collection Account with respect to the
preceding Collection Period are insufficient to
provide for the payment of the amount required to
be distributed to the Holders and the Master
Servicer on such Distribution Date, the Trustee
will draw on the [Letter of Credit] [Surety Bond],
to the extent of the [Letter of Credit] [Surety
Bond] Amount for such Distribution Date, in an
amount equal to such deficiency. See "Description
of the Securities -- Distributions" herein and
"Credit Enhancement" in the Prospectus.
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<PAGE> 74
[[Letter of Credit]
[Surety Bond] Amount..... The amount available under the [Letter of Credit]
[Surety Bond] (the "[Letter of Credit] [Surety
Bond] Amount") for the initial Distribution Date
will be $ . For each Distribution Date
thereafter, the [Letter of Credit] [Surety Bond]
Amount will equal the lesser of (i) % of the
Pool Balance as of the first day of the preceding
Collection Period (after giving effect to any
amounts distributed with respect to principal of
the Mortgage Loans on the Distribution Date
occurring in such preceding Collection Period) and
(ii) the [Letter of Credit] [Surety Bond] Amount as
of the first day of the preceding Collection
Period, minus any amounts drawn under the [Letter
of Credit] [Surety Bond] during such preceding
Collection Period, plus any amounts paid to the
[Letter of Credit] [Surety Bond] Issuer on the
Distribution Date occurring in such preceding
Collection Period up to the amount of any previous
draws on the [Letter of Credit] [Surety Bond].]
Federal Income Tax
Consequences............. Upon issuance of the Notes and Certificates,
, special counsel to the
Depositor ("Tax Counsel"), will issue an opinion
generally to the effect that the Trust Fund will
not be an association (or a publicly traded
partnership) taxable as a corporation for federal
income tax purposes. The Trust Fund will agree, and
the Noteholders will agree by their purchase of the
Notes, to treat the Notes as debt for federal
income tax purposes. Upon issuance of the Notes,
based on the application of existing law to the
facts as set forth in the Agreement and other
relevant documents and assuming compliance with the
terms of the Agreement as in effect on the date of
issuance of the Notes and Certificates, Tax Counsel
will issue an opinion generally to the effect that
the Notes will be treated as debt instruments for
federal income tax purposes as of such date.
It is not anticipated that the Notes will be issued
with original issue discount ("OID"). The stated
interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued
in accordance with such Noteholder's method of tax
accounting.
The Trust Fund and the Master Servicer will agree,
and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust Fund
as a partnership for purposes of federal and state
income tax, franchise tax and any other tax
measured in whole in part by income, with the
assets of the partnership being the assets held by
the Trust Fund, the partners of the partnership
being the Certificateholders, and the Notes being
debt of the partnership. However, the proper
characterization of the arrangement involving the
Trust Fund, the Certificates, the Notes and the
Master Servicer is not clear because there is no
authority on transactions closely comparable to
that contemplated herein. See "Federal Income Tax
Consequences" and "State Tax Consequences" herein
and "Federal Income Tax Consequences" and "State
Tax Considerations" in the Prospectus concerning
the application of federal, state and local tax
laws.
ERISA Considerations....... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully
review with its legal advisors whether the purchase
or holding of Notes and/or
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<PAGE> 75
Certificates could give rise to a transaction
prohibited or not otherwise permissible under ERISA
or the Code. Certain exemptions from the prohibited
transaction rules could be applicable to the
acquisition of the Notes and/or Certificates. See
"ERISA Considerations." Generally, plans that are
subject to the requirements of ERISA and the Code
are permitted to purchase instruments that are
similar to the Notes that are debt under applicable
state law and have no "substantial equity features"
without reference to the prohibited transaction
rules. In the opinion of ERISA Counsel (as defined
herein), the Notes will be classified as
indebtedness without substantial equity features
for ERISA purposes. However, if the Notes are
deemed to be equity interests and no statutory,
regulatory or administrative exemption applies, the
Trust Fund will hold plan assets by reason of a
Plan's investment in the Notes. Accordingly, any
Plan fiduciary considering whether to purchase the
Notes on behalf of a Plan should consult with its
counsel regarding the applicability of the
provisions of ERISA and the Code and the
availability of any exemptions. [The U.S.
Department of Labor has issued an individual
exemption, Prohibited Transaction Exemption 90-24,
to Morgan Stanley & Co. Incorporated that generally
exempts from the application of certain of the
prohibited transaction provisions ERISA and the
Code, transactions relating to the purchase, sale
and holding of pass-through certificates
underwritten by such Underwriter such as the Notes
and/or Certificates and the servicing and operation
of asset pools, provided that certain conditions
are satisfied.] Certain classes of Notes and/or
Certificates may not be transferred unless the
Trustee and the Depositor are furnished with a
letter of representation or an opinion of counsel
to the effect that such transfer will not result in
a violation of the prohibited transaction
provisions and will not subject the Trustee, the
Depositor or the Master Servicer to additional
obligations. See "Description of the
Securities -- General" and "ERISA Considerations."
Legal Investment........... The Securities will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"),
because some of the Mortgages securing the Mortgage
Loans are not first mortgages. Accordingly, many
institutions with legal authority to invest in
comparably rated securities based solely on first
mortgages may not be legally authorized to invest
in the Certificates. See "Legal Investment
Considerations" herein and "Legal Investment" in
the Prospectus.
Rating..................... It is a condition to the issuance of the Securities
that they be rated by at least
nationally recognized statistical rating
organizations (each a "Rating Agency"). In general,
ratings address credit risk and do not address the
likelihood of prepayments. A security rating is not
a recommendation to buy, sell or hold securities.
Risk Factors............... For a discussion of certain risks associated with
an investment in the Securities, see "Risk Factors"
on page S-11 herein and on page 17 in the
Prospectus.
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<PAGE> 76
RISK FACTORS
[DESCRIPTION WILL DEPEND ON THE PARTICULARS OF THE MORTGAGE LOANS]
Investors should consider the following risks in connection with the
purchase of the Securities.
BOOK-ENTRY SECURITIES
Consequences of Owning Book-Entry Securities. Issuance of the Securities
in book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain physical securities.
Since transactions in the Securities can be effected only through DTC,
CEDEL, Euroclear, participating organizations, indirect participants and certain
banks, the ability of a Security Owner to pledge a Security to persons or
entities that do not participate in the DTC, CEDEL or Euroclear system may be
limited due to lack of a physical security representing the Securities.
Security Owners may experience some delay in their receipt of distributions
of interest and principal on the Securities since such distributions will be
forwarded by the Trustee to DTC and DTC will credit such distributions to the
accounts of its Participants (as defined herein) which will thereafter credit
them to the accounts of Security Owners either directly or indirectly through
indirect participants. Security Owners will not be recognized as Securityholders
as such term is used in the Agreement and Security Owners will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants. See "Description of the Securities -- Book-Entry Securities"
herein and "Risk Factors -- Book-Entry Registration May Reduce Liquidity" in the
Prospectus.
CASH FLOW CONSIDERATIONS AND RISKS
Minimum monthly payments will at least equal and may exceed accrued
interest. Even assuming that the Mortgaged Properties provide adequate security
for the Mortgage Loans, substantial delay could be encountered in connection
with the liquidation of Mortgage Loans that are delinquent and corresponding
delays in the receipt of related proceeds by Holders could occur if the [Letter
of Credit] [Surety Bond] provider were unable to perform on its obligations
under the [Letter of Credit] [Surety Bond]. Further, liquidation expenses (such
as legal fees, real estate taxes, and maintenance and preservation expenses)
will reduce the proceeds payable to Holders and thereby reduce the security for
the Mortgage Loans. In the event any of the Mortgaged Properties fail to provide
adequate security for the related Mortgage Loans, Holders could experience a
loss if the [Letter of Credit] [Surety Bond] provider were unable to perform its
obligations under the [Letter of Credit] [Surety Bond].]
PREPAYMENT CONSIDERATIONS AND RISKS
Substantially all of the Mortgage Loans may be prepaid in whole or in part
at any time without penalty. Home equity loans, such as the Mortgage Loans, have
been originated in significant volume only during the past few years and neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such loans. Generally, home equity
loans are not viewed by borrowers as permanent financing. Accordingly, the
Mortgage Loans may experience a higher rate of prepayment than traditional
loans. The Trust Fund's prepayment experience may be affected by a wide variety
of factors, including general economic conditions, interest rates, the
availability of alternative financing and homeowner mobility. In addition,
substantially all of the Mortgage Loans contain due-on-sale provisions and the
Master Servicer intends to enforce such provisions unless (i) such enforcement
is not permitted by applicable law or (ii) the Master Servicer, in a manner
consistent with reasonable commercial practice, permits the purchaser of the
related Mortgaged Property to assume the Mortgage Loan. To the extent permitted
by applicable law, such assumption will not release the original borrower from
its obligation under any such Mortgage Loan. See "Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses" in the Prospectus for a description of certain
provisions of the Credit Line Agreements that may affect the prepayment
experience on the Mortgage Loans. The yield to maturity and weighted average
life of the Securities will be affected primarily by the rate and
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<PAGE> 77
timing of prepayments on the Mortgage Loans. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Mortgage Loans will be borne
entirely by the Securityholders.
Certificate Rating. The rating of the Securities will depend primarily on
an assessment by the Rating Agencies of the Loans and upon the claims-paying
ability [Letter of Credit] [Surety Bond] provider. Any reduction in a rating
assigned to the claims-paying ability of the [Letter of Credit][Surety Bond]
provider below the rating initially given to the Securities may result in a
reduction in the rating of the Securities. The rating by the Rating Agencies of
the Securities is not a recommendation to purchase, hold or sell the Securities,
inasmuch as such rating does not comment as to the market price or suitability
for a particular investor. There is no assurance that the ratings will remain in
place for any given period of time or that the ratings will not be lowered or
withdrawn by the Rating Agencies. In general, the ratings address credit risk
and do not address the likelihood of prepayments. The ratings of the Securities
do not address the possibility of the imposition of United States withholding
tax with respect to non-U.S. persons.
LEGAL CONSIDERATIONS -- LIEN PRIORITY
[The Mortgage Loans are secured by deeds of trust or mortgages (which
generally are second mortgages). With respect to Mortgage Loans that are secured
by first mortgages, the Master Servicer has the power under certain
circumstances to consent to a new mortgage lien on the Mortgaged Property having
priority over such Mortgage Loan.] Mortgage Loans secured by second mortgages
are entitled to proceeds that remain from the sale of the related Mortgage
Property after any related senior mortgage loan and prior statutory liens have
been satisfied. In the event that such proceeds are insufficient to satisfy such
loans and prior liens in the aggregate [and the [Letter of Credit] [Surety Bond]
provider is unable to perform its obligations under the [Letter of Credit]
[Surety Bond] or if the coverage under the [Letter of Credit] [Surety Bond] is
exhausted] the Trust Fund and, accordingly, the Holders, bear (i) the risk of
delay in distributions while a deficiency judgment against the borrower is
obtained and (ii) the risk of loss if the deficiency judgment cannot be obtained
or is not realized upon. See "Certain Legal Aspects of the Loans" in the
Prospectus.
LEGAL CONSIDERATIONS -- SECURITY INTEREST
Under the terms of the Purchase Agreement, so long as the long-term senior
unsecured debt of [the Master Servicer] is rated at least " " by
[and " " by ], the Master Servicer will be
entitled to maintain possession of the documentation relating to each Mortgage
Loan sold by it, including the Credit Line Agreements and the Related Documents
or other evidence of indebtedness signed by the borrower, and the assignments of
the related mortgages to the Trust Fund will not be required to be recorded.
Failure to deliver the Related Documents to the Owner Trustee will have the
result in most (if not all) of the states in which the Related Documents will be
held, and failure to record the assignments of the related mortgages to the
Owner Trustee will have the result in certain states in which the Mortgaged
Properties are located, of making the sale of the Cut-off Date Principal
Balances, Additional Balances and Related Documents potentially ineffective
against (i) any creditors of the Master Servicer, who may have been fraudulently
or inadvertently induced to rely on the Mortgage Loans as assets of the [Master
Servicer], or (ii) any purchaser of a Mortgage Loan who had no notice of the
prior conveyance to the Trust Fund if such purchaser perfects his interest in
the Mortgage Loan by taking possession of the Related Documents or other
evidence of indebtedness or otherwise. In such event, the Trust Fund would be an
unsecured creditor of the [Master Servicer].
BANKRUPTCY AND INSOLVENCY RISKS
The sale of the Mortgage Loans from the Seller to the Depositor pursuant to
the Purchase Agreement will be treated as a sale of the Mortgage Loans. The
Seller will warrant that such transfer is either a sale of its interest in the
Mortgage Loans or a grant of a first priority perfected security interest
therein. In the event of an insolvency of the Seller, the receiver of the Seller
may attempt to recharacterize the sale of the Mortgage Loans as a borrowing by
the Seller secured by a pledge of the Mortgage Loans. If the receiver decided to
challenge such transfer, delays in payments of the Securities and possible
reductions in the amount thereof
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<PAGE> 78
could occur. The Depositor will warrant in the Trust Agreement that the transfer
of its interest in the Mortgage Loans to the Trust Fund is a valid transfer and
assignment of such interest.
If a conservator, receiver or trustee were appointed for the Seller, or if
certain other events relating to the bankruptcy or insolvency of the Seller were
to occur, Additional Balances would not be transferred by the Seller to the
Trust Fund. In such an event, an Event of Default under the Pooling and
Servicing Agreement and Indenture would occur and the Owner Trustee would
attempt to sell the Mortgage Loans (unless Holders holding Securities evidencing
undivided interests aggregating at least 51% of each of the Security Principal
Balance of the Notes and the Certificates instruct otherwise), thereby causing
early payment of the Security Principal Balance of the Notes and the
Certificates.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the applicable
Trustee or the Holders from appointing a successor Master Servicer.
[Geographic Concentration. As of the Cut-off Date, approximately % (by
Cut-off Date Principal Balance) of the Mortgaged Properties are located in the
State of . An overall decline in the residential
real estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans such that the Principal Balances of the related
Mortgage Loans, together with any primary financing on such Mortgaged
Properties, could equal or exceed the value of such Mortgaged Properties. As the
residential real estate market is influenced by many factors, including the
general condition of the economy and interest rates, no assurances may be given
that the residential real estate market will not weaken. If the
residential real estate market should experience an overall
decline in property values after the dates of origination of the Mortgage Loans,
the rates of losses on the Mortgage Loans would be expected to increase, and
could increase substantially.]
MASTER SERVICER'S ABILITY TO CHANGE THE TERMS OF THE MORTGAGE LOANS
[The Master Servicer may agree to changes in the terms of a Credit Line
Agreement, provided that such changes (i) do not adversely affect the interest
of the Holders or the [Letter of Credit] [Surety Bond] provider, and (ii) are
consistent with prudent business practice. There can be no assurance that
changes in applicable law or the marketplace for home equity loans or prudent
business practice will not result in changes in the terms of the Mortgage Loans.
In addition, the Master Servicing Agreement permits the Master Servicer, within
certain limitations described therein, to increase the Credit Limit of the
related Mortgage Loan or reduce the Margin for such Mortgage Loan.] Any such
increase in the Credit Limit of a Mortgage Loan would increase the Loan-to-Value
Ratio of such Mortgage Loan and, accordingly, would increase the risk of the
Trust Fund's investment in such Mortgage Loan. In addition, any reduction in the
Margin of a Mortgage Loan would reduce the excess cash flow available to absorb
losses.
DELINQUENT MORTGAGE LOANS
The Trust Fund will include Mortgage Loans which are or fewer days
delinquent. The Cut-off Date Principal Balance of such delinquent Mortgage Loans
was $ .]
For a discussion of additional risks pertaining to the Securities, see
"Risk Factors" in the Prospectus.
THE TRUST FUND
GENERAL
The Issuer, Home Equity Loan Trust 199 , is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the "governing instrument" under the laws of the State of Delaware
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring, holding and managing the Mortgage Loans
and the other assets of the Trust Fund and proceeds therefrom, (ii) issuing the
Notes and the Certificates, (iii) making payments on the Notes and the
Certificates and (iv) engaging in
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<PAGE> 79
other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The property of the Trust Fund will consist of: (i) each of the Mortgage
Loans that are secured by first, second and third mortgages or deeds of trust on
Mortgaged Properties; (ii) collections on the Mortgage Loans received after the
Cut-off Date; (iii) Mortgaged Properties relating to the Mortgage Loans that are
acquired by foreclosure or deed in lieu of foreclosure; (iv) the Collection
Account and the Distribution Account (excluding net earnings thereon); (v) the
[Letter of Credit] [Surety Bond]; and (vi) an assignment of the Depositor's
rights under the Purchase Agreement, including all rights of the Depositor to
purchase Additional Balances.
The Trust Fund's principal offices are in , Delaware, in
care of , as Owner Trustee, at .
THE [LETTER OF CREDIT] [SURETY BOND] ISSUER
The following information with respect to (" ") has been
furnished by . Accordingly, none of the Issuer, the Depositor or
the Master Servicer makes any representation as to the accuracy and completeness
of such information.
[DESCRIPTION OF LETTER OF CREDIT/SURETY ISSUER]
THE MASTER SERVICER
GENERAL
[The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Master Servicing Agreement. The Master Servicer may
perform any of its obligations under the Master Servicing Agreement through one
or more subservicers. Notwithstanding any such subservicing arrangement, the
Master Servicer will remain liable for its servicing duties and obligations
under the Master Servicing Agreement as if the Master Servicer alone were
servicing the Mortgage Loans. As of the Closing Date, the Master Servicer will
service the Mortgage Loans without subservicing arrangements.]
THE MASTER SERVICER
(" ") will act as Master Servicer for the Mortgage Loans
pursuant to the Master Servicing Agreement.
At , 199 , provided servicing for
approximately $ [billion] aggregate principal amount of first-lien
mortgage loans, substantially all of which are being serviced for unaffiliated
persons. At , 199 , [ ] provided servicing for approximately
$ [million] aggregate principal amount of first and second lien
mortgage loans originated under home equity lines of credit.
The principal executive offices of
are located at . Its
telephone number is ( ) - .
THE HOME EQUITY LOAN PROGRAM
UNDERWRITING PROCEDURES RELATING TO HOME EQUITY LOANS
The following is a description of the underwriting procedures customarily
employed by the Seller with respect to home equity loans. [Each revolving home
equity line of credit is originated after a review by the Seller in accordance
with its established underwriting procedures, which are intended to assess the
applicant's ability to assume and repay such home equity lines of credit and the
adequacy of the real property which
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<PAGE> 80
serves as collateral for such home equity lines of credit. The maximum home
equity line of credit provided by the Seller is $ ].
Each applicant for a home equity line of credit is required to complete an
application which lists the applicant's assets, liabilities, income, credit and
employment history and other demographic and personal information. If
information in the loan application demonstrates that there is sufficient income
and equity to justify making a home equity line of credit, the Seller will
conduct a further credit investigation of the applicant. This investigation
includes: [(i) obtaining and reviewing an independent credit bureau report on
the credit history of the borrower in order to evaluate the borrower's ability
to repay; (ii) obtaining a verification of employment from the applicant's
employer; (iii) obtaining and reviewing pay stubs, income tax returns and/or W-2
forms in order to verify the applicant's income; and (iv) in the case of all
home equity lines of credit originated with a Credit Limit in excess of
$ or with any Credit Limit, if originated after ,
obtaining a drive-by appraised value (a "Drive-By Appraised Value") of the
property to be mortgaged through an independent frontal exterior inspection and
neighborhood observation (a "Drive-By Appraisal") of the property or, in the
case of home equity lines of credit originated prior to in an
amount of $ or less, making an estimate of the value (the "Estimated
Value") of the property to be mortgaged through, (a) in the case of home equity
lines of credit originated for such properties located in the State of
, the use of a formula that assumed that the then current value of
the property was equal to the amount the applicant paid for the property
together with appreciation of % of the purchase price for each year since
the applicant purchased the property and (b) in the case of home equity lines of
credit originated for such properties located in , a
property tax bill which reflected a 100% assessment on the property].
Although no complete title search of the property to be mortgaged is
required, a bring-down to the date of origination of the home equity lines of
credit of the complete title search obtained by the borrower at the time of his
original purchase of the mortgaged property must be delivered.
The Seller calculates the maximum amount of the loan that the customer may
obtain by taking % (or, in the case of home equity lines of credit
originated prior to , %) of the Drive-By Appraised Value or
Estimated Value, as the case may be, of the property and subtracting any
outstanding senior mortgage balance. Financial insurance premiums and fees are
not considered in the loan amount when making such computation.
Applications for loans exceeding the maximum amount calculated in the
preceding paragraph require regional manager approval. Overrides of other
criteria may be authorized by branch managers up to their lending limits. Among
the reasons that the Seller grants overrides are the existence of compensating
balances of the borrower in accounts held by the Seller (which balances will not
necessarily be available in the event of a default or delinquency of any
Mortgage Loan in the Pool) and relationships between the borrower and the trust
department of the Seller.
No information is available with respect to the portion of the home equity
lines of credit in the Seller's portfolio as to which overrides of underwriting
criteria were granted.
SERVICING OF THE MORTGAGE LOANS
[Centralized controls and standards have been established by the Master
Servicer for the servicing and collection of home equity lines of credit.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance processing, collections and liquidations.
The collection process is initiated ten days after the payment due date
with the computer generation of a late notice. To make payment arrangements, a
collector attempts to contact the borrower when the home equity line of credit
is 15 to 30 days past due.
During the period when an account is 45 to 60 days past due, a credit
bureau report is obtained, homeowner's insurance is verified, the status of
senior mortgages and property taxes is checked and a title search and "drive-by"
appraisal are ordered.
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<PAGE> 81
If arrangements have not been made to cure the delinquency within 60 days
of the line becoming past due, drawing privileges are cancelled. The line is
referred to outside counsel and is placed on a "non-accrual" status after 90
days of delinquency. All legal expenses are assessed to the account and become
the responsibility of the borrower. When it is determined by the Master Servicer
that there is no possibility of recovery from the mortgaged property or from
other leviable assets or wage attachments, the line is charged-off.
Reinstatement arrangements can be made up until the point of sale. Any
foreclosures initiated on a junior mortgage are subject to the senior mortgage
or mortgages and any outstanding property taxes. If the Servicer purchases the
property through the foreclosure action, the account is transferred to the
Master Servicer's REO Department which is maintained at . The REO
Department is responsible for maintaining and marketing the property.
The Master Servicer may not foreclose on the property securing a junior
mortgage loan unless the Master Servicer forecloses subject to any senior
mortgages, in which case the Master Servicer may pay the entire amount due on
the senior mortgage to the senior mortgagees at or prior to the foreclosure
sale. If a senior mortgage is in default after the Servicer has initiated its
foreclosure action, the Master Servicer may advance funds to keep senior
mortgages current until such time as the Master Servicer satisfies such senior
mortgages. In the event that foreclosure proceedings have been instituted on a
senior mortgage prior to the initiation of the Master Servicer's foreclosure
action, the Master Servicer may either satisfy the senior mortgage at the time
of the foreclosure sale or take other action to protect the Trust Fund's
interest in the related property.]
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Master Servicer's portfolio of home equity lines of
credit. The Master Servicer believes that there have been no material trends or
anomalies in the historical delinquency and loss experience as represented in
the following tables. The information in the tables below has not been adjusted
to eliminate the effect of the growth in the size of the Master Servicer's
portfolio during the periods shown. Accordingly, loss and delinquency as
percentages of aggregate principal balance of such loans for each period may be
higher than those shown if a group of such loans were artificially isolated at a
point in time and the information showed the activity only in that isolated
group. The data presented in the following tables are for illustrative purposes
only, and there is no assurance that the delinquency and loss experience of the
Mortgage Loans will be similar to that set forth below.
DELINQUENCY STATUS AS OF , 199 *
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
------- ------- ----- -------
<S> <C> <C> <C> <C>
Current..................................................... $ % %
30-59 days..................................................
60-89 days..................................................
90+ days....................................................
Total............................................. $ 100.00% 100.00%
====== ======= ==== ======
</TABLE>
- ---------------
* Delinquencies are reported on a contractual basis.
As of , 199 , loans with an aggregate balance of
$ are in bankruptcy and loans with an aggregate balance of
$ are in foreclosure. Of the loans in foreclosure, there will be a
199 charge off of $ . [In addition to this charge off, there
is an anticipated charge off of approximately $ which may also be
realized in .]
S-16
<PAGE> 82
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are first and more subordinate mortgages or
deeds of trust, on Mortgaged Properties located in [ ] states. The Mortgaged
Properties securing the Mortgage Loans consist of residential properties that
are one- to four-family properties. See "-- Mortgage Loan Terms" below.
The Cut-off Date Pool Balance is $ , which is equal to the
aggregate Principal Balances of the Mortgage Loans as of the Cut-off Date. As of
the Cut-off Date, the Mortgage Loans were not more than
days delinquent. The average Cut-off Date Principal Balance was approximately
$ , the minimum Cut-off Date Principal Balance was zero, the maximum
Cut-off Date Principal Balance was $ , the minimum Loan Rate and the
maximum Loan Rate as of the Cut-off Date were % and % per annum,
respectively, and the weighted average Loan Rate as of the Cut-off Date was
approximately % per annum. As of the Cut-off Date, the weighted average
Credit Limit Utilization Rate was approximately %, the minimum Credit Limit
Utilization Rate was zero and the maximum Credit Limit Utilization Rate was
100%. The "Credit Limit Utilization Rate" is determined by dividing the Cut-off
Date Principal Balance of a Mortgage Loan by the Credit Limit of the related
Credit Line Agreement. The remaining term to scheduled maturity for the Mortgage
Loans as of the Cut-off Date ranged from months to months and the
weighted average remaining term to scheduled maturity was approximately
months. As of the Cut-off Date, the Combined Loan-to-Value Ratio of the
Mortgage Loans ranged from % to % and the weighted average Combined
Loan-to-Value Ratio was %. The Combined Loan-to-Value Ratio for a Mortgage
Loan is the ratio (expressed as a percentage) of (A) the sum of (i) the Credit
Limit of the Mortgage Loan and (ii) any outstanding principal balances of
mortgage loans senior to such Mortgage Loan (calculated at the date of
origination of the Mortgage Loan) to (B) the lesser of (i) the appraised value
of the related Mortgaged Property as set forth in the loan files at such date of
origination or (ii) [in the case of a Mortgaged Property purchased within one
year of the origination of the related Mortgage Loan], the purchase price of
such Mortgaged Property. Credit Limits under the Mortgage Loans as of the
Cut-off Date ranged from $ to $ and averaged approximately
$ . The weighted average [second] [third] mortgage ratio (which is the
Credit Limit for the related Mortgage Loan, provided such Mortgage Loan was in
the [second] [third] lien position, divided by the sum of such Credit Limit and
the outstanding principal balance of any mortgage loan senior to the related
Mortgage Loan) was approximately %. As of the Cut-off Date, approximately
% by Cut-off Date Principal Balance of the Mortgage Loans represented first
liens on the related Mortgaged Properties, approximately % of the Mortgage
Loans represented second liens and approximately % of the Mortgage Loans
represented third liens. As of the Cut-off Date, approximately % of the
Mortgage Loans are secured by Mortgaged Properties which are single-family
residences and % were owner-occupied. As of the Cut-off Date, approximately
%, %, %, %, % and % by Cut-off Date Principal
Balance are located in [ , , , , and
], respectively.
MORTGAGE LOAN TERMS
A borrower may access a Mortgage Loan by writing a check in a minimum
amount of [$250]. The Mortgage Loans bear interest at a variable rate which
changes [monthly on the first business day of the related month] with changes in
the applicable Index Rate. The Mortgage Loans are subject to a maximum per annum
interest rate (the "Maximum Rate") ranging from % to % per annum and
subject to applicable usury limitations. As of the Cut-off Date, the weighted
average Maximum Rate was approximately %. See "Certain Legal Aspects of the
Loans -- Applicability of Usury Laws" in the Prospectus. The daily periodic rate
on the Mortgage Loans (the "Loan Rate") is the sum of the Index Rate plus the
spread (the "Margin") which generally ranges between % and % and had a
weighted average, as of the Cut-off Date, of approximately %, divided by
365 days. The "Index Rate" is based on [the highest "prime rate"
S-17
<PAGE> 83
published in the "Money Rates" table of The Wall Street Journal as of the first
business day of each calendar month].
[In general, the home equity loans may be drawn upon for a period (the
"Draw Period") of either five years (which may be extendible for an additional
five years, upon the approval of [ ]) or three years. Home equity loans
with an initial Draw Period of five years, which constitute approximately % of
the Mortgage Loans by Cut-off Date Principal Balance, are subject to a fifteen
year repayment period (the "Repayment Period") following the end of the Draw
Period during which the outstanding principal balance of the loan will be repaid
in monthly installments equal to [ 1/180] of the outstanding principal balance
as of the end of the Draw Period. Mortgage Loans with a Draw Period of three
years, which constitute approximately % of the Mortgage Loans by Cut-off
Date Principal Balance, are subject to a ten year Repayment Period following the
end of the Draw Period during which the outstanding principal balance of the
loan will be paid in monthly installments equal to [ 1/120] of the outstanding
principal balance as of the end of the Draw Period.]
[The minimum payment due during the Draw Period will be equal to the
finance charges accrued on the outstanding principal balance of the home equity
loan during the related billing period. The minimum payment due during the
repayment period will be equal to the sum of the finance charges accrued on the
outstanding principal balance of the Mortgage Loan during the related billing
period and the principal payment described above.]
Set forth below is a description of certain characteristics of the Mortgage
Loans as of the Cut-off Date:
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF PRINCIPAL BALANCES LOANS BALANCE BALANCE
- -------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ............................... $ %
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ and over.....................................
----- ---------- -------
Total......................................... $ 100.00%
===== ========== =======
</TABLE>
S-18
<PAGE> 84
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
STATE LOANS LOANS BALANCE BALANCE
- -------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
....................................... $ %
----- ---------- -------
Total......................................... $ 100.00%
===== ========== =======
</TABLE>
- ---------------
(1) Geographic location is determined by the address of the Mortgaged Property
securing the related Mortgage Loan.
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
PERCENT OF
CUT-OFF POOL BY
NUMBER OF DATE CUT-OFF DATE
RANGE OF COMBINED MORTGAGE PRINCIPAL PRINCIPAL
LOAN TO VALUE RATIOS LOANS BALANCE BALANCE
- -------------------------------------------------------- --------- ---------- ------------
<S> <C> <C> <C>
$ to $ ............................... $ %
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ and over.....................................
----- ---------- -------
Total......................................... $ 100.00%
===== ========== =======
</TABLE>
- ---------------
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the Credit Limit
of the Mortgage Loans and (ii) any outstanding principal balances of
mortgage loans senior to the Mortgage Loans (calculated at the date of
origination of the Mortgage Loans) to (B) the lesser of (i) the appraised
value of the related Mortgaged Property as set forth in loan files at such
date of origination or (ii) [in the case of a Mortgaged Property purchased
within one year of the origination of the related Mortgage Loan, the
purchase price of such Mortgaged Property].
S-19
<PAGE> 85
PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
PROPERTY TYPE LOANS BALANCE BALANCE
- -------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Single Family........................................... $ %
Two- to Four-Family.....................................
Condominium.............................................
PUD.....................................................
----- ---------- -------
Total......................................... $ 100.00%
===== ========== =======
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
LIEN PRIORITY LOANS BALANCE BALANCE
- -------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
First Lien.............................................. $ %
Second Lien.............................................
Third Lien..............................................
----- ---------- -------
Total......................................... $ 100.00%
===== ========== =======
</TABLE>
LOAN RATES(1)
<TABLE>
<CAPTION>
PERCENT OF
POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
LOAN RATES LOANS BALANCE BALANCE
- -------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ............................... $ %
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
$ to $ ...............................
----- ---------- -------
Total......................................... $ 100.00%
===== ========== =======
</TABLE>
- ---------------
(1) Approximately % of the Mortgage Loans by Cut-Off Date Principal Balance
are subject to an introductory rate of % per annum.
S-20
<PAGE> 86
MARGIN
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MORTGAGE PRINCIPAL PRINCIPAL
LOAN RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF CREDIT LIMIT MORTGAGE PRINCIPAL PRINCIPAL
UTILIZATION RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
S-21
<PAGE> 87
CREDIT LIMITS
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
RANGE OF CREDIT LIMITS LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ and over..............................
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
MAXIMUM RATES
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
MAXIMUM RATES LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ ....................... $ %
$ .......................
$ .......................
$ .......................
$ .......................
$ .......................
$ .......................
$ .......................
$ .......................
$ .......................
$ .......................
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
S-22
<PAGE> 88
MONTHS REMAINING TO SCHEDULED MATURITY(1)
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
RANGE OF MONTHS MORTGAGE PRINCIPAL PRINCIPAL
REMAINING TO SCHEDULED MATURITY LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$ to $ ........................ $ %
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
$ to $ ........................
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
ORIGINATION YEAR
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
ORIGINATION YEAR LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
........................ $ %
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
PERCENT
OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
MORTGAGE PRINCIPAL PRINCIPAL
NUMBER OF DAYS DELINQUENT LOANS BALANCE BALANCE
------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
0 to 29.......................................... $ %
30 to 59.........................................
60 to 89.........................................
--------- ------------ ------------
Total.................................. $ 100.00%
======== ========= =========
</TABLE>
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Securities, the Depositor will transfer to
the Trust Fund all of its right, title and interest in and to each Mortgage Loan
(including its right to purchase any Additional Balances arising in the future),
related Credit Line Agreements, mortgages and other related documents
(collectively, the "Related Documents"), without recourse, including all
collections received on or with respect to each such
S-23
<PAGE> 89
Mortgage Loan after the Cut-off Date (exclusive of payments in respect of
accrued interest due on or prior to the Cut-off Date or due in the month of
). The Owner Trustee, concurrently with such transfer, will
deliver the Securities. Each Mortgage Loan transferred to the Owner Trust will
be identified on a schedule delivered to the Owner Trustee pursuant to the
Purchase Agreement. Such schedule will include information as to the Cut-off
Date Principal Balance of each Mortgage Loan, as well as information with
respect to the Loan Rate.
[The Purchase Agreement will permit the Seller to maintain possession of
the Related Documents and certain other documents relating to the Mortgage Loans
(the "Mortgage Files") and assignments of the Mortgage Loans to the Owner
Trustee will not be required to be recorded for so long as the long-term senior
unsecured debt of [ ] is rated at least " " by
and " " by . In the event that the
long-term senior unsecured debt rating of [ ] does not satisfy the
above-described standards (an "Assignment Event"), [ ] will have 90
days to record assignments of the mortgages for each such Mortgage Loan in favor
of the Owner Trustee and 60 days to deliver the Mortgage Files pertaining to
each such Mortgage Loan to the Trustee (unless opinions of counsel satisfactory
to the Rating Agencies and the [Letter of Credit][Surety Bond] provider to the
effect that recordation of such assignments or delivery of such documentation is
not required in the relevant jurisdiction to protect the interest of
[ ] and the Owner Trustee in the Mortgage Loans).] In lieu of
delivery of original documentation, [ ] may deliver documents which
have been imaged optically upon delivery of an opinion of counsel that such
documents do not impair the enforceability of the transfer to the Trust Fund of
the Mortgage Loans.
Within [90] days of on Assignment Event, the Owner Trustee will review the
Mortgage Loans and the Related Documents and if any Mortgage Loan or Related
Document is found to be defective in any material respect and such defect is not
cured within [90] days following notification thereof to the Seller and the
Depositor by the Owner Trustee, the Seller will be obligated to repurchase the
Mortgage Loan and to deposit the Repurchase Price into the Collection Account.
Upon such retransfer, the Principal Balance of such Mortgage Loan will be
deducted from the Pool Balance. In lieu of any such repurchase, the Seller may
substitute an Eligible Substitute Mortgage Loan. Any such repurchase or
substitution will be considered a payment in full of such Mortgage Loan. The
obligation of the Seller to accept a transfer of a Defective Mortgage Loan is
the sole remedy regarding any defects in the Mortgage Loans and Related
Documents available to the Owner Trustee or the Holders.
With respect to any Mortgage Loan, the "Repurchase Price" is equal to the
Principal Balance of such Mortgage Loan at the time of any transfer described
above plus accrued and unpaid interest thereon to the date of repurchase.
[An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the Depositor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not % more or less than the Transfer Deficiency
relating to such Defective Mortgage Loan; (ii) have a Loan Rate not less than
the Loan Rate of the Defective Mortgage Loan and not more than 1% in excess of
the Loan Rate of such Defective Mortgage Loan; (iii) have a Loan Rate based on
the same Index with adjustments to such Loan Rate made on the same Interest Rate
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Margin that
is not less than the Margin of the Defective Mortgage Loan and not more than
basis points higher than the Margin for the Defective Mortgage Loan; (v) have a
mortgage of the same or higher level of priority as the mortgage relating to the
Defective Mortgage Loan; (vi) have a remaining term to maturity not more than
months earlier and not more than months later than the remaining term to
maturity of the Defective Mortgage Loan; (vii) comply with each representation
and warranty as to the Mortgage Loans set forth in the Purchase Agreement
(deemed to be made as of the date of substitution); (viii) in general, have an
original Combined Loan-to-Value Ratio not greater than that of the Defective
Mortgage Loans; and (ix) satisfy certain other conditions specified in the
Purchase Agreement. To the extent the Principal Balance of an Eligible
Substitute Mortgage Loan is less than the Principal Balance of the related
Defective Mortgage Loan, the Seller will be required to make a deposit to the
Collection Account equal to such difference.]
S-24
<PAGE> 90
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the Owner
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Loan Rate). In addition, the Seller will represent and warrant on the
Closing Date that at the time of transfer to the Depositor, the Seller has
transferred or assigned all of its right, title and interest in each Mortgage
Loan and the Related Documents, free of any lien (subject to certain
exceptions). Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Holders or the
[Letter of Credit][Surety Bond] provider in the Related Mortgage Loan and
Related Documents, the Seller will have a period of [90] days after discovery or
notice of the breach to effect a cure. If the breach cannot be cured within the
[90-day] period, the Seller will be obligated to repurchase or substitute the
Defective Mortgage Loan from the Trust Fund. The same procedure and limitations
that are set forth above for the repurchase or substitution of Defective
Mortgage Loans will apply to the transfer of a Mortgage Loan that is required to
be repurchased or substituted because of a breach of a representation or
warranty in the Purchase Agreement that materially and adversely affects the
interests of the Holders.
Mortgage Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as "Defective Mortgage Loans."
MATURITY AND PREPAYMENT CONSIDERATIONS
All of the Mortgage Loans may be prepaid in full or in part at any time.
[However, Mortgage Loans secured by Mortgaged Properties in California are
subject to an account termination fee equal to the lesser of $350 and six months
interest on the amount prepaid, to the extent the prepaid amount exceeds 20% of
the unpaid principal balance, if the account is terminated on or before its
fifth year anniversary. In addition, Mortgage Loans secured by Mortgaged
Properties in other jurisdictions may be subject to account termination fees to
the extent permitted by law. In general, such account termination fees do not
exceed $350 and do not apply to accounts terminated subsequent to a date
designated in the related Mortgage Note which, depending on the jurisdiction,
ranges between six months and five years following origination.] The prepayment
experience with respect to the Mortgage Loans will affect the weighted average
life of the Securities.
The rate of prepayment on the Mortgage Loans cannot be predicted. Neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such Mortgage Loans. Generally, home
equity revolving credit lines are not viewed by borrowers as permanent
financing. Accordingly, the Mortgage Loans may experience a higher rate of
prepayment than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described under "Description of the Mortgage
Loans -- Mortgage Loan Terms" herein, rates of principal payment on the Mortgage
Loans will generally be slower than those of traditional fully-amortizing first
mortgages in the absence of prepayments on such Mortgage Loans. The prepayment
experience of the Trust Fund with respect to the Mortgage Loans may be affected
by a wide variety of factors, including general economic conditions, prevailing
interest rate levels, the availability of alternative financing, homeowner
mobility, the frequency and amount of any future draws on the Credit Line
Agreements and changes affecting the deductibility for Federal income tax
purposes of interest payments on home equity credit lines. Substantially all of
the Mortgage Loans contain "due-on-sale" provisions, and, with respect to the
Mortgage Loans, the Master Servicer intends to enforce such provisions, unless
such enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the related
Mortgage Loan. See "Certain Legal Aspects of the Loans -- Due-on-Sale Clauses"
in the Prospectus.
The yield to an investor who purchases the Securities in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the Mortgage Loans is actually different than the rate
anticipated by such investor at the time such Securities were purchased.
Collections on the Mortgage Loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for such month or as high as the entire outstanding principal balance
plus accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make scheduled payments. Collections on the Mortgage Loans
may vary due to seasonal purchasing and payment habits of borrowers.
S-25
<PAGE> 91
No assurance can be given as to the level of prepayments that will be
experienced by the Trust Fund and it can be expected that a portion of borrowers
will not prepay their Mortgage Loans to any significant degree. See "Yield and
Prepayment Considerations" in the Prospectus.
DESCRIPTION OF THE MASTER SERVICING AGREEMENT
The Master Servicer shall establish and maintain on behalf of the Owner
Trustee an account (the "Collection Account") for the benefit of the Holders.
The Collection Account will be an Eligible Account (as defined herein). Subject
to the investment provision described in the following paragraphs, upon receipt
by the Master Servicer of amounts in respect of the Mortgage Loans (excluding
amounts representing administrative charges, annual fees, taxes, assessments,
credit insurance charges, insurance proceeds to be applied to the restoration or
repair of a Mortgaged Property or similar items), the Master Servicer will
deposit such amounts in the Collection Account. Amounts so deposited may be
invested in Eligible Investments (as described in the Servicing Agreement)
maturing no later than one Business Day prior to the date on which the amount on
deposit therein is required to be deposited in the Distribution Account or on
such Distribution Date if approved by the Rating Agencies. Not later than the
Business Day prior to each Distribution Date (the "Determination Date"), the
Master Servicer will notify the Owner Trustee and the Indenture Trustee of the
amount of such deposit to be included in funds available for the related
Distribution Date.
The Owner Trustee and the Indenture Trustee will establish one or more
accounts (the "Security Account") into which will be deposited amounts withdrawn
from the Collection Account for distribution to Holders on a Distribution Date.
The Security Account will be an Eligible Account. Amounts on deposit therein
will be invested in Eligible Investments maturing on or before the Business Day
prior to the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit therein
have the highest short-term debt rating by the Rating Agencies, (ii) one or more
accounts with a depository institution having a minimum long-term unsecured debt
rating of " " by and " " by
, which accounts are fully insured by either the Savings
Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation established by such fund, (iii) a
segregated trust account maintained with the Owner Trustee or an Affiliate of
the Owner Trustee in its fiduciary capacity or (iv) otherwise acceptable to each
Rating Agency as evidenced by a letter from each Rating Agency to the Owner
Trustee, without reduction or withdrawal of their then current ratings of the
Securities.
Eligible Investments are specified in the Servicing Agreement and are
limited to (i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the Securities, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Securities by each such Rating Agency; (iii) commercial or finance company paper
which is then receiving the highest commercial or finance company paper rating
of each such Rating Agency, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to the Securities by each
such Rating Agency; (iv) certificates of deposit, demand or time deposits, or
bankers' 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 long term unsecured debt
obligations or such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's Investors Service, Inc. is not a Rating Agency) are then rated one of
the two highest long-term and the highest short-term ratings of each such Rating
Agency for such securities, or such lower ratings as will not result in the
downgrading or withdrawal of the rating then assigned to the Securities by any
such Rating Agency; (iv) demand or time deposits or certificates of deposit
issued by any bank or trust company or savings institution to the extent that
such deposits are fully insured by the FDIC; (v) guaranteed reinvestment
agreements issued by any bank,
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insurance company or other corporation containing, at the time of the issuance
of such agreements, such terms and conditions as will not result in the
downgrading or withdrawal of the rating then assigned to the Securities by any
such Rating Agency; (vi) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered into with a
depository institution or trust company (acting as principal) described in
clause (iv) above; (vii) securities (other than stripped bonds, stripped coupons
or instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in the downgrading or withdrawal of the rating then
assigned to the Securities by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; and (viii) such other investments
having a specified stated maturity and bearing interest or sold at a discount
acceptable to each Rating Agency as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
provided that no such instrument shall be a Permitted Investment if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in respect
of interest and amounts collected in respect of principal. As to any
Distribution Date, "Interest Collections" will be equal to the aggregate of the
amounts collected during the related Collection Period, including Net
Liquidation Proceeds (as defined below), allocated to interest pursuant to the
terms of the Credit Line Agreements.
As to any Distribution Date, "Principal Collections" will be equal to the
sum of (i) the amounts collected during the related Collection Period, including
Net Liquidation Proceeds, and allocated to principal pursuant to the terms of
the Credit Line Agreements and (ii) any Substitution Adjustment Amounts. "Net
Liquidation Proceeds" with respect to a Mortgage Loan are equal to the aggregate
of all amounts received upon liquidation of such Mortgage Loan, including,
without limitation, insurance proceeds, reduced by related expenses, but not
including the portion, if any, of such amount that exceeds the Principal Balance
of the Mortgage Loan at the end of the Collection Period immediately preceding
the Collection Period in which such Mortgage Loan became a Liquidated Mortgage
Loan plus accrued and unpaid interest thereon through the date of liquidation.
With respect to any date, the "Pool Balance" will be equal to the aggregate
of the Principal Balances of all Mortgage Loans as of such date. The Principal
Balance of a Mortgage Loan (other than a Liquidated Mortgage Loan) on any day is
equal to the Cut-off Date Principal Balance thereof, plus (i) any Additional
Balances in respect of such Mortgage Loan minus (ii) all collections credited
against the Principal Balance of such Mortgage Loan in accordance with the
related Credit Line Agreement prior to such day. The Principal Balance of a
Liquidated Mortgage Loan after final recovery of related Liquidation Proceeds
shall be zero.
HAZARD INSURANCE
[The Master Servicing Agreement provides that the Master Servicer maintain
certain hazard insurance on the Mortgaged Properties relating to the Mortgage
Loans. While the terms of the related Credit Line Agreements generally require
borrowers to maintain certain hazard insurance, the Master Servicer will not
monitor the maintenance of such insurance.
The Master Servicing Agreement requires the Master Servicer to maintain for
any Mortgaged Property relating to a Mortgage Loan acquired upon foreclosure of
a Mortgage Loan, or by deed in lieu of such foreclosure, hazard insurance with
extended coverage in an amount equal to the lesser of (a) the maximum insurable
value of such Mortgaged Property or (b) the outstanding balance of such Mortgage
Loan plus the outstanding balance on any mortgage loan senior to such Mortgage
Loan at the time of foreclosure or deed in lieu of foreclosure, plus accrued
interest and the Master Servicer's good faith estimate of the related
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liquidation expenses to be incurred in connection therewith. The Master
Servicing Agreement provides that the Master Servicer may satisfy its obligation
to cause hazard policies to be maintained by maintaining a blanket policy
insuring against losses on such Mortgaged Properties. If such blanket policy
contains a deductible clause, the Master Servicer will be obligated to deposit
in the Collection Account the sums which would have been deposited therein but
for such clause. The Master Servicer will initially satisfy these requirements
by maintaining a blanket policy. As set forth above, all amounts collected by
the Master Servicer (net of any reimbursements to the Master Servicer) under any
hazard policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property) will ultimately be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, and the like, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Mortgage Loans will be underwritten by
different insurers and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by state laws and most of such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive or an
exact description of the insurance policies relating to the Mortgaged
Properties.]
REALIZATION UPON DEFAULTED MORTGAGE LOANS
[The Master Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default when in accordance with applicable servicing procedures under the Master
Servicing Agreement, no satisfactory arrangements can be made for the collection
of delinquent payments. In connection with such foreclosure or other conversion,
the Master Servicer will follow such practices as it deems necessary or
advisable and as are in keeping with its general subordinate mortgage servicing
activities, provided the Master Servicer will not be required to expend its own
funds in connection with foreclosure or other conversion, correction of default
on a related senior mortgage loan or restoration of any property unless, in its
sole judgment, such foreclosure, correction or restoration will increase net
Liquidation Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any Net
Liquidation Proceeds are distributed to Holders or the [Transferor][Seller].
"Net Liquidation Proceeds" with respect to a Mortgage Loan is the amount
received upon liquidation of such Mortgage Loan reduced by related expenses,
which may include the amount advanced in respect of a senior mortgage, up to the
unpaid Principal Balance of the Mortgage Loan plus accrued and unpaid interest
thereon.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, other than the first Collection
Period, the Master Servicer will retain from interest collections in respect of
the Mortgage Loan a portion of such interest collections as a monthly Servicing
Fee in the amount equal to % per annum ("Servicing Fee Rate") on the
aggregate Principal Balances of the Mortgage Loans as of the first day of each
such Collection Period. All assumption fees, late payment charges and other fees
and charges, to the extent collected from borrowers, will be retained by the
Master Servicer as additional servicing compensation.
[The Master Servicer will pay certain ongoing expenses associated with the
Trust Fund and incurred by it in connection with its responsibilities under the
Servicing Agreement, including, without limitation, payment of the fees and
disbursements of the Trustee, any custodian appointed by the Trustee, the entity
maintaining the Security Register relating to the Securities and any paying
agent. In addition, the Master Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with defaulted Mortgage Loans and
in connection with the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Holders to receive any related Net
Liquidation Proceeds.]
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DESCRIPTION OF THE SECURITIES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of
, 199 , between the Trust Fund and , as
Indenture Trustee. The Certificates will be issued pursuant to the Trust
Agreement dated as of , 199 , among the Depositor,
, and , as Owner Trustee. The following
is a description of the material provisions of the Securities, Indenture and
Trust Agreement. As used herein, "Agreement" shall mean either the Trust
Agreement or the Indenture, as the context requires.
The Securities will be issued in fully registered, certificated form only.
The Securities will be freely transferable and exchangeable at the corporate
trust office of the Owner Trustee, with respect to the Certificates, or the
Indenture Trustee, with respect to the Notes.
BOOK-ENTRY SECURITIES
The Senior Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the Senior
Certificates ("Certificate Owners") will hold their Certificates through the
Depository Trust Company ("DTC") in the United States, or CEDEL or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates which equal the
aggregate principal balance of the Certificates and will initially be registered
in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank N.A. will act
as depositary for CEDEL and Chase will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing Certificate
Principal Balances of $1,000 and in integral multiples in excess thereof. Except
as described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Certificates will be Cede & Co., as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
Pooling and Servicing Agreement. Certificate Owners are only permitted to
exercise their rights indirectly through the participating organizations that
utilize the services of DTC, including securities brokers and dealers, banks and
trust companies and clearing corporations and certain other organizations
("Participants") and DTC.
DISTRIBUTIONS
On each Distribution Date, collections on the Mortgage Loans will be
applied in the following order of priority:
(i) [to the Master Servicer, the Servicing Fee];
(ii) as payment for the accrued interest due and any overdue accrued
interest on the respective Security Principal Balance of the Notes and the
Certificates;
(iii) as principal on the Securities, the excess of Principal
Collections over Additional Balances created during the preceding
Collection Period, such amount to be allocated between the Notes and
Certificates pro rata, based on their respective Security Principal
Balances;
(iv) as principal on the Securities, as payment for any Liquidation
Loss Amounts on the Mortgage Loans;
(v) as payment for the premium for the [Letter of Credit][Surety
Bond];
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(vi) to reimburse prior draws made on the [Letter of Credit][Surety
Bond]; and
(vii) any remaining amounts to the Seller.
As to any Distribution Date, the "Collection Period" is the calendar month
preceding the month of such Distribution Date. "Liquidation Loss Amount" means,
with respect to any Liquidated Mortgage Loan, the unrecovered Principal Balance
thereof at the end of the Collection Period in which such Mortgage Loan became a
Liquidated Mortgage Loan after giving effect to the Net Liquidation Proceeds in
connection therewith.
INTEREST
Note Rate. Interest will accrue on the unpaid Security Principal Balance
of the Notes at the per annum rate (the "Note Rate") equal to % per annum from
the Closing Date to the first Distribution Date and thereafter interest will
accrue on the Notes from and including the preceding Distribution Date to but
excluding such current Distribution Date (each, an "Interest Accrual Period") at
[a floating rate equal to LIBOR (as defined herein) plus %] [ %]. [Interest
will be calculated on the basis of the actual number of days in each Interest
Accrual Period divided by 360.] A failure to pay interest on any Notes on any
Distribution Date that continues for [five] days constitutes an Event of Default
under the Indenture.
Pass-Through Rate. Interest will accrue on the unpaid Security Principal
Balance of the Certificates at the per annum rate (the "Pass-Through Rate")
equal to % per annum from the Closing Date to the first Distribution Date and
thereafter interest will accrue on the Certificates for each Interest Accrual
Period at [a floating rate equal to LIBOR (as defined herein) plus %] [ %].
[Interest will be calculated on the basis of the actual number of days in each
Interest Accrual Period divided by 360.] A failure to pay interest on any
Certificates on any Distribution Date that continues for five days constitutes
an Event of Default under the Trust Agreement.
OPTIONAL TERMINATION
The Trust Fund will terminate on the Distribution Date following the
earlier of (i) and (ii) the final payment or other liquidation of
the last Mortgage Loan in the Trust Fund. The Mortgage Loans will be subject to
optional repurchase by the Master Servicer on any Distribution Date after the
Principal Balance is reduced to an amount less than or equal to $ ( %
of the initial Principal Balance). The repurchase price will be equal to the sum
of the outstanding Principal Balance and accrued and unpaid interest thereon at
the weighted average of the Loan Rates through the day preceding the final
Distribution Date.
THE DEPOSITOR
Morgan Stanley ABS Capital I Inc., the Depositor, is a Delaware corporation
and a direct, wholly-owned subsidiary of Morgan Stanley Group Inc. The Depositor
maintains its principal office at 1585 Broadway, 37th Floor, New York, New York
10036. Its telephone number is (212) 761-4000.
THE INDENTURE
The following is a description of the material terms of the Indenture.
Whenever particular sections or defined terms of the Indenture are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
"Description of the Securities" herein for a summary of certain additional terms
of the Indenture.
REPORTS TO NOTEHOLDERS
The Indenture Trustee will mail to each Noteholder, at such Noteholder's
request, at its address listed on the Note Register maintained with the
Indenture Trustee a report setting forth certain amounts relating to the Notes.
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EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, "Events of Default" under the Indenture will
consist of: (i) a default for [five] days or more in the payment of any interest
on any Note; (ii) a default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and payable;
(iii) a default in the observance or performance of any covenant or agreement of
the Trust Fund made in the Indenture and the continuation of any such default
for a period of 30 days after notice thereof is given to the Trust Fund by the
Indenture Trustee or to the Trust Fund and the Indenture Trustee by the holders
of at least 25% in principal amount of the Notes then outstanding; (iv) any
representation or warranty made by the Trust Fund in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust Fund by the
Indenture Trustee or to the Trust Fund and the Indenture Trustee by the holders
of at least 25% in principal amount of Notes then outstanding; or (v) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust Fund.
[The amount of principal required to be paid to Noteholders under the Indenture
will generally be limited to amounts available to be deposited in the Collection
Account. Therefore, the failure to pay principal on the Notes generally will not
result in the occurrence of an Event of Default until the final scheduled
Distribution Date for such Notes.] If there is an Event of Default with respect
to a Note due to late payment or nonpayment of interest due on a Note,
additional interest will accrue on such unpaid interest at the interest rate on
the Note (to the extent lawful) until such interest is paid. Such additional
interest on unpaid interest shall be due at the time such interest is paid. If
there is an Event of Default due to late payment or nonpayment of principal on a
Note, interest will continue to accrue on such principal at the interest rate on
the Note until such principal is paid. If an Event of Default should occur and
be continuing with respect to the Notes, the Indenture Trustee or holders of a
majority in principal amount of Notes then outstanding may declare the principal
of such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of the Notes then outstanding. If the Notes are due and payable following
an Event of Default with respect thereto, the Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Fund property or
exercise remedies as a secured party. If an Event of Default occurs and is
continuing with respect to the Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of the Notes, if the Indenture
Trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which might be incurred by it in complying with
such request. Subject to the provisions for indemnification and certain
limitations contained in the Indenture, the holders of a majority in principal
amount of the outstanding Notes will have the right to direct the time, method
and place of conducting any proceeding or any remedy available to the Indenture
Trustee, and the holders of a majority in principal amount of the Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all the holders of the outstanding Notes. No holder of a
Note will have the right to institute any proceeding with respect to the
Indenture, unless (i) such holder previously has given the Indenture Trustee
written notice of a continuing Event of Default, (ii) the holders of not less
than 25% in principal amount of the outstanding Notes have made written request
to the Indenture Trustee to institute such proceeding in its own name as
Indenture Trustee, (iii) such holder or holders have offered the Indenture
Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60 days failed
to institute such proceeding and (v) no direction inconsistent with such written
request has been given to the Indenture Trustee during the 60-day period by the
holders of a majority in principal amount of the Notes. In addition, the
Indenture Trustee and the Noteholders, by accepting the Notes, will covenant
that they will not at any time institute against the Trust Fund any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law. With respect to the Trust Fund, neither the Indenture Trustee nor
the Owner Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in the Trust Fund nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the Notes or for the agreements of the Trust Fund contained in the Indenture.
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CERTAIN COVENANTS
The Indenture will provide that the Trust Fund may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the Trust
Fund's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Trust Fund under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust Fund has been
advised that the ratings of the Securities then in effect would not be reduced
or withdrawn by any Rating Agency as a result of such merger or consolidation
and (v) the Trust Fund has received an opinion of counsel to the effect that
such consolidation or merger would have no material adverse tax consequence to
the Trust Fund or to any Noteholder or Certificateholder. The Trust Fund will
not, among other things, (i) except as expressly permitted by the Indenture,
sell, transfer, exchange or otherwise dispose of any of the assets of the Trust
Fund, (ii) claim any credit on or make any deduction from the principal and
interest payable in respect of the Notes (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or former
holder of Notes because of the payment of taxes levied or assessed upon the
Trust Fund, (iii) dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the Indenture to be impaired or permit any person
to be released from any covenants or obligations with respect to the Notes under
the Indenture except as may be expressly permitted thereby or (v) permit any
lien, charge excise, claim, security interest, mortgage or other encumbrance to
be created on or extend to or otherwise arise upon or burden the assets of the
Trust Fund or any part thereof, or any interest therein or the proceeds thereof.
The Trust Fund may not engage in any activity other than as specified under "The
Trust Fund" herein. The Trust Fund will not incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the Notes and the
Indenture.
ANNUAL COMPLIANCE STATEMENT
The Trust Fund will be required to file annually with the Indenture Trustee
a written statement as to the fulfillment of its obligations under the
Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The Indenture Trustee will be required to mail each year to all Noteholders
a report relating to any change in its eligibility and qualification to continue
as Indenture Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of any indebtedness owing
by the Trust Fund to the Indenture Trustee in its individual capacity, any
change in the property and funds physically held by the Indenture Trustee as
such and any action taken by it that materially affects the Notes and that has
not been previously reported, but if no such changes have occurred, then no
report shall be required.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all the
Notes or, with certain limitations, upon deposit with the Indenture Trustee of
funds sufficient for the payment in full of all the Notes.
MODIFICATION OF INDENTURE
With the consent of the holders of a majority in principal amount of the
Notes then outstanding, the Trust Fund and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the Indenture, or modify (except as provided below) in any
manner the rights of the Noteholders. Without the consent of the holder of each
outstanding Note affected thereby, however, no supplemental indenture will: (i)
change the due date of any installment of principal of or interest on any Note
or reduce the principal amount thereof, the interest rate specified thereon or
the redemption price with respect thereto or change any place of payment where
or the coin or currency in which any Note or any
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interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the Indenture regarding payment; (iii)
reduce the percentage of the aggregate amount of the outstanding Notes, the
consent of the holders of which is required for any supplemental indenture or
the consent of the holders of which is required for any waiver of compliance
with certain provisions of the Indenture or of certain defaults thereunder and
their consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust
Fund, the Depositor or an affiliate of any of them; (v) decrease the percentage
of the aggregate principal amount of Notes required to amend the sections of the
Indenture which specify the applicable percentage of aggregate principal amount
of the Notes necessary to amend the Indenture or certain other related
agreements; or (vi) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the Indenture on any such collateral or deprive the holder
of any Note of the security afforded by the lien of the Indenture. The Trust
Fund and the Indenture Trustee may also enter into supplemental indentures,
without obtaining the consent of the Noteholders, for the purpose of, among
other things, adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of modifying in any manner the rights
of the Noteholders; provided that such action will not materially and adversely
affect the interest of any Noteholder.
VOTING RIGHTS
At all times, the voting rights of Noteholders under the Indenture will be
allocated among the Notes pro rata in accordance with their outstanding
principal balances.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Indenture Trustee nor any director, officer or
employee of the Depositor or the Indenture Trustee will be under any liability
to the Trust Fund or the related Noteholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Indenture
or for errors in judgment; provided, however, that none of the Indenture
Trustee, the Depositor and any director, officer or employee thereof will be
protected against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties under the
Indenture. Subject to certain limitations set forth in the Indenture, the
Indenture Trustee and any director, officer, employee or agent of the Indenture
Trustee shall be indemnified by the Trust Fund and held harmless against any
loss, liability or expense incurred in connection with investigating, preparing
to defend or defending any legal action, commenced or threatened, relating to
the Indenture other than any loss, liability or expense incurred by reason of
willful malfeasance, bad faith or gross negligence in the performance of its
duties under such Indenture or by reason of reckless disregard of its
obligations and duties under the Indenture. Any such indemnification by the
Trust Fund will reduce the amount distributable to the Noteholders. All persons
into which the Indenture Trustee may be merged or with which it may be
consolidated or any person resulting from such merger or consolidation shall be
the successor of the Indenture Trustee under each Indenture.
THE TRUST AGREEMENT
The following is a description of the material terms of the Trust
Agreement. Whenever particular sections or defined terms of the Trust Agreement
are referred to, such sections or defined terms are thereby incorporated herein
by reference. See "Description of the Securities" herein for a summary of
certain additional terms of the Trust Agreement.
AMENDMENT
The Trust Agreement may be amended by the Depositor and the Owner Trustee,
without consent of the Holders, to cure any ambiguity, to correct or supplement
any provision or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions thereof or of modifying in any
manner the rights of such Holders; provided, however, that such action will not,
as evidenced by an opinion of
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counsel satisfactory to the Owner Trustee, adversely affect in any material
respect the interests of any Holders. The Trust Agreement may also be amended by
the Depositor and the Owner Trustee with the consent of the holders of
Certificates evidencing at least a majority in principal amount of then
outstanding Certificates and Holders owning Voting Interests (as herein defined)
aggregating not less than a majority of the aggregate Voting Interests for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Trust Agreement or modifying in any manner the rights
of the Holders.
TERMINATION
Upon termination of the Trust Fund, the Owner Trustee shall direct the
Indenture Trustee promptly to sell the assets of the Trust Fund (other than the
Collection Account) in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from any such sale, disposition or liquidation of
the Mortgage Loans will be treated as collections on the Mortgage Loans and
deposited in the Collection Account. The Trust Agreement will provide that the
Owner Trustee does not have the power to commence a voluntary proceeding in
bankruptcy with respect to the Trust Fund without the unanimous prior approval
of all Holders (including the Depositor) of the Trust Fund and the delivery to
the Owner Trustee by each Holder (including the Depositor) of a certificate
certifying that the Holder reasonably believes that the Trust Fund is insolvent.
LIABILITY OF THE DEPOSITOR
Under the Trust Agreement, the Depositor will agree to be liable directly
to an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Holder in the
capacity of an investor with respect to the Trust Fund) arising out of or based
on the arrangement created by the Trust Agreement.
VOTING INTERESTS
As of any date, the aggregate principal balance of all Certificates
outstanding will constitute the voting interest of the Issuer (the "Voting
Interests"), except that, for purposes of determining Voting Interests,
Certificates owned by the Issuer or its affiliates (other than the Depositor)
will be disregarded and deemed not to be outstanding, and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Owner Trustee knows to be so owned will be so disregarded.
Certificates so owned that have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Owner Trustee
the pledgor's right so to act with respect to such Certificates and that the
pledgee is not the Issuer or its affiliates.
CERTAIN MATTERS REGARDING THE OWNER TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Owner Trustee nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust Fund or the related Holders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Trust Agreement or
for errors in judgment; provided, however, that none of the Owner Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Trust
Agreement. Subject to certain limitations set forth in the Trust Agreement, the
Owner Trustee and any director, officer, employee or agent of the Owner Trustee
shall be indemnified by the Trust Fund and held harmless against any loss,
liability or expense incurred in connection with investigating, preparing to
defend or defending any legal action, commenced or threatened, relating to the
Trust Agreement other than any loss, liability or expense incurred by reason of
willful malfeasance, bad faith or gross negligence in the performance of its
duties under such Trust Agreement or by reason of reckless disregard of its
obligations and duties under the Trust Agreement. Any such indemnification by
the Trust Fund will reduce the amount distributable to the Holders. All persons
into which the Owner Trustee may be merged or with which it may be consolidated
or any person resulting from such merger or consolidation shall be the successor
of the Owner Trustee under each Trust Agreement.
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ADMINISTRATION AGREEMENT
The , in its capacity as Administrator, will enter into the
Administration Agreement with the Trust Fund and the Owner Trustee pursuant to
which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide notices and perform other administrative
obligations required by the Indenture and the Trust Agreement.
THE INDENTURE TRUSTEE
[ ] is the Indenture Trustee under the Indenture. The mailing
address of the Indenture Trustee is [ ], Attention: Corporate
Trust Department.
THE OWNER TRUSTEE
[ ] is the Owner Trustee under the Trust Agreement. The mailing
address of the Owner Trustee is [ ], Attention: Corporate
Trust Administration.
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by the
Depositor towards the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal income
tax aspects of the purchase, ownership and disposition of the Notes and
Certificates, is based on the provision of the Internal Revenue Code of 1985, as
amended (the "Code"), the Treasury Regulations thereunder, and published rulings
and court decisions in effect as of the date hereof, all of which are subject to
change, possibly retroactively. This discussion does not address every aspect of
the U.S. federal income tax laws which may be relevant to Noteholders and
Certificate owners in light of their personal investment circumstances or to
certain types of Certificate owners subject to special treatment under the U.S.
federal income tax laws (for example, tax exempt investors, banks and life
insurance companies). Accordingly, investors should consult their tax advisors
regarding U.S. federal, state, local, foreign and any other tax consequences to
them of investing in the Notes and Certificates.
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
Upon the issuance of the Notes and Certificates , special
counsel to the Depositor ("Tax Counsel"), will issue an opinion generally to the
effect that the Trust Fund will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion is based on the assumption that the terms of the Trust Agreement and
related documents will be complied with, and on Tax Counsel's conclusions that
(1) the Trust Fund will not have certain characteristics necessary for a
business trust to be classified as an association taxable as a corporation and
(2) the nature of the income of the Trust Fund exempts it from the rule that
certain publicly traded partnerships are taxable as corporations, so that the
Trust Fund will not be characterized as a publicly traded partnership taxable as
a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its taxable
income. The Trust Fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust Fund.
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<PAGE> 101
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
The Trust Fund will agree, and the Noteholders will agree by their purchase
of the Notes, to treat the Notes as debt for federal income tax purposes. Upon
issuance of the Notes, based on the application of existing law to the facts as
set forth in the Agreement and other relevant documents and assuming compliance
with the terms of the Agreement as in effect on the date of issuance of the
Notes and Certificates, Tax Counsel will issue an opinion generally to the
effect that the Notes will be treated as debt instruments for federal income tax
purposes as of such date. See "Federal Income Tax Consequences -- Tax
Consequences to Holders of the Notes" in the Prospectus.
It is not anticipated that the Notes will be issued with original issue
discount ("OID"). The stated interest thereon will be taxable to a Noteholders
as ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed
that any prepayment premium paid as a result of a mandatory redemption will be
taxable as contingent interest when it becomes fixed and unconditionally
payable. A purchaser who buys a Note for more or less than its principal amount
will generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
The Trust Fund and the Master Servicer will agree, and the
Certificateholders will agree by their purchase of Certificates, to treat the
Trust Fund as partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust Fund, the partners
of the partnership being the Certificateholders, and the Notes being debts of
the partnership. However, the proper characterization of the arrangement
involving the Certificates, the Notes, the Trust Fund and the Master Servicer is
not clear because there is no authority on transactions closely comparable to
that contemplated herein. For example, because the Certificates have certain
features characteristic of debt, the Certificates might be considered debt of
the Trust Fund. Any such characterization would not result in materially adverse
tax consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership.
As a partnership, the Trust Fund will not be subject to federal income tax.
Rather, each Certificateholder will be required to separately take into account
such holder's allocated share of income, gains, losses, deductions and credits
of the Trust Fund. The Trust Fund's income will consist primarily of interest
and finance charges earned on the Mortgage Loans (including appropriate
adjustments for market discount, OID and bond premium) and any gain upon
collection or disposition of Loans. The Trust Fund's deductions will consist
primarily of interest accruing with respect to the Notes, servicing and other
fees, and losses or deductions upon collection or disposition of Loans. See
"Federal Income Tax Consequences -- Tax Consequences to Holders of the
Certificates" in the Prospectus.
The Trust Fund expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders, pursuant to Section 1446 of the
Code, as if such income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign holders. Subsequent adoption of Treasury regulations or
the issuance of other administrative pronouncements may require the Trust Fund
to change its withholding procedures. See "Federal Income Tax
Consequences -- Tax Consequences to Holders of the Certificates -- Tax
Consequences to Foreign Certificateholders" in the Prospectus.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" herein, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities offered hereunder. State income tax law may differ substantially from
the corresponding federal tax law, and this discussion does not purport to
describe any aspect of the income tax
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<PAGE> 102
laws of any state. Therefore, potential investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Securities offered hereunder.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts in which such plans
or arrangements are invested (all of which are hereinafter referred to as a
"Plan"). Generally, ERISA applies to investments made by Plans. Among other
things, ERISA requires that the assets of Plans be held in trust and that the
trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant).
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Notes and/or Certificates should determine whether such an investment is
permitted under the governing Plan instruments and is prudent and appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. More generally, any Plan fiduciary which
proposes to cause a Plan to acquire any of the Notes and/or Certificates or any
other person proposing to use the assets of a Plan to acquire any of the Notes
and/or Certificates should consult with its counsel with respect to the
potential consequences under ERISA and the Code (including under the prohibited
transactions rules described below) of the acquisition and ownership of such
Notes and/or Certificates.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such plans may be invested in Notes
and/or Certificates without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under section 401(a) of the Code
and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code.
PROHIBITED TRANSACTIONS
GENERAL
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" (within
the meaning of the Code) and "parties in interest" (within the meaning of ERISA,
collectively "Parties in Interest") who have certain specified relationships to
the Plan, unless an exemption applies (see below). Therefore, a Plan fiduciary
or any other person using the assets of a Plan considering an investment in the
Notes and/or Certificates should also consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code, or
whether there is an applicable exemption.
PLAN ASSET REGULATION
The United States Department of Labor ("DOL") has issued final regulations
defining the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (29 C.F.R. sec. 2510.3-101, the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a
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<PAGE> 103
Plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" (defined as a security which is widely held, freely
transferable and registered under the Securities Exchange Act of 1934, as
amended) nor a security issued by an investment company registered under the
Investment Company Act of 1940, the assets of the entity will be treated as
assets of the Plan unless certain exceptions apply. If the Notes and/or
Certificates were deemed to be equity interests and no statutory, regulatory or
administrative exemption applies, the Trust Fund could be considered to hold
plan assets by reason of a Plan's investment in the Notes and/or Certificates.
Such plan assets would include an undivided interest in any assets held by the
Trust Fund. In such an event, the Trustee and other persons, in providing
services with respect to the Trust Fund's assets, may be Parties in Interest
with respect to such Plans, subject to the fiduciary responsibility provisions
of ERISA, including the prohibited transaction provisions with respect to
transactions involving the Trust Fund's assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, the
DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
[ ] ("ERISA Counsel") has rendered its opinion that the Notes
will be classified as indebtedness without substantial equity features for ERISA
purposes. ERISA Counsel's opinion is based upon the terms of the Notes, the
opinion of Tax Counsel that the Notes will be classified as debt instruments for
federal income tax purposes and the ratings which have been assigned to the
Notes. However, if contrary to ERISA Counsel's opinion the Notes are deemed to
be equity interests in the Trust Fund and no statutory, regulatory or
administrative exemption applies, the Trust Fund could be considered to hold
plan assets by reason of a Plan's investment in the Notes.
THE UNDERWRITER'S EXEMPTION
The DOL has granted to Morgan Stanley & Co. Incorporated an administrative
exemption (Prohibited Transaction Exemption 90-24, 55 Fed. Reg. 20,548 (1990)
(the "Exemption") from certain of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code with respect to
the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of certain receivables, loans,
and other obligations that meet the conditions and requirements of the
Exemption. Morgan Stanley believes that the Exemption will [not] apply to the
acquisition and holding of Notes and/or Certificates by Plans.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the Notes and/or Certificates by a Plan is on
terms (including the price for such Notes and/or 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 the Notes and/or
Certificates acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust Fund;
(3) the Notes and/or 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 one of Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc.
("Duff & Phelps") or Fitch Investors Service, L.P. ("Fitch");
(4) the Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
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<PAGE> 104
(5) the sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Notes and/or Certificates
represents not more than reasonable compensation for underwriting such
Notes and/or Certificates; the sum of all payments made to and retained by
the Depositor pursuant to the assignment of the Mortgage Loans to the Trust
Fund represents not more than the fair market value of such Mortgage Loans;
the sum of all payments made to and retained by the Master Servicer and any
other servicer represents not more than reasonable compensation for such
person's services under the Pooling and Servicing Agreement and
reimbursements of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the Notes and/or Certificates is 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.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories of S&P,
Moody's, Fitch or Duff & Phelps for at least one year prior to the Plan's
acquisition of the Notes and/or 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 Notes and/or Certificates.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations or receivables contained in the trust; (ii) the Plan is not a plan
with respect to which any member of the Restricted Group (as defined below) is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA); (iii) in the case
of an acquisition in connection with the initial issuance of certificates, at
least fifty percent of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group (as defined below)
and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) 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 (v) immediately after the acquisition, no more than twenty-five
percent of the assets of the Plan with respect to which such person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Seller, the Depositor, the Underwriter, the Trustee, the Master
Servicer, the Certificate Insurer, any obligor with respect to Mortgage Loans
included in the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of any of such parties (the "Restricted Group").
The Exemption may apply to the acquisition, holding and transfer of the
Notes and/or Certificates by Plans if all of the conditions of the Exemption are
met, including those within the control of the investor. [Notwithstanding any of
the foregoing, the Exemption will not apply with respect to any Notes and/or
Certificates until such time as the balance of the related Pre-Funding Account
is reduced to zero. Accordingly, until such time, the Notes and/or Certificates
may not be purchased by Plans pursuant to the Exemption.] As of the date hereof,
there is no single Mortgage Loan included in the Trust Fund that constitutes
more than five percent of the aggregate unamortized principal balance of the
assets of the Trust Fund.
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<PAGE> 105
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult with their legal
advisors with respect to the applicability of Prohibited Transaction Class
Exemption ("PTE") 95-60, regarding transactions by insurance company general
accounts. In addition to any exemption that may be available under PTE 95-60 for
the purchase and holding of Notes and/or Certificates by an insurance company
general account, the Small Business Job Protection Act of 1996 added a new
Section 401(c) to ERISA, which provides certain exemptive relief from the
provisions of Part 4 of Title I of ERISA and Section 4975 of the Code, including
the prohibited transaction restrictions imposed by ERISA and the Code, for
transactions involving an insurance company general account. Pursuant to Section
401(c) of ERISA, the DOL is required to issue final regulations ("401(c)
Regulations") no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute plan assets, unless (i) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (ii)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as plan assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Notes and/or Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Notes and/or Certificates
after the date which is 18 months after the date the 401(c) Regulations become
final.
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them. The
Depositor makes no representation as to the proper characterization of the
Securities for legal investment or financial institution regulatory purposes, or
as to the ability of particular investors to purchase Securities under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Securities) may adversely affect
the liquidity of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated , 199 (the "Underwriting Agreement"), between the
Depositor and the Underwriter, an affiliate of the Depositor, the Depositor has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the Depositor all the [Notes/Certificates].
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the [Notes/Certificates]
offered hereby if any of the [Notes/Certificates] are purchased.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the [Notes/Certificates] to the public in Europe and the
United States at the offering price set forth on the cover page hereof and to
certain dealers at such price less a discount not in excess of % of the
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<PAGE> 106
[Note/Certificate] denominations. The Underwriter may allow and such dealers may
reallow a discount not in excess of % of the [Note/Certificate]
denominations to certain other dealers. After the initial public offering, the
public offering price, such concessions and such discounts may be changed.
The distribution of the [Notes/Certificates] by the Underwriter will be
effected from time to time in one or more negotiated transactions or otherwise
at varying prices to be determined, in each case, at the time of sale. The
Underwriter may effect such transactions by selling the [Notes/Certificates] to
or through dealers, and such dealers may receive from the Underwriter
compensation in the form of underwriting discounts, concessions or commissions.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of the [Notes/Certificates] may be deemed to be underwriters, and
any discounts, commissions or concessions received by them, and any profit on
the resale of the [Notes/Certificates] purchased by them, may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Act").
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed upon
for the Depositor by and for the Underwriter by .
RATINGS
It is a condition to the issuance of the Certificates that they be rated
by (" ") and, by (" " and, together with
, the "Rating Agencies").
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however, constitute statements regarding the likelihood or
frequency of prepayments on the Mortgage Loans or the possibility that
Certificateholders might realize a lower than anticipated yield.
The ratings assigned to the Certificates will depend primarily upon the
creditworthiness of the Certificate
Insurer. Any reduction in a rating assigned to the claims-paying ability of the
Certificate Insurer below the ratings initially assigned to the Certificates may
result in a reduction of one or more of the ratings assigned to the
Certificates.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Certificates by any rating
agency other than the Rating Agencies; there can be no assurance, however, as to
whether any other rating agency will rate the Certificates or, if it does, what
rating would be assigned by such other rating agency. The rating assigned by
such other rating agency to the Certificates could be lower than the respective
ratings assigned by the Rating Agencies.
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
401(c) Regulations....................................................... S-40
Accredited Investor...................................................... S-39
Act...................................................................... S-41
Additional Balances...................................................... S-4
Agreement................................................................ S-29
Applicable Local Law..................................................... S-38
Assignment Event......................................................... S-24
Beneficial Owner......................................................... S-29
Book-Entry Securities.................................................... S-7, 29
BIF...................................................................... S-26
Business Day............................................................. S-6
Cede..................................................................... S-2, 7
Certificate Insurer...................................................... S-1
Certificate Owners....................................................... S-29
Certificateholder........................................................ S-29
Certificates............................................................. S-1, 4
Chase.................................................................... S-8
Citibank................................................................. S-8
Code..................................................................... S-35
Collection Account....................................................... S-6, 26
Collection Period........................................................ S-7, 30
Collections.............................................................. S-6
Combined Loan-to-Value Ratio............................................. S-5
Credit Limit............................................................. S-5
Credit Limit Utilization Rate............................................ S-17
Credit Line Agreement.................................................... S-4, 17
Cut-off Date............................................................. S-4
Cut-off Date Pool Principal Balance...................................... S-5
Cut-off Date Principal Balance........................................... S-4
Defective Mortgage Loans................................................. S-25
Definitive Certificate................................................... S-29
Definitive Securities.................................................... S-8
Depositor................................................................ S-1
Determination Date....................................................... S-5, 26
Disqualified Persons..................................................... S-37
Distribution Date........................................................ S-1
DOL...................................................................... S-37
Draw Period.............................................................. S-18
Drive-By Appraisal....................................................... S-15
Drive-By Appraisal Value................................................. S-15
DTC...................................................................... S-7, 29
Due Date................................................................. S-6
Eligible Account......................................................... S-26
Eligible Substitute Mortgage Loan........................................ S-24
Equity Interest.......................................................... S-38
ERISA.................................................................... S-9, 37
ERISA Counsel............................................................ S-38
</TABLE>
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<PAGE> 108
<TABLE>
<S> <C>
Estimated Value.......................................................... S-15
Euroclear................................................................ S-7
European Depositaries.................................................... S-8, 29
Events of Default........................................................ S-31
Exemption................................................................ S-38
Indenture................................................................ S-1, 4
Indenture Trustee........................................................ S-1, 5
Index Rate............................................................... S-17
Interest Accrual Period.................................................. S-7, 30
Interest Collections..................................................... S-6, 27
Liquidation Loss Amount.................................................. S-7, 30
Loan Rate................................................................ S-5, 17
Margin................................................................... S-17
Maximum Rate............................................................. S-17
Money Rates.............................................................. S-18
Mortgage Files........................................................... S-24
Mortgage Loans........................................................... S-1, 4
Mortgaged Properties..................................................... S-4
Net Liquidation Proceeds................................................. S-27, 28
Note Rate................................................................ S-1, 7, 30
Noteholders.............................................................. S-5
Notes.................................................................... S-1, 4
OID...................................................................... S-9, 36
Owner Trustee............................................................ S-1, 5
Participants............................................................. S-29
Parties in Interest...................................................... S-37
Pass-Through Rate........................................................ S-1, 7, 30
Plan..................................................................... S-37
Plan Asset Regulation.................................................... S-37
Plan Assets.............................................................. S-37
Plan Sponsor............................................................. S-39
Policy................................................................... S-1, 4
Pool Balance............................................................. S-4, 27
Prime Rate............................................................... S-17
Principal Balance........................................................ S-4
Principal Collections.................................................... S-6, 27
Prospectus............................................................... S-2
PTE...................................................................... S-40
Publicly Offered Security................................................ S-38
Purchase Agreement....................................................... S-5
Rating Agency............................................................ S-10, 41
Related Documents........................................................ S-23
Relevant Depositary...................................................... S-29
Repayment Period......................................................... S-18
Repurchase Price......................................................... S-24
Restricted Group......................................................... S-39
SAIF..................................................................... S-26
Securities............................................................... S-1, 4
Security Account......................................................... S-26
</TABLE>
S-43
<PAGE> 109
<TABLE>
<S> <C>
Security Principal Balance............................................... S-6
Seller................................................................... S-5
Servicing Fee Rate....................................................... S-28
SMMEA.................................................................... S-10
Substantial Equity Features.............................................. S-38
Tax Counsel.............................................................. S-9, 35
Trust Agreement.......................................................... S-1, 5
Trust Fund............................................................... S-1, 4
Underwriting Agreement................................................... S-40
Voting Interests......................................................... S-34
</TABLE>
S-44
<PAGE> 110
VERSION #3
Subject to Completion, Dated April 29, 1997
PROSPECTUS SUPPLEMENT (To Prospectus dated , 199 )
$
(Approximate)
Mortgaged Loan Asset-Backed Trust 199
Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199 -
Distributions payable on the day of each month,
commencing in , 199
Morgan Stanley ABS Capital I Inc.
Depositor
[ ]
Master Servicer
------------------------
The Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199 -
(collectively, the "Certificates") will represent the entire beneficial interest
in the Mortgage Loan Asset-Backed Trust 199 - (the "Trust Fund") consisting
primarily of a pool (the "Mortgage Pool") of [fixed-rate] [adjustable-rate]
Mortgage Loans secured primarily by first, second and third liens on one- to
four-family residential properties. Only the Classes of Certificates identified
in the table below (collectively, the "Offered Certificates") are offered
hereby. See "Index of Defined Terms" on page S-45 of this Prospectus Supplement
and on page 119 of the Prospectus for the location of the definitions of certain
capitalized terms.
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-12 HEREIN AND ON PAGE 17 IN THE ACCOMPANYING
PROSPECTUS.
------------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLER, THE MASTER
SERVICER, THE TRUSTEE OR ANY OF THEIR AFFILIATES OR ANY OTHER PERSON.
DISTRIBUTIONS ON THE CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS
TRANSFERRED TO THE TRUST FUND FOR THE BENEFIT OF CERTIFICATEHOLDERS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Initial Class Certificate
<TABLE>
<CAPTION>
BALANCE(1) PASS-THROUGH RATE
---------- -----------------
<S> <C> <C>
Class A- ................................................................ $ %
Class ................................................................... $ %
Class PO.................................................................. $ (2)
Class X................................................................... (3) (4)
Class A-R................................................................. $ %
Class B- ................................................................ $ %
Class ................................................................... $ %
Class ................................................................... $ %
</TABLE>
- ------------
(1) Subject to the permitted variance described under "Summary of
Terms -- Offered Certificates" herein.
(2) The Class PO Certificates will be Principal Only Certificates and will
not bear interest.
(3) The Class X Certificates will be Notional Amount Certificates, will have
no principal balance and will bear interest on their Notional Amount
(initially expected to be approximately $ ).
(4) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the weighted average of the Net
Mortgage Rates of the Non-Discount Mortgage Loans over (b) % per
annum. The Pass-Through Rate for the Class X Certificates for the first
Distribution Date is expected to be approximately % per annum.
------------------------
The Senior Certificates, other than the Class PO and Class X Certificates
(the "Underwritten Senior Certificates"), will be purchased by and
the Class Certificates (together with the Underwritten Senior Certificates,
the "Underwritten Certificates") offered hereby will be purchased by Morgan
Stanley & Co. Incorporated and (each, an "Underwriter") from the
Depositor and will be offered by the Underwriters from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Underwritten
Certificates are expected to be approximately $ , plus accrued interest,
before deducting issuance expenses payable by the Depositor. The Class , Class
PO and Class X Certificates will be issued to the Depositor on or about
, 199 as partial consideration for the sale of the Mortgage Loans to
the Trust Fund.
The Underwritten Certificates are offered by the respective Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject orders in whole or in part. It
is expected that delivery of the Underwritten Senior Certificates, other than
the Class A-R Certificates, will be made in book-entry form only through the
facilities of The Depository Trust Company, that the Class A-R Certificates will
be delivered at the offices of in New York, New York and that
the Class Certificates will be delivered at the offices of
in New York, New York, in each case on or about , 199 .
------------------------
MORGAN STANLEY & CO.
Incorporated
, 199
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation, or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 111
(continued from cover page)
The Mortgage Loans will be sold to the Depositor by [ ] (the
"Seller").
An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" (the "REMIC") for federal income tax purposes. As described
more fully herein and in the Prospectus, the Offered Certificates, other than
the Class A-R Certificates, will constitute "regular interests" in the REMIC.
The Class A-R Certificates will constitute the sole class of "residual interest"
in the REMIC. Prospective investors are cautioned that a Class A-R
Certificateholder's REMIC taxable income and the tax liability thereon will
exceed cash distributions in certain periods, in which event such holder must
have sufficient alternative sources of funds to pay such tax liability. See
"Federal Income Tax Consequences" herein and in the Prospectus.
The Class A-R Certificates will be subject to certain transfer
restrictions. See "Description of the Certificates -- Restrictions on Transfer
of the Class A-R Certificates" herein.
The yield to investors on each Class of Offered Certificates will be
sensitive in varying degrees to, among other things, the rate and timing of
principal payments (including prepayments) of the Mortgage Loans, which may vary
significantly over time. The yield to maturity of a Class of Offered
Certificates purchased at a discount or premium will be more sensitive to the
rate and timing of payments thereon. Holders of the Offered Certificates should
consider, in the case of any such Certificates purchased at a discount, and
particularly the Principal Only Certificates, the risk that a slower than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield that is lower than the anticipated yield and, in the case of any
Offered Certificates purchased at a premium and particularly the Interest Only
Certificates, the risk that a faster than anticipated rate of principal payments
on the Mortgage Loans could result in an actual yield that is lower than the
anticipated yield. Holders of the Interest Only Certificates should carefully
consider the risk that a rapid rate of principal payments on the Mortgage Loans
could result in the failure of such holders to recover their initial
investments. The yield to investors in the Offered Certificates, and
particularly the Class Certificates, also will be adversely affected
by Net Interest Shortfalls and by Realized Losses. No representation is made as
to the anticipated rate of prepayments on the Mortgage Loans, the amount and
timing of Net Interest Shortfalls or Realized Losses, or as to the resulting
yield to maturity of any Class of Certificates.
Each Underwriter intends to make a secondary market in the Classes of
Underwritten Certificates being purchased by it, but no Underwriter has an
obligation to do so. There is currently no secondary market for the Offered
Certificates and there can be no assurance that such a market will develop or,
if it does develop, that it will continue or that it will provide
Certificateholders with a sufficient level of liquidity of investment.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or any Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that the information herein or therein
is correct at any time subsequent to the date hereof or that there has been no
change in the affairs of the Depositor since that date.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and the
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
S-2
<PAGE> 112
This Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained in the
Prospectus of the Depositor dated , 199 (the "Prospectus") and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Trustee on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus Supplement is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to in the
Prospectus under "Incorporation of Certain Documents by Reference" that have
been or may be incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee at telephone: , facsimile number:
, attention: .
S-3
<PAGE> 113
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Summary of Terms................................................................... S-5
Risk Factors....................................................................... S-12
The Mortgage Pool.................................................................. S-14
Servicing of Mortgage Loans........................................................ S-20
Description of the Certificates.................................................... S-23
Yield, Prepayment and Maturity Considerations...................................... S-34
Credit Enhancement................................................................. S-39
Use of Proceeds.................................................................... S-41
Federal Income Tax Consequences.................................................... S-41
ERISA Considerations............................................................... S-42
Underwriting....................................................................... S-45
Legal Matters...................................................................... S-46
Ratings............................................................................ S-46
Index of Defined Terms............................................................. S-47
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Summary of Terms..................................................................... 6
Risk Factors......................................................................... 17
The Trust Fund....................................................................... 27
Use of Proceeds...................................................................... 41
The Depositor........................................................................ 41
Description of the Securities........................................................ 41
Credit Enhancement................................................................... 56
Yield and Prepayment Considerations.................................................. 61
The Agreements....................................................................... 64
Certain Legal Aspects of the Loans................................................... 77
Federal Income Tax Consequences...................................................... 91
State Tax Considerations............................................................. 111
ERISA Considerations................................................................. 111
Legal Investment..................................................................... 115
Method of Distribution............................................................... 116
Legal Matters........................................................................ 117
Financial Information................................................................ 117
Rating............................................................................... 117
Index of Defined Terms............................................................... 119
</TABLE>
S-4
<PAGE> 114
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
See "Index of Defined Terms" on page S-46 of this Prospectus Supplement and on
page 119 of the Prospectus for the location of the definitions of certain
capitalized terms.
Title of Certificates...... Mortgage Loan Asset-Backed Pass-Through
Certificates, Series 199 - (the "Certificates").
Offered Certificates....... Class A- , Class , Class PO, Class X, Class A-R,
Class B- and Class Certificates. Only the
Offered Certificates are offered hereby. The
aggregate initial Class Certificate Balances of the
Certificates will be subject to a permitted
variance in the aggregate of plus or minus %.
Variances in the Class Certificate Balances may
result in variances in the Notional Amount of the
Class of Notional Amount Certificates. The Notional
Amount of the Class X Certificates for any
Distribution Date will be equal to the aggregate of
the Stated Principal Balances of the Non-Discount
Mortgage Loans with respect to such Distribution
Date. The initial Notional Amount of the Class X
Certificates will be equal to the aggregate of the
Stated Principal Balances of the Non-Discount
Mortgage Loans as of the Cut-off Date.
Certificates other than the
Offered Certificates..... In addition to the Offered Certificates, the
following Classes of Certificates will be issued in
the indicated approximate initial Class Certificate
Balances and will bear interest at the indicated
Pass-Through Rates, but are not offered hereby:
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE PASS-THROUGH
BALANCE RATE
------------- ------------
<S> <C> <C> <C>
Class (1)........................... $ %
Class (1)........................... $ %
Class (1)........................... $ %
</TABLE>
---------------------------------------------
(1) The Class , Class and Class Certificates
will provide limited credit support to the
Senior Certificates and the other Subordinated
Certificates, as described under "Description
of the Certificates --
Principal -- Subordinated Principal
Distribution Amount" and "Credit
Enhancement -- Subordination of Certain
Classes" herein.
Any information contained herein with respect to
the Class , Class and Class Certificates is
provided only to permit a better understanding of
the Offered Certificates.
Designations
Regular Certificates..... All Classes of Certificates other than the Class
A-R Certificates.
Residual Certificates.... Class A-R Certificates.
Senior Certificates...... Class A- , Class , Class PO, Class X and Class
A-R Certificates.
Subordinated
Certificates............... Class B- , Class , and Class Certificates.
Principal Only
Certificates............... Class PO Certificates.
Interest Only
Certificates............... Class X Certificates.
S-5
<PAGE> 115
Notional Amount
Certificates............... Class X Certificates.
Fixed Rate
Certificates............... All Classes of Certificates other than the Class PO
and Class X Certificates.
Variable Rate
Certificates............... Class X Certificates.
Physical Certificates.... Class PO, Class X and Class A-R Certificates and
the Subordinated Certificates.
Book-Entry
Certificates............... All Classes of Certificates other than the Physical
Certificates.
Trust Fund................. The Certificates will represent the entire
beneficial ownership interest in the Mortgage Loan
Asset-Backed Trust 199 (the "Trust Fund"), which
will consist primarily of the Mortgage Pool.
Pooling and Servicing
Agreement................ The Certificates will be issued pursuant to a
Pooling and Servicing Agreement, dated as of
, 199 (the "Agreement"), among the
Depositor, the Master Servicer and the Trustee.
Depositor.................. Morgan Stanley ABS Capital I Inc. (the
"Depositor"), a Delaware corporation and a direct,
wholly-owned subsidiary of Morgan Stanley Group
Inc. See "The Depositor" in the Prospectus.
Master Servicer............ [ ] (in its capacity as master servicer of
the Mortgage Loans, the "Master Servicer"). See
"Servicing of Mortgage Loans -- The Master
Servicer" herein. The Master Servicer will be
responsible for the servicing of the Mortgage Loans
and will receive the Master Servicing Fee from
interest collected on the Mortgage Loans. See
"Servicing of Mortgage Loans -- Servicing
Compensation and Payment of Expenses" herein.
Seller..................... [ ] (in its capacity as seller of the
Mortgage Loans, the "Seller"). The Mortgage Loans
were originated or acquired in the normal course of
its business by the Seller and will be acquired by
the Depositor in a privately negotiated
transaction.
Trustee.................... , a organized under
the laws of (the "Trustee").
Cut-off Date............... , 199 .
Closing Date............... On or about , 199 .
Determination Date......... The day of each month or, if such day is not a
business day, the preceding business day; provided
that the Determination Date in each month will be
at least two business days prior to the related
Distribution Date.
Mortgage Loans............. The Mortgage Pool will consist primarily of
[fixed-rate] [adjustable-rate] mortgage loans
secured primarily by first, second and third liens
on one-to four-family residential properties.
Distributions of principal and interest on the
Certificates will be based solely on payments
received on the Mortgage Loans, as described under
"Description of the Certificates" herein. See "The
Mortgage Pool" herein.
Distribution Date.......... The day of each month or, if such day is not a
business day, on the first business day thereafter,
commencing in 199 (each, a
"Distribution Date"). Distributions on each
Distribution Date will be
S-6
<PAGE> 116
made to Certificateholders of record as of the
related Record Date, except that the final
distribution on the Certificates will be made only
upon presentment and surrender of the Certificates
at the Corporate Trust Office of the Trustee.
Record Date................ The Record Date for each Distribution Date will be
the last business day of the month preceding the
month of such Distribution Date.
Priority of
Distributions.............. Distributions will be made on each Distribution
Date from Available Funds in the following order of
priority: [(i) to interest on each interest bearing
Class of Senior Certificates; (ii) to principal on
the Classes of Senior Certificates then entitled to
receive distributions of principal, in the order
and subject to the priorities set forth herein
under "Description of the
Certificates -- Principal," in each case in an
aggregate amount up to the maximum amount of
principal to be distributed on such Classes on such
Distribution Date; (iii) to any Class PO Deferred
Amounts with respect to the Class PO Certificates,
but only from amounts that would be distributable
on such Distribution Date as principal of the
Subordinated Certificates; and (iv) to interest on
and then principal of each Class of Subordinated
Certificates, in the order of their numerical Class
designations, beginning with the Class
Certificates, in each case subject to the
limitations set forth herein under "Description of
the Certificates -- Principal." Under certain
circumstances described herein, distributions from
Available Funds for a Distribution Date that would
otherwise be made on the Subordinated Certificates
may be distributed instead on the Senior
Certificates.] See "Description of the
Certificates -- Allocation of Losses" herein.
Distributions of
Interest................... To the extent funds are available therefor, each
interest bearing Class of Certificates will be
entitled to receive interest in the amount of the
Interest Distribution Amount for such Class. The
Class PO Certificates are Principal Only
Certificates and will not bear interest. See
"Description of the Certificates -- Interest"
herein.
A. Interest Distribution
Amount................ For each interest bearing Class of Certificates,
the amount of interest accrued during the related
Interest Accrual Period at the applicable
Pass-Through Rate on the related Class Certificate
Balance or Notional Amount, as the case may be.
B. Pass-Through Rate....... The Pass-Through Rate for each interest bearing
Class of Offered Certificates for each Distribution
Date will be as set forth or described on the cover
page hereof.
The Pass-Through Rate for the Class X Certificates
for any Distribution Date will be equal to the
excess of (a) the weighted average of the Net
Mortgage Rates of the Non-Discount Mortgage Loans
over (b) % per annum. The Pass-Through Rate
for the Class X Certificates for the first
Distribution Date is expected to be approximately
% per annum.
With respect to each Distribution Date, the
"Interest Accrual Period" for each interest bearing
Class of Certificates will be [the calendar month
preceding the month of such Distribution Date.]
Distributions of
Principal.................. On each Distribution Date, to the extent funds are
available therefor, principal distributions in
reduction of the Class Certificate Balances of
S-7
<PAGE> 117
each Class of Certificates (other than the Notional
Amount Certificates) will be made in the order and
subject to the priorities set forth herein under
"Description of the Certificates -- Principal" in
an aggregate amount equal to such Class' allocable
portion of the Senior Principal Distribution
Amount, the Class PO Principal Distribution Amount
or the Subordinated Principal Distribution Amount,
as applicable. The Notional Amount Certificates do
not have principal balances and are not entitled to
any distributions in respect of principal of the
Mortgage Loans. See "Description of the
Certificates -- Principal" herein.
Credit Enhancement......... Credit enhancement for the Senior Certificates will
be provided by the Subordinated Certificates and
credit enhancement for each Class of Subordinated
Certificates will be provided by the Class or
Classes of Subordinated Certificates with higher
numerical Class designations, as described below.
The aggregate of the initial Class Certificate
Balances of the Class , Class and Class
Certificates, which are the only Certificates
supporting the Class Certificates, is expected to
be approximately $ .
Subordination.............. The rights of holders of the Subordinated
Certificates to receive distributions with respect
to the Mortgage Loans in the Trust Fund will be
subordinated to such rights of holders of the
Senior Certificates, and the rights of the holders
of each Class of Subordinated Certificates (other
than the Class Certificates) to receive such
distributions will be further subordinated to such
rights of the Class or Classes of Subordinated
Certificates with lower numerical Class
designations, in each case only to the extent
described under "Credit
Enhancement -- Subordination of Certain Classes"
herein.
The subordination of the Subordinated Certificates
to the Senior Certificates, and the further
subordination within the Subordinated Certificates,
is intended to increase the likelihood of timely
receipt by the holders of Certificates with higher
relative payment priority of the maximum amount to
which they are entitled on any Distribution Date
and to provide such holders protection against
losses on the Mortgage Loans to the extent
described under "Description of the
Certificates -- Allocation of Losses" herein. The
Subordinated Certificates also provide protection,
to a lesser extent, against Special Hazard Losses,
Bankruptcy Losses and Fraud Losses. However, in
certain circumstances the amount of available
subordination (including the limited subordination
provided for certain types of losses) may be
exhausted and shortfalls in distributions on the
Certificates could result. Holders of the Senior
Certificates will bear their proportionate share of
any losses realized on the Mortgage Loans in excess
of the available subordination amount. See
"Description of the Certificates -- Priority of
Distributions Among Certificates," "-- Allocation
of Losses," and "Credit
Enhancement -- Subordination of Certain Classes"
herein.]
In addition, Realized Losses on the Mortgage Loans
will reduce the Class Certificate Balances of the
applicable Class of Subordinated Certificates to
the extent of any losses allocated thereto (as
described under "Description of the
Certificates -- Allocation of Losses" herein),
without the receipt of cash attributable to such
reduction. As a result of such reductions, less
interest will accrue on such Class of Subordinated
Certificates than otherwise would be the case. The
yield to maturity of
S-8
<PAGE> 118
the Subordinated Certificates will also be affected
by the disproportionate allocation of principal
prepayments to the Senior Certificates, Net
Interest Shortfalls, other cash shortfalls in
Available Funds and distribution of funds to Class
PO Certificateholders otherwise available for
distribution on the Subordinated Certificates to
the extent of reimbursement for Class PO Deferred
Amounts. See "Description of the
Certificates -- Allocation of Losses" herein.
Advances................... The Master Servicer is obligated to make cash
advances ("Advances") with respect to delinquent
payments of principal of and interest on any
Mortgage Loan to the extent described under
"Servicing of the Mortgage Loans -- Advances"
herein. The Trustee will be obligated to make any
such Advance if the Master Servicer fails in its
obligation to do so, to the extent provided in the
Agreement. See "Servicing of Mortgage
Loans -- Advances" herein.
Prepayment Considerations
and Risks; Reinvestment
Risk..................... The rate of principal payments on the Offered
Certificates, the aggregate amount of distributions
on the Offered Certificates and the yield to
maturity of the Offered Certificates will be
related to the rate and timing of payments of
principal on the Mortgage Loans.
Since the rate of payment of principal on the
Mortgage Loans will depend on future events and a
variety of factors, no assurance can be given as to
such rate or the rate of principal prepayments. The
extent to which the yield to maturity of a Class of
Offered Certificates may vary from the anticipated
yield may depend upon the degree to which it is
purchased at a discount or premium, and the degree
to which the timing of payments thereon is
sensitive to prepayments, liquidations and
purchases of the Mortgage Loans. Further, an
investor should consider the risk that, in the case
of the Principal Only Certificates and any other
Offered Certificate purchased at a discount, a
slower than anticipated rate of principal payments
(including prepayments) on the Mortgage Loans could
result in an actual yield to such investor that is
lower than the anticipated yield and, in the case
of the Interest Only Certificates and any other
Offered Certificate purchased at a premium, a
faster than anticipated rate of principal payments
could result in an actual yield to such investor
that is lower than the anticipated yield. Investors
in the Interest Only Certificates should carefully
consider the risk that a rapid rate of principal
payments on the Mortgage Loans could result in the
failure of such investors to recover their initial
investments.
Because the Mortgage Loans may be prepaid at any
time, it is not possible to predict the rate at
which distributions of principal of the Offered
Certificates will be received. Since prevailing
interest rates are subject to fluctuation, there
can be no assurance that investors in the Offered
Certificates will be able to reinvest the
distributions thereon at yields equaling or
exceeding the yields on such Offered Certificates.
It is possible that yields on any such
reinvestments will be lower, and may be
significantly lower, than the yields on the Offered
Certificates. See "Risk Factors -- Prepayment
Considerations and Risks" and "Yield, Prepayment
and Maturity Considerations" herein.
Optional Termination....... On any Distribution Date on which the Pool
Principal Balance is less than [10]% of the Cut-off
Date Pool Principal Balance, the Master
S-9
<PAGE> 119
Servicer will have the option to purchase, in
whole, the Mortgage Loans and the REO Property, if
any, remaining in the Trust Fund. See "Description
of the Certificates -- Optional Termination"
herein.
Federal Income Tax
Consequences............. An election will be made to treat the Trust Fund as
a "real estate mortgage investment conduit"
("REMIC") for federal income tax purposes. Upon
issuance of the Certificates, ,
special counsel to the Depositor, will issue an
opinion generally to the effect that, assuming
compliance with all provisions of the Agreement,
for federal income tax purposes, the Trust Fund
will qualify as a REMIC under Sections 860A through
860G of the Internal Revenue Code of 1986 (the
"Code").
For federal income tax purposes, the Regular
Certificates will constitute "regular interests" in
the REMIC and the Residual Certificates will
constitute the sole class of "residual interest" in
the REMIC. The Class , Class PO and Class X
Certificates will, and depending on their
respective issue prices, certain other Classes of
Offered Certificates may, be issued with original
issue discount ("OID") for federal income tax
purposes. See "Federal Income Tax Consequences"
herein and in the Prospectus.
The holders of the Class A-R Certificates will be
subject to special federal income tax rules that
may significantly reduce the after-tax yield of
such Certificates. Further, significant
restrictions apply to the transfer of the Class A-R
Certificates. See "Description of the
Certificates -- Restrictions on Transfer of the
Class A-R Certificates" herein.
ERISA Considerations....... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully
review with its legal advisors whether the purchase
or holding of the Offered Certificates could give
rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. Certain
exemptions from the prohibited transaction rules
could be applicable to the acquisition of the
Offered Certificates. See "ERISA Considerations."
The U.S. Department of Labor has issued an
individual exemption, Prohibited Transaction
Exemption 90-24, to Morgan Stanley & Co.
Incorporated that generally exempts from the
application of certain of the prohibited
transaction provisions of ERISA and the Code,
transactions relating to the purchase, sale and
holding of pass-through certificates underwritten
by such Underwriter such as the [Class A
Certificates] and the servicing and operation of
asset pools, provided that certain conditions are
satisfied. [Certain classes of the Offered
Certificates may not be transferred unless the
Trustee and the Depositor are furnished with a
letter of representation or an opinion of counsel
to the effect that such transfer will not result in
a violation of the prohibited transaction
provisions and will not subject the Trustee, the
Depositor or the Master Servicer to additional
obligations.] See "Description of the
Securities -- General" and "ERISA Considerations."
Legal Investment........... The Senior Certificates and the Class
Certificates [will] [will not] constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as
S-10
<PAGE> 120
they are rated in one of the two highest rating
categories by at least one nationally recognized
statistical rating organization and, as such, are
legal investments for certain entities to the
extent provided for in SMMEA.
It is anticipated that the Class and Class
Certificates will not be rated in one of the two
highest rating categories by a nationally
recognized statistical rating organization and,
therefore, will not constitute "mortgage related
securities" for purposes of SMMEA.
Institutions whose investment activities are
subject to review by federal or state regulatory
authorities should consult with their counsel or
the applicable authorities to determine whether an
investment in the Offered Certificates complies
with applicable guidelines, policy statements or
restrictions. See "Legal Investment" in the
Prospectus.
Ratings.................... It is a condition to the issuance of the Senior
Certificates that they be rated by (" ")
and by (" " and, together with , the
"Rating Agencies"). See "Ratings" herein. It is a
condition to the issuance of the Class , Class
and Class Certificates that they be rated
at least , and , respectively, by
. The ratings of the Offered Certificates of
any Class should be evaluated independently from
similar ratings on other types of securities. A
rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by either of the Rating
Agencies. See "Risk Factors -- Certificate Rating"
and "Ratings" herein.
Risk Factors............... For a discussion of certain risks associated with
an investment in the Certificates, see "Risk
Factors" on page S-12 herein and on page 17 in the
Prospectus.
S-11
<PAGE> 121
RISK FACTORS
[DESCRIPTION WILL DEPEND ON THE PARTICULARS OF THE MORTGAGE LOANS]
Investors should consider the following risks in connection with the
purchase of the Certificates.
Consequences of Owning Book-Entry Certificates. Issuance of the
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary trading market since investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates. See
"Description of the Certificates -- Book-Entry Certificates" herein and "Risk
Factors -- Book-Entry Registration May Reduce Liquidity" in the Prospectus.
Since transactions in the Certificates can be effected only through DTC,
CEDEL, Euroclear, participating organizations, indirect participants and certain
banks, the ability of a Certificate Owner to pledge a Certificate to persons or
entities that do not participate in the DTC, CEDEL or Euroclear system may be
limited due to lack of a physical certificate representing the Certificates. See
"Description of the Certificates -- Book-Entry Certificates" herein and "Risk
Factors -- Book-Entry Registration May Reduce Liquidity" in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. Certificate Owners will not be
recognized as Certificateholders as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants. See
"Description of the Certificates -- Book-Entry Certificates" herein and "Risk
Factors -- Book-Entry Registration May Reduce Liquidity" in the Prospectus.
Cash Flow Considerations. Minimum monthly payments on the Mortgage Loans
will at least equal and may exceed accrued interest. Even assuming that the
Mortgaged Properties provide adequate security for the Mortgage Loans,
substantial delays could be encountered in connection with the liquidation of
Mortgage Loans that are delinquent and resulting shortfalls in distributions to
Certificateholders could occur. Further, liquidation expenses (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will reduce
the proceeds payable to Certificateholders and thereby reduce the security for
the Mortgage Loans. In the event any of the Mortgaged Properties fail to provide
adequate security for the related Mortgage Loans, Certificateholders could
experience a loss.
Prepayment Considerations and Risks. Substantially all of the Mortgage
Loans may be prepaid in whole or in part at any time without penalty. Home
equity loans, such as the Mortgage Loans, have been originated in significant
volume only during the past few years and neither the Depositor nor the Master
Servicer is aware of any publicly available studies or statistics on the rate of
prepayment of such loans. Generally, home equity loans are not viewed by
borrowers as permanent financing. Accordingly, the Mortgage Loans may experience
a higher rate of prepayment than traditional loans. The Trust's prepayment
experience may be affected by a wide variety of factors, including general
economic conditions, interest rates, the availability of alternative financing
and homeowner mobility. In addition, substantially all of the Mortgage Loans
contain due-on-sale provisions and the Master Servicer intends to enforce such
provisions unless (i) such enforcement is not permitted by applicable law or
(ii) the Master Servicer, in a manner consistent with reasonable commercial
practice, permits the purchaser of the related Mortgaged Property to assume the
Mortgage Loan. To the extent permitted by applicable law, such assumption will
not release the original borrower from its obligation under any such Mortgage
Loan. See "Yield, Prepayment and Maturity Considerations -- Prepayment
Considerations and Risks" herein and "Certain Legal Aspects of Loans --
Due-on-Sale Clauses" in the Prospectus for a description of certain provisions
of the Mortgage Loans that may affect the prepayment experience thereof. The
yield to maturity and weighted average life of the Certificates will be affected
primarily by the rate and timing of prepayments on the Mortgage Loans. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Mortgage Loans will be borne entirely by the Certificateholders. See "Yield,
Prepayment and Maturity Considerations" herein and "Yield and Prepayment
Considerations" in the Prospectus.
S-12
<PAGE> 122
Certificate Rating. The rating of the Certificates will depend primarily
on an assessment by the Rating Agencies of the Mortgage Loans. The rating by the
Rating Agencies of the Certificates is not a recommendation to purchase, hold or
sell the Certificates, inasmuch as such rating does not comment as to the market
price or suitability for a particular investor. There is no assurance that the
ratings will remain in place for any given period of time or that the ratings
will not be lowered or withdrawn by the Rating Agencies. In general, the ratings
address credit risk and do not address the likelihood of prepayments. The
ratings of the Certificates do not address the possibility of the imposition of
United States withholding tax with respect to non-U.S. persons.
Bankruptcy and Insolvency Risks. The sale of the Mortgage Loans from the
Seller to the Depositor will be treated as a sale of the Mortgage Loans.
However, in the event of an insolvency of the Seller, the receiver of the Seller
may attempt to recharacterize the sale of the Mortgage Loans as a borrowing by
the Seller, secured by a pledge of the applicable Mortgage Loans. If the
receiver decided to challenge such transfer, delays in payments of the
Certificates and reductions in the amounts thereof could occur. The Depositor
will warrant in the Agreement that the transfer of the Mortgage Loans by it to
the Trust Fund is either a valid transfer and assignment of such Mortgage Loans
to the Trust Fund or the grant to the Trust Fund of a security interest in such
Mortgage Loans.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Certificateholders from appointing a successor Master Servicer.
Geographic Concentration. As of the Cut-off Date, approximately %
(by Cut-off Date Pool Principal Balance) of the Mortgaged Properties are located
in the State of . An overall decline in the residential
real estate market could adversely affect the values of the Mortgaged Properties
securing such Mortgage Loans such that the Principal Balances of the related
Mortgage Loans could equal or exceed the value of such Mortgaged Properties. As
the residential real estate market is influenced by many factors, including the
general condition of the economy and interest rates, no assurances may be given
that the residential real estate market will not weaken. If the
residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.
Delinquent Mortgage Loans. The Trust Fund will include Mortgage Loans
which are 89 or fewer days delinquent as of the Cut-off Date. The Cut-off Date
Pool Principal Balance of Mortgage Loans which are between 30 days and 89 days
delinquent as of the Cut-off Date was $ . If there are not sufficient
Available Funds on any Distribution Dates, the aggregate amount of principal
returned to the Certificateholders may be less than the respective Class
Certificate Principal Balances on the day the Certificates were issued.
Risks of Holding Subordinated Certificates. The subordination of the
Subordinated Certificates to the Senior Certificates, and the further
subordination within the Subordinated Certificates, is intended to increase the
likelihood of timely receipt by the holders of Certificates with higher relative
payment priority of the maximum amount to which they are entitled on any
Distribution Date and to provide such holders protection against losses on the
Mortgage Loans to the extent described herein under "Description of the
Certificates -- Allocation of Losses" and "Credit Enhancement -- Subordination
of Certain Classes." However, in certain circumstances the amount of available
subordination (including the limited subordination provided for certain types of
losses) may be exhausted and shortfalls in distributions on the Certificates
could result. Holders of the Senior Certificates will bear their proportionate
share of any losses realized on the Mortgage Loans in excess of the available
subordination amount.
In addition, the weighted average life of, and the yield to maturity on,
the Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are
S-13
<PAGE> 123
consistent with an investor's expectations. Realized Losses on the Mortgage
Loans will reduce the Class Certificate Balances of the applicable Class of
Subordinated Certificates to the extent of any losses allocated thereto (as
described under "Description of the Certificates -- Allocation of Losses"
herein), without the receipt of cash attributable to such reduction. As a result
of such reductions, less interest will accrue on such Class of Subordinated
Certificates than otherwise would be the case. The yield to maturity of the
Subordinated Certificates will also be affected by the disproportionate
allocation of principal prepayments to the Senior Certificates, Net Interest
Shortfalls, other cash shortfalls in Available Funds and distribution of funds
to Class PO Certificateholders otherwise available for distribution on the
Subordinated Certificates to the extent of reimbursement for Class PO Deferred
Amounts. See "Description of the Certificates -- Allocation of Losses" and
"Yield, Prepayment and Maturity Considerations -- The Subordinated Certificates"
herein.
For a discussion of additional risks pertaining to the Offered
Certificates, see "Risk Factors" in the Prospectus.
THE MORTGAGE POOL
GENERAL
The Depositor will purchase the Mortgage Loans from the Seller pursuant to
the Purchase Agreement, dated , 199 (the "Purchase Agreement").
Pursuant to the Pooling and Servicing Agreement dated as of the Cut-off Date
among the Master Servicer, the Depositor and the Trustee (the "Agreement"), the
Depositor will cause the Mortgage Loans to be assigned to the Trustee for the
benefit of the holders of the Certificates (the "Certificateholders").
Under the Purchase Agreement, the Seller will make certain representations,
warranties and covenants to the Depositor relating to, among other things, the
due execution and enforceability of the Agreement and certain characteristics of
the Mortgage Loans and, subject to the limitations described below under
"-- Assignment of the Mortgage Loans," will be obligated to repurchase or
substitute a similar mortgage loan for any Mortgage Loan as to which there
exists deficient documentation or an uncured material breach of any such
representation, warranty or covenant. The Seller will represent and warrant to
the Depositor in the Agreement that the Mortgage Loans were selected from among
the outstanding one- to four-family mortgage loans in the Seller's portfolio as
to which the representations and warranties set forth in the Agreement can be
made and that such selection was not made in a manner that would adversely
affect the interests of the Certificateholders. See "The Trust
Fund -- Representations by Sellers; Repurchases" in the Prospectus. Under the
Agreement, the Depositor will assign all its right, title and interest in and to
such representations, warranties and covenants (including the Seller's
repurchase obligation) under the Purchase Agreement to the Trustee for the
benefit of Certificateholders. The Depositor will make no representations or
warranties with respect to the Mortgage Loans and will have no obligation to
repurchase or substitute Mortgage Loans with deficient documentation or which
are otherwise defective. The Seller is selling the Mortgage Loans without
recourse and will have no obligation with respect to the Certificates in its
capacity as Seller other than the repurchase obligation described above. The
obligations of , as Master Servicer, with respect to the
Certificates are limited to the Master Servicer's contractual servicing
obligations under the Agreement.
Certain information with respect to the Mortgage Loans expected to be
included in the Mortgage Pool is set forth below. Prior to the Closing Date,
Mortgage Loans may be removed from the Mortgage Pool and other Mortgage Loans
may be substituted therefor. The Depositor believes that the information set
forth herein under "The Mortgage Pool" with respect to the Mortgage Pool as
presently constituted is representative of the characteristics of the Mortgage
Pool as it will be constituted at the Closing Date, although certain
characteristics of the Mortgage Loans in the Mortgage Pool may vary. Unless
otherwise indicated, information presented herein under "The Mortgage Pool"
expressed as a percentage (other than rates of interest) are approximate
percentages based on the Stated Principal Balances of the Mortgage Loans as of
the Cut-off Date.
S-14
<PAGE> 124
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $ (the "Cut-off Date
Pool Principal Balance"). The Mortgage Loans provide for the amortization of the
amount financed over a series of substantially equal monthly payments. All the
Mortgage Loans provide for payments due as of the first day of each month (the
"Due Date"). At origination, substantially all of the Mortgage Loans had stated
terms to maturity of [30 years]. The Mortgage Loans to be included in the
Mortgage Pool were originated or purchased by [the Seller] and were originated
substantially in accordance with [the Seller's] underwriting criteria described
below under "-- Underwriting Standards."
Scheduled monthly payments made by the Mortgagors on the Mortgage Loans
("Scheduled Payments") either earlier or later than the scheduled Due Dates
thereof will not affect the amortization schedule or the relative application of
such payments to principal and interest. [All of the Mortgage Notes provide for
a ( ) day grace period for monthly payments. Any Mortgage Loan may
be prepaid in full or in part at any time; however, approximately % of the
Mortgage Loans provide for the payment by the borrower of a prepayment charge in
limited circumstances on full prepayments made within years from the date
of execution of the related Mortgage Note. In general, the Mortgage Note
provides that a prepayment charge will apply if, during the first years
from the date of origination of such Mortgage Loan, the borrower prepays such
Mortgage Loan in full. The amount of the prepayment charge will generally be
equal to months' advance interest calculated on the basis of the rate in
effect at the time of such prepayment on the amount prepaid in excess of %
of the original balance of such Mortgage Loan.]
Each Mortgage Loan was originated after .
The latest stated maturity date of any Mortgage Loan is .
The earliest stated maturity date of any Mortgage Loan is .
As of the Cut-off Date, no Mortgage Loan was delinquent more than [89]
days.
[No] Mortgage Loan will be subject to a buydown agreement. [No] Mortgage
Loan provides for deferred interest or negative amortization.
[No] Mortgage Loan had a Loan-to-Value Ratio at origination of more than
[95]%. Each Mortgage Loan with a Loan-to-Value Ratio at origination of greater
than 80% may be covered by a primary mortgage guaranty insurance policy issued
by a mortgage insurance company acceptable to FNMA or FHLMC, which policy
provides coverage in an amount equal to the excess of the original principal
balance of the related Mortgage Loan over % of the value of the related
Mortgaged Property, plus accrued interest thereon and related foreclosure
expenses.
The Loan-to-Value Ratio of a Mortgage Loan is equal to (i) the principal
balance of such Mortgage Loan at the date of origination, divided by (ii) the
Collateral Value of the related Mortgaged Property. The Collateral Value of a
Mortgaged Property is the lesser of (x) the appraised value based on an
appraisal made for [the Seller] by an independent fee appraiser at the time of
the origination of the related Mortgage Loan, and (y) the sales price of such
Mortgaged Property at such time of origination. With respect to a Mortgage Loan
the proceeds of which were used to refinance an existing mortgage loan, the
Collateral Value is the appraised value of the Mortgaged Property based upon the
appraisal obtained at the time of refinancing. No assurance can be given that
the values of the Mortgaged Properties have remained or will remain at their
levels as of 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 become equal to
or greater than the value of the Mortgaged Properties, actual losses on the
Mortgage Loans could be higher than losses now generally experienced in the
mortgage lending industry.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Other than with respect to
rates of interest, percentages (approximate) are stated by Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date and have been rounded in
order to total 100%.
S-15
<PAGE> 125
MORTGAGE RATES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE OUTSTANDING MORTGAGE POOL
- ------------------------------------------------ -------------- ------------------- -------------
<S> <C> <C> <C>
............................... $ %
...............................
...............................
...............................
...............................
...............................
...............................
...............................
...............................
...............................
...............................
...............................
Totals................................ $ %
======= ===
..........................................................
..........................................................
..........................................................
..........................................................
..........................................................
..........................................................
..........................................................
..........................................................
..........................................................
..........................................................
Totals........................................................... 100.00%
====== ======
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Mortgage
Loans (as so adjusted) is expected to be approximately %. Without such
adjustment, the weighted average Mortgage Rate of the Mortgage Loans is
expected to be approximately % per annum.
ORIGINAL LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF
ORIGINAL LOAN-TO-VALUE RATES (%) MORTGAGE LOANS BALANCE OUTSTANDING MORTGAGE POOL
- ------------------------------------------------ -------------- ------------------- -------------
<S> <C> <C> <C>
$ %
- ------ and below................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
- ------ to ------................................
Totals................................ $ 100.0%
--- ------- ---
</TABLE>
- ---------------
(1) The weighted average original Loan-to-Value Ratio of the Mortgage Loans is
expected to be approximately %.
S-16
<PAGE> 126
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE PERCENT OF
CURRENT MORTGAGE LOAN AMOUNTS MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
$ 0-$ ................................. $ %
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
$ -$ .................................
------- ----------- -----
Totals..................................
======= =========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the average current Mortgage Loan principal balance
is expected to be approximately $ .
DOCUMENTATION PROGRAM FOR MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE PERCENT OF
TYPE OF PROGRAM MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
Full.............................................. $ %
Alternative.......................................
Reduced...........................................
Streamlined.......................................
------- ----------- ----
Totals.................................. $ 100.00%
======= =========== ====
</TABLE>
TYPE OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
PRINCIPAL NUMBER OF BALANCE PERCENT OF
PROPERTY TYPE MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
Single Family..................................... $ %
Condominium.......................................
Two- to Four-Family...............................
Planned Unit Development..........................
------- ----------- -----
Totals.................................. $ 100.00%
======= =========== =====
</TABLE>
S-17
<PAGE> 127
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE PERCENT OF
OCCUPANCY TYPE MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
Primary Residence................................. $ %
Investor Residence................................
Second Residence..................................
------- ----------- -----
Totals.................................. $ 100.00%
======= =========== =====
</TABLE>
- ---------------
(1) Based upon representations of the related mortgagors at the time of
origination.
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE PERCENT OF
STATE MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
Other (less than [2]%)............................ -- $ %
........................................
------- ----------- -----
Totals.................................. $ 100.00%
======= =========== =====
</TABLE>
- ---------------
(1) Other includes other states with under [2]% concentrations individually. No
more than approximately % of the Mortgage Loans will be secured by Mortgaged
Properties located in any one postal zip code area.
PURPOSE OF MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE PERCENT OF
LOAN PURPOSE MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
Purchase.......................................... $ %
Refinance (rate/term).............................
Refinance (cash out)..............................
------- ----------- -----
Totals.................................. $ 100.00%
======= =========== =====
</TABLE>
S-18
<PAGE> 128
REMAINING TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE PERCENT OF
REMAINING TERMS TO MATURITY (MONTHS) MORTGAGE LOANS OUTSTANDING MORTGAGE POOL
- -------------------------------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
- --......... $ %
- --.........
- --.........
- --.........
- --.........
- --.........
- --.........
- --.........
- --.........
- --.........
- --.........
------- ----------- -----
Totals.................................. $ 100.00%
======= =========== =====
</TABLE>
- ---------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Mortgage Loans is expected to be approximately months.
ASSIGNMENT OF THE MORTGAGE LOANS
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the Trustee
in trust for the benefit of the Certificateholders all right, title and interest
of the Depositor in and to each Mortgage Loan and all right, title and interest
in and to the Purchase Agreement and all other assets included in the Trust Fund
described under "Credit Enhancement" herein, including all principal and
interest received on or with respect to the Mortgage Loans, exclusive of
principal and interest due on or prior to the Cut-off Date.
In connection with such transfer and assignment, the Depositor will deliver
or cause to be delivered to the Trustee, or a custodian for the Trustee, among
other things, the original promissory note (the "Mortgage Note") (and any
modification or amendment thereto) endorsed in blank without recourse, the
original instrument creating a first lien on the related Mortgaged Property (the
"Mortgage") with evidence of recording indicated thereon, an assignment in
recordable form of the Mortgage, the title policy with respect to the related
Mortgaged Property and, if applicable, all recorded intervening assignments of
the Mortgage and any riders or modifications to such Mortgage Note and Mortgage
(except for any such documents not returned from the public recording office,
which will be delivered to the Trustee as soon as the same is available to the
Depositor) (collectively, the "Mortgage File"). Assignments of the Mortgage
Loans to the Trustee (or its nominee) will be recorded in the appropriate public
office for real property records, except in states such as California where in
the opinion of counsel such recording is not required to protect the Trustee's
interests in the Mortgage Loan against the claim of any subsequent transferee or
any successor to or creditor of the Depositor or the Seller.
The Trustee will review each Mortgage File within 90 days of the Closing
Date (or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) and if any document in a Mortgage File is
found to be missing or defective in a material respect and the Seller does not
cure such defect within 90 days of notice thereof from the Trustee (or within
such longer period not to exceed days after the Closing Date as provided in
the Agreement in the case of missing documents not returned from the public
recording office), the Seller will be obligated to repurchase the related
Mortgage Loan from the Trust Fund. Rather than repurchase the Mortgage Loan as
provided above, the Seller may remove such Mortgage Loan (a "Deleted Mortgage
Loan") from the Trust Fund and substitute in its place another mortgage loan (a
"Replacement Mortgage Loan"); however, such substitution is permitted only
within two years of the
S-19
<PAGE> 129
Closing Date and may not be made unless an opinion of counsel is provided to the
Trustee to the effect that such substitution will not disqualify the REMIC or
result in a prohibited transaction tax under the Code. Any Replacement Mortgage
Loan generally will, on the date of substitution, among other characteristics
set forth in the Agreement, (i) have a principal balance, after deduction of all
Scheduled Payments due in the month of substitution, not in excess of, and not
more than 10% less than, the Stated Principal Balance of the Deleted Mortgage
Loan (the amount of any shortfall to be deposited by the Seller in the
Certificate Account and held for distribution to the Certificateholders on the
related Distribution Date (a "Substitution Adjustment Amount")), (ii) have a
Mortgage Rate not lower than, and not more than 1% per annum higher than, that
of the Deleted Mortgage Loan, (iii) have a Loan-to-Value Ratio not higher than
that of the Deleted Mortgage Loan, (iv) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Deleted Mortgage
Loan, and (v) comply with all of the representations and warranties set forth in
the Agreement as of the date of substitution. This cure, repurchase or
substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee for omission of, or a material defect in, a
Mortgage Loan document.
UNDERWRITING STANDARDS
The following is a description of the underwriting procedures customarily
employed by [the Seller] with respect to mortgage loans such as the Mortgage
Loans: .
SERVICING OF MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Pooling and Servicing Agreement. The Master Servicer may
perform any of its obligations under the Pooling and Servicing Agreement through
one or more subservicers. Notwithstanding any such subservicing arrangement, the
Master Servicer will remain liable for its servicing duties and obligations
under the Pooling and Servicing Agreement as if the Master Servicer alone were
servicing the Mortgage Loans. [As of the Closing Date, the Master Servicer will
service the Mortgage Loans without subservicing arrangements.]
The information set forth in the following section through and including
the section captioned "Delinquency Status as of , 199 " has been
provided by [the Master Servicer]. No representation is made by the Depositor or
any of its affiliates as to the accuracy or completeness of any such
information.
THE MASTER SERVICER
[ ] will act as the Master Servicer of the Mortgage Loans pursuant to the
Pooling and Servicing Agreement.
As of , 199 , [the Master Servicer] provided servicing for
approximately $ [million] in mortgage loans.
The principal executive offices of the Master Servicer are located at
. Its telephone number is ( ) .
LOAN SERVICING
[The Master Servicer services substantially all of the mortgage loans it
originates or acquires. Servicing includes, but is not limited to, collecting
and remitting mortgage loan payments, accounting for principal and interest,
holding escrow (impound) funds for payment of taxes and insurance, making
inspections as required of the mortgaged properties, preparation of tax related
information in connection with the mortgage loans, supervision of delinquent
mortgage loans, loss mitigation efforts, foreclosure proceedings and, if
applicable, the disposition of mortgaged properties, and generally administering
the mortgage loans, for which it receives servicing fees.]
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COLLECTION PROCEDURES
When a mortgagor fails to make a payment on a mortgage loan, the Master
Servicer attempts to cause the deficiency to be cured by corresponding with the
mortgagor. In most cases, deficiencies are cured promptly. Pursuant to the
Master Servicer's servicing procedures, the Master Servicer generally mails to
the mortgagor a notice of intent to foreclose after the loan becomes 31 days
past due (two payments due but not received) and, within 60 days thereafter, if
the loan remains delinquent, institutes appropriate legal action to foreclose on
the mortgaged property. Foreclosure proceedings may be terminated if the
delinquency is cured. Mortgage loans to borrowers in bankruptcy proceedings may
be restructured in accordance with law and with a view to maximizing recovery of
such loans, including any deficiencies.
Once foreclosure is initiated by the Master Servicer, a foreclosure
tracking system is used to monitor the progress of the proceedings. The system
includes state specific parameters to monitor whether proceedings are
progressing within the time frame typical for the state in which the mortgaged
property is located. During the foreclosure proceeding, the Master Servicer
determines the amount of the foreclosure bid and whether to liquidate the
mortgage loan.
After foreclosure, the Master Servicer may liquidate the mortgaged property
and charge-off the loan balance which was not recovered through liquidation
proceeds. If foreclosed, the mortgaged property is sold at a public or private
sale and may be purchased by the Master Servicer.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the Master Servicer's business
judgment, changes in the servicing portfolio and applicable laws and
regulations.
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following table summarizes the delinquency experience of mortgage loans
serviced by the Master Servicer as of , 199 . A mortgage loan is
characterized as delinquent if the borrower has not paid the minimum payment due
by the due date. The table below excludes mortgage loans where the mortgage loan
is in foreclosure or the borrower has filed for bankruptcy. The delinquency
percentages may be affected by the size and relative lack of seasoning of the
servicing portfolio because many of such loans were not outstanding long enough
to give rise to some or all of the periods of delinquency indicated in the chart
below. Accordingly, the information should not be considered as a basis for
assessing the likelihood, amount, or severity of delinquency or losses on the
Mortgage Loans, and no assurances can be given that the foreclosure experience
presented in the second paragraph below the table will be indicative of such
experience on the Mortgage Loans.
DELINQUENCY STATUS AS OF , 199
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
-------- ------ -------- -----
<S> <C> <C> <C> <C>
Current.............................................. $ % %
30-59 Days........................................... $ % %
60-89 Days........................................... $ % %
90+ Days............................................. $ % %
Total...................................... $ % %
</TABLE>
This table does not include mortgage loans with principal balances
aggregating $ that were sold, but were being serviced on an interim
basis pending transfer of servicing, as of , 199 . As of the date
hereof, servicing with respect to such mortgage loans has been transferred.
Delinquencies are reported on a contractual basis. As of ,
199 , mortgage loans with an aggregate principal balance of $ were
in foreclosure and, there were loans in bankruptcy with a combined loan
balance of $ .
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Over the last several years, there has been a general deterioration of the
real estate market and weakening economy in many regions of the country,
including . The general deterioration of the real estate market has
been reflected in increases in delinquencies of loans secured by real estate,
slower absorption rates of real estate into the market and lower sales prices
for real estate. The general weakening of the economy has been reflected in
decreases in the financial strength of borrowers and decreases in the value of
collateral serving as security for loans. If the real estate market and economy
continue to decline, the Master Servicer may experience an increase in
delinquencies on the loans it services and higher net losses on liquidated
mortgage loans.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
[The Master Servicer will be paid a monthly fee from interest collected
with respect to each Mortgage Loan (as well as from any liquidation proceeds
from a Liquidated Mortgage Loan that are applied to accrued and unpaid interest)
equal to one-twelfth of the Stated Principal Balance thereof multiplied by the
Servicing Fee Rate (such product, the "Servicing Fee"). The Servicing Fee Rate
for each Mortgage Loan will equal % per annum. The amount of the monthly
Servicing Fee is subject to adjustment with respect to prepaid Mortgage Loans,
as described herein under "-- Adjustment to Master Servicing Fee in Connection
with Certain Prepaid Mortgage Loans." The Master Servicer is also entitled to
receive, as additional servicing compensation, amounts in respect of interest
paid on Principal Prepayments (as defined below) received from the 2nd day
through the 15th day of a month ("Prepayment Interest Excess"), all late payment
fees, assumption fees, prepayment penalties and other similar charges and all
reinvestment income earned on amounts on deposit in the Certificate Account and
Distribution Account. The Master Servicer is obligated to pay certain ongoing
expenses associated with the Mortgage Loans and incurred by the Trustee in
connection with its responsibilities under the Pooling and Servicing Agreement.]
ADJUSTMENT TO MASTER SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE
LOANS
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Except with respect to the month of the Cut-off Date,
principal prepayments by borrowers received by the Master Servicer from the
first day through the fifteenth day of a calendar month will be distributed to
Certificateholders on the Distribution Date in the same month in which such
prepayments are received and, accordingly, no shortfall in the amount of
interest to be distributed to Certificateholders with respect to the prepaid
Mortgage Loans results. Conversely, principal prepayments by borrowers received
by the Master Servicer from the sixteenth day (or, in the case of the first
Distribution Date, from the Cut-off Date) through the last day of a calendar
month will be distributed to Certificateholders on the Distribution Date in the
month following the month of receipt and, accordingly, a shortfall in the amount
of interest to be distributed to Certificateholders with respect to such prepaid
Mortgage Loans would result. Pursuant to the Agreement, the Master Servicing Fee
for any month will be reduced, [but not by more than one-half of such Master
Servicing Fee,] by an amount sufficient to pass through to Certificateholders
the full amount of interest to which they would be entitled in respect of each
such prepaid Mortgage Loan on the related Distribution Date. If shortfalls in
interest as a result of prepayments in any Prepayment Period exceed an amount
equal to [one-half of] the Master Servicing Fee otherwise payable on the related
Distribution Date, the amount of interest available to be distributed to
Certificateholders will be reduced by the amount of such excess. See
"Description of the Certificates -- Interest" herein.
ADVANCES
Subject to the following limitations, the Master Servicer will be required
to advance prior to each Distribution Date, from its own funds or funds in the
Certificate Account that do not constitute Available Funds for such Distribution
Date, an amount equal to the aggregate of payments of principal and interest on
the Mortgage Loans (net of the Master Servicing Fee with respect to the related
Mortgage Loans) which were due on the related Due Date and which were delinquent
on the related Determination Date, together with an amount equivalent to
interest on each Mortgage Loan as to which the related Mortgaged Property has
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been acquired by the Trust Fund through foreclosure or deed-in-lieu of
foreclosure ("REO Property") (any such advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of principal of or interest on each Mortgage Loan to the
extent that such Advances are, in its reasonable judgment, recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to Certificateholders on the related Distribution Date. Any failure
by the Master Servicer to make an Advance as required under the Agreement with
respect to the Certificates will constitute an Event of Default thereunder, in
which case the Trustee or the successor master servicer will be obligated to
make any such Advance, in accordance with the terms of the Agreement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are descriptions of the material terms and provisions pursuant to which the
Certificates will be issued. When particular provisions or terms used in the
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199 -
will consist of the Class A- , Class , Class PO, Class X and Class A-R
Certificates (collectively, the "Senior Certificates") and the Class B- , Class
and Class Certificates (collectively, the "Subordinated Certificates"). The
Senior Certificates and Subordinated Certificates are collectively referred to
herein as the "Certificates." Only the Classes of Certificates listed on the
cover page hereof (collectively, the "Offered Certificates") are offered hereby.
The Classes of Offered Certificates will have the respective initial Class
Certificate Balances or initial Notional Amounts (subject to the permitted
variance) and Pass-Through Rates set forth or described on the cover hereof.
The Class Certificate Balance of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof (A) reduced
by the sum of (i) all amounts previously distributed to holders of Certificates
of such Class as payments of principal, (ii) the amount of Realized Losses
(including Excess Losses) allocated to such Class and (iii) in the case of any
Class of Subordinated Certificates, any amounts allocated to such Class in
reduction of its Class Certificate Balance in respect of payments of Class PO
Deferred Amounts, as described below under "-- Allocation of Losses." In
addition, the Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation will
be reduced if and to the extent that the aggregate of the Class Certificate
Balances of all Classes of Certificates, following all distributions and the
allocation of Realized Losses on a Distribution Date, exceeds the Pool Principal
Balance as of the Due Date occurring in the month of such Distribution Date. The
Notional Amount Certificates do not have principal balances and are not entitled
to any distributions in respect of principal of the Mortgage Loans.
The Notional Amount of the Class X Certificates for any Distribution Date
will be equal to the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans with respect to such Distribution Date. A
"Non-Discount Mortgage Loan" is a Mortgage Loan with a Net Mortgage Rate equal
to or greater than %. The initial Notional Amount of the Class X Certificates
will be equal to the aggregate of the Stated Principal Balance of the
Non-Discount Mortgage Loans as of the Cut-off Date.
The Senior Certificates will have an initial aggregate principal balance of
approximately $ and will evidence in the aggregate an initial
beneficial ownership interest of approximately % in the Trust Fund. The Class
B- and Class B- Certificates will each evidence in the aggregate an initial
beneficial ownership interest of approximately % and %, respectively, in the
Trust Fund.
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The Book-Entry Certificates will be issuable in book-entry form only. The
Physical Certificates will be issued in fully registered certificated form. The
Physical Certificates (other than Class A-R Certificates) offered hereby will be
issued in minimum dollar denominations of [$1,000] and integral multiples of
[$1] in excess thereof. A single Certificate of each such Class may be issued in
an amount different than described above. The Class A-R Certificates will be
issued as a single Certificate in a denomination of [$1,000].
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the "Depository"). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations representing an original
principal amount of [$1,000] and integral multiples of [$1] in excess thereof.
[One investor of each Class of Book-Entry Certificates may hold a beneficial
interest therein that is not an integral multiple of $1,000.] The Depositor has
been informed by the Depository that its nominee will be CEDE & Co. ("CEDE").
Accordingly, CEDE is expected to be the holder of record of the Book-Entry
Certificates. Except as described in the Prospectus under "Description of the
Securities -- Book-Entry Registration of Securities," no person acquiring a
Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive
a physical certificate representing such Certificate (a "Definitive
Certificate").
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Agreement. Beneficial
owners are only permitted to exercise the rights of Certificateholders
indirectly through Financial Intermediaries and the Depository. Monthly and
annual reports on the Trust Fund provided to CEDE, as nominee of the Depository,
may be made available to beneficial owners upon request, in accordance with the
rules, regulations and procedures creating and affecting the Depository, and to
the Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such beneficial owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see "Description of the Securities -- Book-Entry Registration of
Securities" in the Prospectus.
PAYMENTS ON MORTGAGE LOANS; ACCOUNTS
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Certificate Account"), which will be maintained in trust for the
benefit of the Certificateholders. Funds credited to the Certificate Account may
be invested for the benefit and at the risk of the Master Servicer in Permitted
Investments, that are scheduled to mature on or prior to the business day
preceding the next Distribution Date. On or prior to the business day
immediately preceding each Distribution Date, the Master Servicer will withdraw
from the Certificate Account the amount of Available Funds and will deposit such
Available Funds in an account established and maintained with the Trustee on
behalf of the Certificateholders (the "Distribution Account").
"Permitted Investments" will be specified in the Agreement and will be
limited to (i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the Certificates, or such lower rating as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each such Rating Agency; (iii) commercial or finance company
paper which is then receiving the highest commercial or finance company paper
rating of each such Rating Agency, or such lower rating as will not result in
the downgrading or withdrawal of the ratings then assigned to the Certificates
by each such Rating Agency; (iv) certificates of deposit, demand or time
deposits, or bankers' acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state thereof
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and subject to supervision and examination by federal and/or state banking
authorities, provided that the commercial paper and/or long-term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's Investors Service, Inc. ("Moody's") is not a Rating Agency) are then
rated one of the two highest long-term and the highest short-term ratings of
each such Rating Agency for such securities, or such lower ratings as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency; (iv) demand or time deposits or
certificates of deposit issued by any bank or trust company or savings
institution to the extent that such deposits are fully insured by the FDIC; (v)
guaranteed reinvestment agreements issued by any bank, insurance company or
other corporation containing, at the time of the issuance of such agreements,
such terms and conditions as will not result in the downgrading or withdrawal of
the rating then assigned to the Certificates by any such Rating Agency; (vi)
repurchase obligations with respect to any security described in clauses (i) and
(ii) above, in either case entered into with a depository institution or trust
company (acting as principal) described in clause (iv) above; (vii) securities
(other than stripped bonds, stripped coupons or instruments sold at a purchase
price in excess of 115% of the face amount thereof) bearing interest or sold at
a discount issued by any corporation incorporated under the laws of the United
States or any state thereof which, at the time of such investment, have one of
the two highest ratings of each Rating Agency (except if the Rating Agency is
Moody's, such rating shall be the highest commercial paper rating of Moody's for
any such securities), or such lower rating as will not result in the downgrading
or withdrawal of the rating then assigned to the Certificates by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
and (viii) such other investments having a specified stated maturity and bearing
interest or sold at a discount acceptable to each Rating Agency as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency, as evidenced by a signed writing
delivered by each such Rating Agency; provided that no such instrument shall be
a Permitted Investment if such instrument evidences the right to receive
interest only payments with respect to the obligations underlying such
instrument.
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the day
of each month, or if such day is not a business day, on the first business day
thereafter, commencing in 199 (each, a "Distribution Date"), to the
persons in whose names such Certificates are registered at the close of business
on the last business day of the month preceding the month of such Distribution
Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds [100%] of
a Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of [$1,000,000] or more or who holds an Interest Only
Certificate and who has so notified the Trustee in writing in accordance with
the Agreement, by wire transfer in immediately available funds to the account of
such Certificateholder at a bank or other depository institution having
appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentment and surrender of such Certificates at the Corporate Trust Office of
the Trustee.
PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES
As more fully described below under "-- Interest," "-- Principal" and
"-- Allocation of Losses," distributions will be made on each Distribution Date
from Available Funds in the following order of priority: (i) to interest on each
interest bearing Class of Senior Certificates; (ii) to principal on the Classes
of Senior Certificates then entitled to receive distributions of principal, in
the order and subject to the priorities set forth below under "-- Principal," in
each case in an aggregate amount up to the maximum amount of principal to be
distributed on such Classes on such Distribution Date; (iii) to any Class PO
Deferred Amounts with respect to the Class PO Certificates, but only from
amounts that would otherwise be distributed on such Distribution Date as
principal of the Subordinated Certificates; and (iv) to interest on and then
principal of
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each Class of Subordinated Certificates, in the order of their numerical Class
designations, beginning with the Class Certificates, in each case subject
to the limitations set forth below under "-- Principal."
"Available Funds" with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due on the Due Date in the month in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans, by
foreclosure or otherwise ("Liquidation Proceeds") during the calendar month
preceding the month of such Distribution Date (in each case, net of unreimbursed
expenses incurred in connection with a liquidation or foreclosure and
unreimbursed Advances, if any); (iii) all partial or full prepayments received
during the month preceding the month of such Distribution Date; and (iv) amounts
received with respect to such Distribution Date as the Substitution Adjustment
Amount or purchase price in respect of a Deleted Mortgage Loan or a Mortgage
Loan repurchased by the Seller or the Master Servicer as of such Distribution
Date, reduced by amounts in reimbursement for Advances previously made and other
amounts as to which the Master Servicer is entitled to be reimbursed from the
Certificate Account pursuant to the Agreement.
With respect to any Distribution Date, the Class PO Deferred Amount is the
aggregate of the applicable PO Percentage of each Realized Loss, other than any
Excess Loss, to be allocated to the Class PO Certificates on such Distribution
Date on or prior to the Senior Credit Support Depletion Date or previously
allocated to the Class PO Certificates and not yet paid to the holders of the
Class PO Certificates.
INTEREST
The Classes of Offered Certificates will have the respective Pass-Through
Rates set forth or described on the cover hereof.
The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the Net Mortgage Rates of
the Non-Discount Mortgage Loans, weighted on the basis of the Stated Principal
Balances thereof, over (b) % per annum. The Pass-Through Rate for the Class X
Certificates for the first Distribution Date is expected to be approximately %
per annum. The Net Mortgage Rate for each Mortgage Loan is the interest rate
thereon (the "Mortgage Rate") less the Servicing Fee Rate for such Mortgage
Loan.
On each Distribution Date, to the extent of funds available therefor, each
interest bearing Class of Certificates will be entitled to receive an amount
allocable to interest (as to each such Class, the "Interest Distribution
Amount") with respect to the related Interest Accrual Period. The Interest
Distribution Amount for any interest bearing Class will be equal to the sum of
(i) interest at the applicable Pass-Through Rate on the related Class
Certificate Balance or Notional Amount, as the case may be, and (ii) the sum of
the amounts, if any, by which the amount described in clause (i) above on each
prior Distribution Date exceeded the amount actually distributed as interest on
such prior Distribution Dates and not subsequently distributed ("Unpaid Interest
Amounts"). The Class PO Certificates are Principal Only Certificates and will
not bear interest.
[With respect to each Distribution Date, the "Interest Accrual Period" for
each interest bearing Class of Certificates will be the calendar month preceding
the month of such Distribution Date.]
The interest entitlement described above for each Class of Certificates for
any Distribution Date will be reduced by the amount of "Net Interest Shortfalls"
for such Distribution Date. With respect to any Distribution Date, the "Net
Interest Shortfall" is equal to (i) the amount of interest that would otherwise
have been received with respect to any Mortgage Loan that was the subject of (x)
a Relief Act Reduction or (y) a Special Hazard Loss, Fraud Loss, Debt Service
Reduction or Deficient Valuation, after the exhaustion of the respective amounts
of coverage provided by the Subordinated Certificates for such types of losses
and
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(ii) any Net Prepayment Interest Shortfalls with respect to such Distribution
Date. A "Relief Act Reduction" is a reduction in the amount of monthly interest
payment on a Mortgage Loan pursuant to the Soldiers' and Sailors' Civil Relief
Act of 1940. See "Certain Legal Aspects of the Loans -- Soldiers' and Sailors'
Civil Relief Act" in the Prospectus. With respect to any Distribution Date, a
"Net Prepayment Interest Shortfall" is the amount by which the aggregate of
Prepayment Interest Shortfalls during the calendar month preceding the month of
such Distribution Date exceeds the aggregate amount payable on such Distribution
Date by the Master Servicer as described under "Servicing of Mortgage
Loans -- Adjustment to Master Servicing Fee in Connection with Certain Prepaid
Mortgage Loans." A "Prepayment Interest Shortfall" is the amount by which
interest paid by a borrower in connection with a prepayment of principal on a
Mortgage Loan is less than one month's interest at the related Mortgage Rate on
the Stated Principal Balance of such Mortgage Loan. Each Class' pro rata share
of such Net Interest Shortfalls will be based on the amount of interest such
Class otherwise would have been entitled to receive on such Distribution Date.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of each interest bearing Class of Certificates, on the
basis of the related Class Certificate Balance or Notional Amount, as
applicable, immediately prior to such Distribution Date. [Interest will be
calculated and payable on the basis of a 360-day year divided into twelve 30-day
months.]
In the event that, on a particular Distribution Date, Available Funds in
the Certificate Account applied in the order described above under "-- Priority
of Distributions Among Certificates" are not sufficient to make a full
distribution of the interest entitlement on the Certificates, interest will be
distributed on each Class of Certificates of equal priority based on the amount
of interest each such Class would otherwise have been entitled to receive in the
absence of such shortfall. Any Unpaid Interest Amount will be carried forward
and added to the amount holders of each such Class of Certificates will be
entitled to receive on the next Distribution Date. Such a shortfall could occur,
for example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month. Any Unpaid Interest Amount so carried
forward will not bear interest.
PRINCIPAL
General. All payments and other amounts received in respect of principal
of the Mortgage Loans will be allocated between (i) the Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates) and
the Subordinated Certificates and (ii) the Class PO Certificates, in each case
based on the applicable Non-PO Percentage and the applicable PO Percentage,
respectively, of such amounts.
The Non-PO Percentage with respect to any Mortgage Loan with a Net Mortgage
Rate ("NMR") less than % (each such Mortgage Loan, a "Discount Mortgage Loan")
will be equal to NMR/ %. The Non-PO Percentage with respect to any Mortgage
Loan with a Net Mortgage Rate equal to or greater than % (each such Mortgage
Loan, a "Non-Discount Mortgage Loan") will be 100%. The PO Percentage with
respect to any Discount Mortgage Loan will be equal to ( % -- NMR)/ %. The PO
Percentage with respect to any Non-Discount Mortgage Loan will be 0%.
Non-PO Formula Principal Amount. On each Distribution Date, the Non-PO
Formula Principal Amount will be distributed as principal of the Senior
Certificates (other than the Notional Amount Certificates and the Class PO
Certificates) and the Subordinated Certificates, to the extent of the amount
available from Available Funds for the distribution of principal on such
respective Classes, as described below.
The Non-PO Formula Principal Amount for any Distribution Date will equal
the sum of the applicable Non-PO Percentage of (a) all monthly payments of
principal due on each Mortgage Loan on the related Due Date, (b) the principal
portion of the purchase price of each Mortgage Loan that was repurchased by the
Seller or another person pursuant to the Agreement as of such Distribution Date,
(c) the Substitution Adjustment Amount in connection with any Deleted Mortgage
Loan received with respect to such Distribution Date, (d) any Insurance Proceeds
or Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the calendar month preceding
the month of such Distribution Date, the amount of the
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Liquidation Proceeds allocable to principal received with respect to such
Mortgage Loan and (f) all partial and full principal prepayments by borrowers
received during the related Prepayment Period.
Senior Principal Distribution Amount. On each Distribution Date prior to
the Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount,
up to the amount of the Senior Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the following Classes of
Senior Certificates in the following order of priority:
(i) to the Class A-R Certificates until the Class Certificate Balance
thereof has been reduced to zero;
(ii) concurrently, to the Class and Class Certificates, pro rata
based on their respective Class Certificate Balances, until the Class
Certificate Balances thereof have been reduced to zero;
(iii) sequentially, to the Class and Class Certificates, in that
order, until the respective Class Certificate Balances thereof have been
reduced to zero;
(iv) sequentially, to the Class and Class Certificates, in that
order, until the respective Class Certificate Balances thereof have been
reduced to zero; and
(v) to the Class Certificates until the Class Certificate Balance
thereof has been reduced to zero.
Notwithstanding the foregoing, on each Distribution Date on and after the
Senior Credit Support Depletion Date, the Non-PO Formula Principal Amount will
be distributed, concurrently as principal of the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates), pro
rata, in accordance with their respective Class Certificate Balances immediately
prior to such Distribution Date.
The Senior Credit Support Depletion Date is the date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been reduced
to zero.
The Senior Principal Distribution Amount for any Distribution Date will
equal the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date, (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Senior
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Senior Prepayment Percentage or (B)
if an Excess Loss was sustained with respect to such Liquidated Mortgage Loan
during such preceding calendar month, the Senior Percentage of the applicable
Non-PO Percentage of the amount of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the applicable Non-PO Percentage of amounts described
in clause (f) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Mortgage Loan that is not a
Liquidated Mortgage Loan, the Senior Principal Distribution Amount will be
reduced on the related Distribution Date by the Senior Percentage of the
applicable Non-PO Percentage of the principal portion of such Bankruptcy Loss.
"Stated Principal Balance" means as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period), after giving effect to any previous partial prepayments and
Liquidation Proceeds received and to the payment of principal due on such Due
Date and irrespective of any delinquency in payment by the related Mortgagor.
The Pool Principal Balance with respect to any Distribution Date equals the
aggregate of the Stated Principal Balances of the Mortgage Loans outstanding on
the Due Date in the month preceding the month of such Distribution Date.
The Senior Percentage for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the Class
PO Certificates) immediately prior to such date and the denominator of which is
the aggregate of the
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<PAGE> 138
Class Certificate Balances of all Classes of Certificates, other than the Class
PO Certificates, immediately prior to such date.
The Senior Prepayment Percentage for any Distribution Date occurring during
the years beginning on the first Distribution Date will equal 100%.
Thereafter, the Senior Prepayment Percentage will, except as described below, be
subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Senior
Certificates which receive these unscheduled payments of principal (other than
the Class PO Certificates) while, in the absence of Realized Losses, increasing
the interest in the Pool Principal Balance evidenced by the Subordinated
Certificates. Increasing the respective interest 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.
The Senior Prepayment Percentage for any Distribution Date occurring on or
after the anniversary of the first Distribution Date will be as follows: for
any Distribution Date in the year thereafter, the Senior Percentage plus %
of the Subordinated Percentage for such Distribution Date; for any Distribution
Date in the year thereafter, the Senior Percentage plus % of the
Subordinated Percentage for such Distribution Date; for any Distribution Date in
the year thereafter, the Senior Percentage plus % of the Subordinated
Percentage for such Distribution Date; for any Distribution Date in the year
thereafter, the Senior Percentage plus % of the Subordinated Percentage for
such Distribution Date; and for any Distribution Date thereafter, the Senior
Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Prepayment Percentage for such Distribution Date will
once again equal 100%). Notwithstanding the foregoing, no decrease in the Senior
Prepayment Percentage will occur if (i) the outstanding principal balance of all
Mortgage Loans delinquent days or more (averaged over the preceding
period), as a percentage of the aggregate principal balance of the Subordinated
Certificates (averaged over the preceding period), is equal to or
greater than %, or (ii) cumulative Realized Losses with respect to the
Mortgage Loans exceed (a) with respect to the Distribution Date on the
anniversary of the first Distribution Date, % of the aggregate of
the principal balances of the Subordinated Certificates as of the Cut-off Date
(the "Original Subordinated Principal Balance"), (b) with respect to the
Distribution Date on the anniversary of the first Distribution Date, % of
the Original Subordinated Principal Balance, (c) with respect to the
Distribution Date on the anniversary of the first Distribution Date, % of
the Original Subordinated Principal Balance, (d) with respect to the
Distribution Date on the anniversary of the first Distribution Date, % of
the Original Subordinated Principal Balance, and (e) with respect to the
Distribution Date on the anniversary of the first Distribution Date, % of
the Original Subordinated Principal Balance. The Subordinated Prepayment
Percentage as of any Distribution Date will be calculated as the difference
between 100% and the Senior Prepayment Percentage for such date.
If on any Distribution Date the allocation to the Class of Senior
Certificates then entitled to distributions of principal of full and partial
principal prepayments and other amounts in the percentage required above would
reduce the outstanding Class Certificate Balance of such Class below zero, the
distribution to such Class of Certificates of the Senior Prepayment Percentage
of such amounts for such Distribution Date will be limited to the percentage
necessary to reduce the related Class Certificate Balance to zero.
Subordinated Principal Distribution Amount. On each Distribution Date, to
the extent of Available Funds therefor, the Non-PO Formula Principal Amount, up
to the amount of the Subordinated Principal Distribution Amount for such
Distribution Date, will be distributed as principal of the Subordinated
Certificates. Except as provided in the next paragraph, each Class of
Subordinated Certificates will be entitled to receive its pro rata share of the
Subordinated Principal Distribution Amount (based on its respective Class
Certificate Balance), in each case to the extent of the amount available from
Available Funds for distribution of principal. Distributions of principal of the
Subordinated Certificates will be made sequentially to the Classes of
Subordinated Certificates in the order of their numerical Class designations,
beginning with the Class Certificates, until the respective Class Certificate
Balances thereof are reduced to zero. The Subordinated Percentage for any
Distribution Date will be calculated as the difference between 100% and the
Senior Percentage.
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With respect to each Class of Subordinated Certificates, if on any
Distribution Date the sum of the related Class Subordination Percentages of such
Class and all Classes of Subordinated Certificates which have higher numerical
Class designations than such Class (the "Applicable Credit Support Percentage")
is less than the Applicable Credit Support Percentage for such Class on the date
of issuance of the Certificates (the "Original Applicable Credit Support
Percentage"), no distribution of partial principal prepayments and principal
prepayments in full will be made to any such Classes (the "Restricted Classes")
and the amount of partial principal prepayments and principal prepayments in
full otherwise distributable to the Restricted Classes will be allocated among
the remaining Classes of Subordinated Certificates, pro rata, based upon their
respective Class Certificate Balances, and distributed in the sequential order
described above.
The Class Subordination Percentage with respect to any Distribution Date
and each Class of Subordinated Certificates, will equal the fraction (expressed
as a percentage) the numerator of which is the Class Certificate Balance of such
Class of Subordinated Certificates immediately prior to such Distribution Date
and the denominator of which is the aggregate of the Class Certificate Balances
of all Classes of Certificates immediately prior to such Distribution Date.
The approximate Original Applicable Credit Support Percentages for the
Subordinated Certificates on the date of issuance of the Certificates are
expected to be as follows:
<TABLE>
<S> <C>
Class........................................................................... %
Class ........................................................................ %
Class ........................................................................ %
Class ........................................................................ %
Class ........................................................................ %
Class ........................................................................ %
</TABLE>
The Subordinated Principal Distribution Amount for any Distribution Date
will equal (A) the sum of (i) the Subordinated Percentage of the applicable
Non-PO Percentage of all amounts described in clauses (a) through (d) of the
definition of "Non-PO Formula Principal Amount" for such Distribution Date, (ii)
with respect to each Mortgage Loan that became a Liquidated Mortgage Loan during
the calendar month preceding the month of such Distribution Date, the applicable
Non-PO Percentage of the Liquidation Proceeds allocable to principal received
with respect to such Mortgage Loan, after application of such amounts pursuant
to clause (ii) of the definition of Senior Principal Distribution Amount, up to
the Subordinated Percentage of the applicable Non-PO Percentage of the Stated
Principal Balance of such Mortgage Loan and (iii) the Subordinated Prepayment
Percentage of the applicable Non-PO Percentage of the amounts described in
clause (f) of the definition of "Non-PO Formula Principal Amount" for such
Distribution Date reduced by (B) the amount of any payments in respect of Class
PO Deferred Amounts on the related Distribution Date.
Residual Certificates. The Class A-R Certificates will remain outstanding
for so long as the Trust Fund shall exist, whether or not they are receiving
current distributions of principal or interest. In addition to distributions of
interest and principal as described above, on each Distribution Date, the
holders of the Class A-R Certificates will be entitled to receive any Available
Funds remaining after payment of interest and principal on the Senior
Certificates and Class PO Deferred Amounts on the Class PO Certificates and
interest and principal on the Subordinated Certificates, as described above. It
is not anticipated that there will be any significant amounts remaining for any
such distribution.
Class PO Principal Distribution Amount. On each Distribution Date,
distributions of principal of the Class PO Certificates will be made in an
amount (the "Class PO Principal Distribution Amount") equal to the lesser of (x)
the PO Formula Principal Amount for such Distribution Date and (y) the product
of (i) Available Funds remaining after distribution of interest on the Senior
Certificates and (ii) a fraction, the numerator of which is the PO Formula
Principal Amount and the denominator of which is the sum of the PO Formula
Principal Amount and the Senior Principal Distribution Amount.
If the Class PO Principal Distribution Amount on a Distribution Date is
calculated as provided in clause (y) above, principal distributions to holders
of the Senior Certificates (other than the Class PO
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<PAGE> 140
Certificates) will be in an amount equal to the product of (i) Available Funds
remaining after distribution of interest on the Senior Certificates and (ii) a
fraction, the numerator of which is the Senior Principal Distribution Amount and
the denominator of which is the sum of the Senior Principal Distribution Amount
and the PO Formula Principal Amount.
The PO Formula Principal Amount for any Distribution Date will equal the
sum of the applicable PO Percentage of (a) all monthly payments of principal due
on each Mortgage Loan on the related Due Date, (b) the principal portion of the
purchase price of each Mortgage Loan that was repurchased by the Seller or
another person pursuant to the Agreement as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the calendar month
preceding the month of such Distribution Date, (e) with respect to each Mortgage
Loan that became a Liquidated Mortgage Loan during the calendar month preceding
the month of such Distribution Date, the amount of Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan and (f) all
partial and full principal prepayments by borrowers received during the related
Prepayment Period; provided, however, that if a Bankruptcy Loss that is an
Excess Loss is sustained with respect to a Discount Mortgage Loan that is not a
Liquidated Mortgage Loan, the PO Formula Principal Amount will be reduced on the
related Distribution Date by the applicable PO Percentage of the principal
portion of such Bankruptcy Loss.
ALLOCATION OF LOSSES
On each Distribution Date, the applicable PO Percentage of any Realized
Loss, including any Excess Loss, on a Discount Mortgage Loan will be allocated
to the Class PO Certificates until the Class Certificate Balance thereof is
reduced to zero. The amount of any such Realized Loss, other than an Excess
Loss, allocated on or prior to the Senior Credit Support Depletion Date will be
treated as a Class PO Deferred Amount. To the extent funds are available on such
Distribution Date or on any future Distribution Date from amounts that would
otherwise be allocable to the Subordinated Principal Distribution Amount, Class
PO Deferred Amounts will be paid on the Class PO Certificates prior to
distributions of principal on the Subordinated Certificates. Any distribution of
Available Funds in respect of unpaid Class PO Deferred Amounts will not further
reduce the Class Certificate Balance of the Class PO Certificates. The Class PO
Deferred Amounts will not bear interest. The Class Certificate Balance of the
Class of Subordinated Certificates then outstanding with the highest numerical
Class designation will be reduced by the amount of any payments in respect of
Class PO Deferred Amounts. After the Senior Credit Support Depletion Date, no
new Class PO Deferred Amounts will be created.
On each Distribution Date, the applicable Non-PO Percentage of any Realized
Loss, other than any Excess Loss, will be allocated first to the Subordinated
Certificates, in the reverse order of their numerical Class designations
(beginning with the Class of Subordinated Certificates then outstanding with the
highest numerical Class designation), in each case until the Class Certificate
Balance of the respective Class of Certificates has been reduced to zero, and
then to the Senior Certificates (other than the Notional Amount Certificates and
the Class PO Certificates) pro rata, based upon their respective Class
Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the Classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates) and
the Subordinated Certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to certain Classes of Certificates
(other than the Class PO Certificates) before other Classes of Certificates,
holders of such Certificates that are entitled to receive principal later bear a
greater risk of being allocated Realized Losses on the Mortgage Loans than
holders of Classes that are entitled to receive principal earlier.
[Realized Losses allocated to a Class of Certificates comprised of multiple
payment Components will be allocated pro rata among the Components of such Class
of Certificates based on their respective Component Balances.]
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<PAGE> 141
In general, a "Realized Loss" means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the Mortgage
Loan exceeds the amount of Liquidation Proceeds applied to the principal balance
of the related Mortgage Loan. "Excess Losses" are (i) Special Hazard Losses in
excess of the Special Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in
excess of the Bankruptcy Loss Coverage Amount and (iii) Fraud Losses in excess
of the Fraud Loss Coverage Amount. "Bankruptcy Losses" are losses that are
incurred as a result of Debt Service Reductions and Deficient Valuations.
"Special Hazard Losses" are Realized Losses in respect of Special Hazard
Mortgage Loans. "Fraud Losses" are losses sustained on a Liquidated Mortgage
Loan by reason of a default arising from fraud, dishonesty or misrepresentation.
See "Credit Enhancement -- Subordination of Certain Classes" herein.
A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received. A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the Prospectus under "Credit
Enhancement." See "Credit Enhancement -- Subordination of Certain Classes"
herein.
STRUCTURING ASSUMPTIONS
Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists of
Mortgage Loans with the following characteristics:
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
PRINCIPAL MORTGAGE NET MORTGAGE TO MATURITY TO MATURITY
BALANCE RATE RATE (IN MONTHS) (IN MONTHS) LOAN AGE
------------------- -------- ------------ ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ %; %;
$ %; %;
</TABLE>
(ii) the Mortgage Loans prepay at the specified constant percentages of SPA,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in the calendar
month following the Closing Date and are computed prior to giving effect to
prepayments received on the last day of the prior month, (v) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vi) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for each Mortgage Loan has been calculated such
that each Mortgage Loan will amortize in amounts sufficient to repay the current
balance of such Mortgage Loan by its respective remaining term to maturity,
(viii) the initial Class Certificate Balance or Notional Amount, as applicable,
of each Class of Certificates is as set forth on the cover page hereof and under
"Summary of Terms -- Certificates other than the Offered Certificates," (ix)
interest accrues on each interest bearing Class of Certificates at the
applicable interest rate set forth or described on the cover hereof and as
described herein, (x) distributions in respect of the Certificates are received
in cash on the day of each month commencing in the calendar month following
the Closing Date, (xi) the closing date of the sale of the Offered Certificates
is the date set forth under "Summary of Terms -- Closing Date," (xii) the Seller
is not required to repurchase or substitute for any Mortgage Loan, (xiii) the
Master Servicer does not exercise the option to repurchase the Mortgage Loans
described herein under "-- Optional Purchase of Defaulted Loans" and
"-- Optional Termination" and (xiv) no Class of Certificates becomes a
Restricted Class. While it is assumed that each of the Mortgage Loans prepays at
the specified constant percentages of SPA, this is not likely to be the case.
Moreover, discrepancies may exist between the characteristics of the actual
Mortgage Loans which will be delivered to the Trustee and characteristics of the
Mortgage Loans used in preparing the tables herein.
Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the Standard Prepayment Assumption ("SPA"), which
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<PAGE> 142
represents an assumed rate of prepayment each month of the then outstanding
principal balance of a pool of new mortgage loans. SPA does not purport to be
either a historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment of any pool
of mortgage loans, including the Mortgage Loans. 100% SPA assumes prepayment
rates of 0.2% per annum of the then unpaid principal balance of such pool of
mortgage loans in the first month of the life of such mortgage loans and an
additional 0.2% per annum in each month thereafter (for example, 0.4% per annum
in the second month) until the 30th month. Beginning in the 30th month and in
each month thereafter during the life of such mortgage loans, 100% SPA assumes a
constant prepayment rate of 6% per annum. Multiples may be calculated from this
prepayment rate sequence. For example, % SPA assumes prepayment rates will be
% per annum in month one, % per annum in month two, and increasing by % in
each succeeding month until reaching a rate of % per annum in month 30 and
remaining constant at % per annum thereafter. 0% SPA assumes no prepayments.
There is no assurance that prepayments will occur at any SPA rate or at any
other constant rate.
OPTIONAL PURCHASE OF DEFAULTED LOANS
The Master Servicer may, at its option, purchase from the Trust Fund any
Mortgage Loan which is delinquent in payment by 91 days or more. Any such
purchase shall be at a price equal to 100% of the Stated Principal Balance of
such Mortgage Loan plus accrued interest thereon at the applicable Mortgage Rate
from the date through which interest was last paid by the related mortgagor or
advanced (and not reimbursed) to the first day of the month in which such amount
is to be distributed.
OPTIONAL TERMINATION
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Mortgage Pool and thereby effect early
retirement of the Certificates, subject to the Pool Principal Balance of such
Mortgage Loans and REO Properties at the time of repurchase being less than or
equal to 10% of the Cut-off Date Pool Principal Balance. In the event the Master
Servicer exercises such option, the purchase price distributed with respect to
each Certificate will be 100% of its then outstanding principal balance plus any
Class PO Deferred Amounts in the case of the Class PO Certificates and, in the
case of an interest bearing Certificate, any unpaid accrued interest thereon at
the applicable Pass-Through Rate (in each case subject to reduction as provided
in the Agreement if the purchase price is based in part on the appraised value
of any REO Properties and such appraised value is less than the Stated Principal
Balance of the related Mortgage Loans). Distributions on the Certificates in
respect of any such optional termination will first be paid to the Senior
Certificates and then to the Subordinated Certificates. The proceeds from any
such distribution may not be sufficient to distribute the full amount to which
each Class of Certificates is entitled if the purchase price is based in part on
the appraised value of any REO Property and such appraised value is less than
the Stated Principal Balance of the related Mortgage Loan.
THE TRUSTEE
will be the Trustee under the Agreement. The Depositor and the
Master Servicer may maintain other banking relationships in the ordinary course
of business with . Offered Certificates may be surrendered at the
Corporate Trust Office of the Trustee located at , Attention:
or at such other addresses as the Trustee may designate from time
to time.
RESTRICTIONS ON TRANSFER OF THE CLASS A-R CERTIFICATES
The Class A-R Certificates will be subject to the restrictions on transfer
described in the Prospectus under "Federal Income Tax Consequences." The
Agreement provides that the Class A-R Certificates (in addition to certain other
Classes of Certificates) may not be acquired by an ERISA Plan. See "ERISA
Considerations" herein. Each Class A-R Certificate will contain a legend
describing the foregoing restrictions.
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<PAGE> 143
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
[The effective yield to the holders of the interest bearing Certificates
will be lower than the yield otherwise produced by the applicable rate at which
interest is passed through to such holders and the purchase price of such
Certificates because monthly distributions will not be payable to such holders
until the day (or, if such day is not a business day, the following
business day) of the month following the month in which interest accrues on the
Mortgage Loans (without any additional distribution of interest or earnings
thereon in respect of such delay).]
Delinquencies on the Mortgage Loans which are not advanced by or on behalf
of the Master Servicer (because amounts, if advanced, would be nonrecoverable),
will adversely affect the yield on the Certificates. Because of the priority of
distributions, shortfalls resulting from delinquencies not so advanced will be
borne first by the Subordinated Certificates, in the reverse order of their
numerical Class designations, and then by the Senior Certificates. If, as a
result of such shortfalls, the aggregate of the Class Certificate Balances of
all Classes of Certificates exceeds the Pool Principal Balance, the Class
Certificate Balance of the Class of Subordinated Certificates then outstanding
with the highest numerical Class designation will be reduced by the amount of
such excess.
Net Interest Shortfalls will adversely affect the yields on the Offered
Certificates. In addition, although all losses initially will be borne by the
Subordinated Certificates, in the reverse order of their numerical Class
designations (either directly or through distributions in respect of Class PO
Deferred Amounts on the Class PO Certificates), Excess Losses will be borne by
all Classes of Certificates (other than the Notional Amount Certificates) on a
pro rata basis. Moreover, since the Subordinated Principal Distribution Amount
for each Distribution Date will be reduced by the amount of any distributions on
such Distribution Date in respect of Class PO Deferred Amounts, the amount
distributable as principal on each such Distribution Date to each Class of
Subordinated Certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of such Class PO Deferred
Amounts. As a result, the yields on the Offered Certificates will depend on the
rate and timing of Realized Losses, including Excess Losses. Excess Losses could
occur at a time when one or more Classes of Subordinated Certificates are still
outstanding and otherwise available to absorb other types of Realized Losses.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Offered Certificates, the aggregate
amount of distributions on the Offered Certificates and the yield to maturity of
the Offered Certificates will be related to the rate and timing of payments of
principal on the Mortgage Loans. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans and by the rate of principal prepayments (including for this purpose
prepayments resulting from refinancing, liquidations of the Mortgage Loans due
to defaults, casualties, condemnations and repurchases by the Seller or Master
Servicer). The Mortgage Loans may be prepaid by the Mortgagors at any time
without a prepayment penalty. The Mortgage Loans are subject to the
"due-on-sale" provisions included therein. See "The Mortgage Pool" herein.
Prepayments, liquidations and purchases of the Mortgage Loans (including
any optional purchase by the Master Servicer of a defaulted Mortgage Loan and
any optional repurchase of the remaining Mortgage Loans in connection with the
termination of the Trust Fund, in each case as described under "Description of
the Certificates -- Optional Purchase of Defaulting Loans" and "-- Optional
Termination" herein) will result in distributions on the Offered Certificates of
principal amounts which would otherwise be distributed over the remaining terms
of the Mortgage Loans. Since the rate of payment of principal of the Mortgage
Loans will depend on future events and a variety of factors, no assurance can be
given as to such rate or the rate of principal prepayments. The extent to which
the yield to maturity of a Class of Offered Certificates may vary from the
anticipated yield will depend upon the degree to which such Offered Certificate
is purchased at a discount or premium, and the degree to which the timing of
payments thereon is sensitive to prepayments, liquidations and purchases of the
Mortgage Loans. Further, an investor should consider the risk that, in the
S-34
<PAGE> 144
case of the Principal Only Certificates and any other Offered Certificate
purchased at a discount, a slower than anticipated rate of principal payments
(including prepayments) on the Mortgage Loans could result in an actual yield to
such investor that is lower than the anticipated yield and, in the case of the
Interest Only Certificates and any other Offered Certificate purchased at a
premium, a faster than anticipated rate of principal payments could result in an
actual yield to such investor that is lower than the anticipated yield.
Investors in the Interest Only Certificates should carefully consider the risk
that a rapid rate of principal payments on the Mortgage Loans could result in
the failure of such investors to recover their initial investments.
The rate of principal payments (including prepayments) on pools of mortgage
loans may vary significantly over time and may be influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. In general, if prevailing interest
rates were to fall significantly below the Mortgage Rates on the Mortgage Loans,
the Mortgage Loans could be subject to higher prepayment rates than if
prevailing interest rates were to remain at or above the Mortgage Rates on the
Mortgage Loans. Conversely, if prevailing interest rates were to rise
significantly, the rate of prepayments on the Mortgage Loans would generally be
expected to decrease. No assurances can be given as to the rate of prepayments
on the Mortgage Loans in stable or changing interest rate environments.
As described herein under "Description of the Certificates -- Principal,"
the Senior Prepayment Percentage of the applicable Non-PO Percentage of all
principal prepayments will be initially distributed to the Classes of Senior
Certificates (other than the Class PO Certificates) then entitled to receive
principal prepayment distributions. This may result in all (or a
disproportionate percentage) of such principal prepayments being distributed to
holders of such Classes of Senior Certificates and none (or less than their pro
rata share) of such principal prepayments being distributed to holders of the
Subordinated Certificates during the periods of time described in the definition
of "Senior Prepayment Percentage."
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Mortgage Loans, the
greater the effect on an investor's yield to maturity. The effect on an
investor's yield as a result 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 may not be offset
by a subsequent like decrease (or increase) in the rate of principal payments.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of certain Classes of Certificates to various
constant percentages of SPA. The yields set forth in the tables were calculated
by determining the monthly discount rates that, when applied to the assumed
streams of cash flows to be paid on the applicable Classes of Certificates,
would cause the discounted present value of such assumed streams of cash flows
to equal the assumed aggregate purchase prices of such Classes and converting
such monthly rates to corporate bond equivalent rates. Such calculations do not
take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as distributions on
such Certificates and consequently do not purport to reflect the return on any
investment in any such Class of Certificate when such reinvestment rates are
considered.
SENSITIVITY OF THE INTEREST ONLY CERTIFICATES
As indicated in the table below, the yield to investors in the Class X
Certificates will be sensitive to the rate of principal payments (including
prepayments) of the Non-Discount Mortgage Loans (particularly those with high
Net Mortgage Rates), which generally can be prepaid at any time. On the basis of
the assumptions described below, the yield to maturity on the Class X
Certificates would be approximately 0% if prepayments were to occur at a
constant rate of approximately % SPA. If the actual prepayment rate of the
Non-Discount Mortgage Loans were to exceed the foregoing level for as little as
one month while equaling such level for the remaining months, the investors in
the Class X Certificates would not fully recoup their initial investments.
S-35
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As described above under "Description of the Certificates -- General," the
Pass-Through Rate of the Class X Certificates in effect from time to time is
calculated by reference to the Net Mortgage Rates of the Non-Discount Mortgage
Loans. The Non-Discount Mortgage Loans will have higher Net Mortgage Rates (and
higher Mortgage Rates) than the other Mortgage Loans. In general, mortgage loans
with higher mortgage rates tend to prepay at higher rates than mortgage loans
with relatively lower mortgage rates in response to a given change in market
interest rates. As a result, the Non-Discount Mortgage Loans may prepay at
higher rates, thereby reducing the Pass-Through Rate and Notional Amount of the
Class X Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the purchase
price of the Class X Certificates (expressed as a percentage of initial Notional
Amount) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE*
----------------------------------------------------- ------
<S> <C>
Class X.............................................. %
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table below.
SENSITIVITY OF THE INTEREST ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
SPA PREPAYMENT/ASSUMPTION
<TABLE>
<CAPTION>
CLASS 0% % % % % %
- ---------------------------------------------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Class X............................................. % % % % % %
</TABLE>
It is unlikely that the Non-Discount Mortgage Loans will have the precise
characteristics described herein or that the Non-Discount Mortgage Loans will
all prepay at the same rate until maturity or that all of the Non-Discount
Mortgage Loans will prepay at the same rate or time. As a result of these
factors, the pre-tax yields on the Class X Certificates are likely to differ
from those shown in the table above, even if all of the Mortgage Loans prepay at
the indicated percentages of SPA. No representation is made as to the actual
rate of principal payments on the Mortgage Loans for any period or over the
lives of the Class X Certificates or as to the yield on the Class X
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class X
Certificates.
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES
The Class PO Certificates will be "principal only" certificates and will
not bear interest. As indicated in the table below, a lower than anticipated
rate of principal payments (including prepayments) on the Discount Mortgage
Loans will have a negative effect on the yield to investors in the Principal
Only Certificates.
As described above under "Description of the Certificates -- Principal,"
the Class PO Principal Distribution Amount is calculated by reference to the
principal payments (including prepayments) on the Discount Mortgage Loans. The
Discount Mortgage Loans will have lower Net Mortgage Rates (and lower Mortgage
Rates) than the other Mortgage Loans. In general, mortgage loans with higher
mortgage rates tend to prepay at higher rates than mortgage loans with
relatively lower mortgage rates in response to a given change in market interest
rates. As a result, the Discount Mortgage Loans may prepay at lower rates,
thereby reducing the rate of payment of principal and the resulting yield of the
Class PO Certificates.
The information set forth in the following table has been prepared on the
basis of the Structuring Assumptions and on the assumption that the aggregate
purchase price of the Principal Only Certificates (expressed as a percentage of
initial Class Certificate Balance) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE
------------------------------------------------------ -----
<S> <C>
Class PO.............................................. %
</TABLE>
S-36
<PAGE> 146
SENSITIVITY OF THE PRINCIPAL ONLY CERTIFICATES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
SFA PREPAYMENT/ASSUMPTION
<TABLE>
<CAPTION>
CLASS 0% % % % % %
- ---------------------------------------------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Class X............................................. % % % % % %
</TABLE>
It is unlikely that the Discount Mortgage Loans will have the precise
characteristics described herein or that the Discount Mortgage Loans will all
prepay at the same rate until maturity or that all of such Discount Mortgage
Loans will prepay at the same rate or time. As a result of these factors, the
pre-tax yield on the Principal Only Certificates is likely to differ from those
shown in the table above, even if all of the Mortgage Loans prepay at the
indicated percentages of SPA. No representation is made as to the actual rate of
principal payments on the Mortgage Loans for any period or over the life of the
Principal Only Certificates or as to the yield on the Principal Only
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Principal
Only Certificates.
ADDITIONAL INFORMATION
The Depositor intends to file certain additional yield tables and other
computational materials with respect to one or more Classes of Underwritten
Certificates with the Commission in a report on Form 8-K to be dated
, 199 . Such tables and materials were prepared by each Underwriter at the
request of certain prospective investors, based on assumptions provided by, and
satisfying the special requirements of, such prospective 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.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the net reduction, if any, of the Class Certificate
Balance of such Certificate on each Distribution Date by the number of years
from the date of issuance to such Distribution Date, (b) summing the results and
(c) dividing the sum by the aggregate amount of the net reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see "-- Prepayment Considerations
and Risks" herein and "Yield and Prepayment Considerations" in the Prospectus.
In general, the weighted average lives of the Offered Certificates will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases. However, the weighted average lives of the Offered Certificates will
depend upon a variety of other factors, including the timing of changes in such
rate of principal payments and the priority sequence of distributions of
principal of the Classes of Certificates.
The interaction of the foregoing factors may have different effects on
various Classes of Offered Certificates and the effects on any Class may vary at
different times during the life of such Class. Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Certificates.
Further, to the extent the prices of the Offered Certificates represent
discounts or premiums to their respective original Class Certificate Balances,
variability in the weighted average lives of such Classes of Offered
Certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the Classes of Offered
Certificates may be affected at various constant percentages of SPA, see the
Decrement Tables below.
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the Classes of Offered Certificates (other than the
Notional Amount Certificates) that would be outstanding after each of
S-37
<PAGE> 147
the dates shown at various constant percentages of SPA and the corresponding
weighted average lives of such Classes. The tables have been prepared on the
basis of the Structuring Assumptions. It is not likely that (i) the Mortgage
Loans will have the precise characteristics described herein or (ii) all of the
Mortgage Loans will prepay at a constant percentage of SPA. Moreover, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the tables, which have been
prepared using the specified constant percentages of SPA, even if the remaining
term to maturity of the Mortgage Loans is consistent with the remaining terms to
maturity of the Mortgage Loans specified in the Structuring Assumptions.
PERCENT OF INITIAL CLASS CERTIFICATE BALANCES OUTSTANDING*
CLASS A-
<TABLE>
<CAPTION>
DISTRIBUTION DATE 0% % % % % % % %
- -------------------------------------------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial........................................... % % % % % % % %
19................................................
19................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
-- -- -- -- -- --
Weighted Average Life (in years)**................
</TABLE>
CLASS A-
<TABLE>
<CAPTION>
DISTRIBUTION DATE 0% % % % % % % %
- -------------------------------------------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial........................................... % % % % % % % %
19................................................
19................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
20................................................
-- -- -- -- -- --
Weighted Average Life (in years)**................
</TABLE>
- ---------------
* Rounded to the nearest whole percentage.
** Determined as specified under "-- Weighted Average Lives of the Offered
Certificates" herein.
LAST SCHEDULED DISTRIBUTION DATE
The Last Scheduled Distribution Date for each Class of Offered Certificates
is the Distribution Date in , 20 , which is the Distribution
Date in the month following the latest scheduled maturity date for any of
the Mortgage Loans. Since the rate of distributions in reduction of the Class
Certificate Balance or Notional Amount of each Class of Offered Certificates
will depend on the rate of payment (including prepayments) of the Mortgage
Loans, the Class Certificate Balance or Notional Amount of any such Class could
be reduced to zero significantly earlier or later than the Last Scheduled
Distribution Date. The rate of payments on the Mortgage Loans will depend on
their particular characteristics, as well as on
S-38
<PAGE> 148
prevailing interest rates from time to time and other economic factors, and no
assurance can be given as to the actual payment experience of the Mortgage
Loans. See "Yield, Prepayment and Maturity Considerations -- Prepayment
Considerations and Risks" and "-- Weighted Average Lives of the Offered
Certificates" herein and "Yield and Prepayment Considerations" in the
Prospectus.
THE SUBORDINATED CERTIFICATES
The weighted average life of, and the yield to maturity on, the
Subordinated Certificates, in increasing order of their numerical Class
designation, will be progressively more sensitive to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the Mortgage Loans. If
the actual rate and severity of losses on the Mortgage Loans is higher than
those assumed by a holder of a Subordinated Certificate, the actual yield to
maturity of such Certificate may be lower than the yield expected by such holder
based on such assumption. The timing of losses on Mortgage Loans will also
affect an investor's actual yield to maturity, even if the rate of defaults and
severity of losses over the life of the Mortgage Pool are consistent with an
investor's expectations. In general, the earlier a loss occurs, the greater the
effect on an investor's yield to maturity. Realized Losses on the Mortgage Loans
will reduce the Class Certificate Balances of the applicable Class of
Subordinated Certificates to the extent of any losses allocated thereto (as
described under "Description of the Certificates -- Allocation of Losses"
herein), without the receipt of cash attributable to such reduction. In
addition, shortfalls in cash available for distributions on the Subordinated
Certificates will result in a reduction in the Class Certificate Balance of the
Class of Subordinated Certificates then outstanding with the highest numerical
Class designation if and to the extent that the aggregate of the Class
Certificate Balances of all Classes of Certificates, following all distributions
and the allocation of Realized Losses on a Distribution Date, exceeds the Pool
Principal Balance as of the Due Date occurring in the month of such Distribution
Date. As a result of such reductions, less interest will accrue on such Class of
Subordinated Certificates than otherwise would be the case. The yield to
maturity of the Subordinated Certificates will also be affected by the
disproportionate allocation of principal prepayments to the Senior Certificates,
Net Interest Shortfalls, other cash shortfalls in Available Funds and
distribution of funds to Class PO Certificateholders otherwise available for
distribution on the Subordinated Certificates to the extent of reimbursement for
Class PO Deferred Amounts. See "Description of the Certificates -- Allocation of
Losses" herein.
If on any Distribution Date, the Applicable Credit Support Percentage for
any Class of Subordinated Certificates is less than its Original Applicable
Credit Support Percentage, all partial principal prepayments and principal
prepayments in full available for distribution on the Subordinated Certificates
will be allocated solely to such Class and all other Classes of Subordinated
Certificates with lower numerical Class designations, thereby accelerating the
amortization thereof relative to that of the Restricted Classes and reducing the
weighted average lives of such Classes of Subordinated Certificates receiving
such distributions. Accelerating the amortization of the Classes of Subordinated
Certificates with lower numerical Class designations relative to the other
Classes of Subordinated Certificates is intended to preserve the availability of
the subordination provided by such other Classes.
CREDIT ENHANCEMENT
SUBORDINATION OF CERTAIN CLASSES
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of the holders of the Senior Certificates and the rights of the holders
of each Class of Subordinated Certificates (other than the Class B-1
Certificates) to receive such distributions will be further subordinated to such
rights of the Class or Classes of Subordinated Certificates with lower numerical
Class designations, in each case only to the extent described herein. The
subordination of the Subordinated Certificates to the Senior Certificates and
the subordination of the Classes of Subordinated Certificates with higher
numerical Class designations to those with lower numerical Class designations is
intended to increase the likelihood of receipt, respectively, by the Senior
Certificateholders and the holders of Subordinated Certificates with lower
numerical Class designations of the maximum amount to which they are entitled on
any Distribution Date and to provide such holders protection against Realized
S-39
<PAGE> 149
Losses, other than Excess Losses. In addition, the Subordinated Certificates
will provide limited protection against Special Hazard Losses, Bankruptcy Losses
and Fraud Losses up to the Special Hazard Loss Coverage Amount, Bankruptcy Loss
Coverage Amount and Fraud Loss Coverage Amount, respectively, as described
below. The applicable Non-PO Percentage of Realized Losses, other than Excess
Losses, will be allocated to the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation. In addition, the Class
Certificate Balance of such Class of Subordinated Certificates will be reduced
by the amount of distributions on the Class PO Certificates in reimbursement for
Class PO Deferred Amounts.
The Subordinated Certificates will provide limited protection to the
Classes of Certificates of higher relative priority against (i) Special Hazard
Losses in an initial amount expected to be up to approximately $ (the
"Special Hazard Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial
amount expected to be up to approximately $ (the "Bankruptcy Loss
Coverage Amount") and (iii) Fraud Losses in an initial amount expected to be up
to approximately $ (the "Fraud Loss Coverage Amount").
[The Special Hazard Loss Coverage Amount will be reduced, from time to
time, to be an amount equal on any Distribution Date to the lesser of (a) the
greatest of (i) % of the aggregate of the principal balances of the Mortgage
Loans, (ii) the principal balance of the largest Mortgage Loan and (iii)
the aggregate principal balances of the Mortgage Loans secured by Mortgaged
Properties located in the single California postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred since the
Closing Date. All principal balances for the purpose of this definition will be
calculated as of the first day of the month preceding such Distribution Date
after giving effect to scheduled installments of principal and interest on the
Mortgage Loans then due, whether or not paid.
The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates. In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be reduced
as follows: (a) on the , , and anniversaries of the Cut-off
Date, to an amount equal to the lesser of (i) % of the then current Pool
Principal Balance and (ii) the excess of the Fraud Loss Coverage Amount as of
the preceding anniversary of the Cut-off Date over the cumulative amount of
Fraud Losses allocated to the Certificates since such preceding anniversary and
(b) on the anniversary of the Cut-off Date, to zero.
The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.]
The amount of coverage provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be cancelled or
reduced from time to time for each of the risks covered, provided that the then
current ratings of the Certificates assigned by the Rating Agencies are not
adversely affected thereby without regard to the guaranty provided by the
Policy. In addition, a reserve fund or other form of credit enhancement may be
substituted for the protection provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses.
As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan. In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a "Debt Service
Reduction") of the amount of the monthly payment on the related Mortgage Loan.
Notwithstanding the foregoing, no such occurrence shall be considered a Debt
Service Reduction or Deficient Valuation so long as the Master Servicer is
pursuing any other remedies that may be available with respect to the related
Mortgage Loan and (i) such Mortgage Loan is not in default with respect to
payment due thereunder or (ii) scheduled
S-40
<PAGE> 150
monthly payments of principal and interest are being advanced by the Master
Servicer without giving effect to any Debt Service Reduction or Deficient
Valuation.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Certificates
against the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, an election will be made to treat the
Trust Fund as a REMIC. Assuming such an election is timely made and the terms of
the Pooling and Servicing Agreement are complied with, , special
tax counsel to the Depositor ("Tax Counsel"), is of the opinion that the Trust
Fund will qualify as a REMIC within the meaning of the Code. The Regular
Certificates will constitute the regular interests in the REMIC. The Residual
Certificates will constitute the sole class of "residual interest" in the REMIC.
See "Federal Income Tax Consequences" in the Prospectus.
The Regular Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Regular
Certificates must be reported under an accrual method of accounting.
In the opinion of Tax Counsel, the Principal Only Certificates will be
treated for federal income tax purposes as having been issued with an amount of
Original Issue Discount ("OID") equal to the difference between their principal
balance and their issue price. Although the tax treatment is not entirely
certain, Notional Amount Certificates will be treated as having been issued with
OID for federal income tax purposes equal to the excess of all expected payments
of interest on such Certificates over their issue price. Although unclear, a
holder of a Notional Amount Certificate may be entitled to deduct a loss to the
extent that its remaining basis exceeds the maximum amount of future payments to
which such Certificateholder would be entitled if there were no further
prepayments of the Mortgage Loans. The remaining Classes of Regular
Certificates, depending on their respective issue prices (as described in the
Prospectus under "Federal Income Tax Consequences"), may be treated as having
been issued with OID for federal income tax purposes. For purposes of
determining the amount and rate of accrual of OID and market discount, the Trust
Fund intends to assume that there will be prepayments on the Mortgage Loans at a
rate equal to % SPA (the "Prepayment Assumption"). No representation is made
as to whether the Mortgage Loans will prepay at the foregoing rate or any other
rate. See "Yield, Prepayment and Maturity Considerations" herein and "Federal
Income Tax Consequences" in the Prospectus. Computing accruals of OID in the
manner described in the Prospectus may (depending on the actual rate of
prepayments during the accrual period) result in the accrual of negative amounts
of OID on the Certificates issued with OID in an accrual period. Holders will be
entitled to offset negative accruals of OID only against future OID accrual on
such Certificates.
If the holders of any Regular Certificates are treated as holding such
Certificates at a premium, such holders should consult their tax advisors
regarding the election to amortize bond premium and the method to be employed.
As is described more fully under "Federal Income Tax Consequences" in the
Prospectus, the Offered Certificates will represent qualifying assets under
Sections 856(c)(5)(A) and 7701(a)(19)(C) of the Code, and net interest income
attributable to the Offered Certificates will be "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code, to the extent the assets of the Trust Fund are assets
described in such sections. The Regular Certificates will represent qualifying
assets under Section 860G(a)(3) if acquired by a REMIC within the prescribed
time periods of the Code.
The holders of the Residual Certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Residual Certificate recognized by
a holder may be treated as "excess inclusion" income, which with limited
exceptions, is subject to U.S. federal income tax.
S-41
<PAGE> 151
Prospective purchasers of a Residual Certificate should consider carefully
the tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Consequences -- Taxation on Holders of
Residual Interest Securities" in the Prospectus. Specifically, prospective
holders of Residual Certificates should consult their tax advisors regarding
whether, at the time of acquisition, a Residual Certificate will be treated as a
"noneconomic" residual interest, a "non-significant value" residual interest and
a "tax avoidance potential" residual interest. See "Federal Income Tax
Consequences -- Taxation of Holders of Residual Interest Securities" in the
Prospectus. Additionally, for information regarding Prohibited Transactions and
Treatment of Realized Losses, see "Federal Income Tax Consequences" in the
Prospectus.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts in which such plans
or arrangements are invested (all of which are hereinafter referred to as a
"Plan"). Generally, ERISA applies to investments made by Plans. Among other
things, ERISA requires that the assets of Plans be held in trust and that the
trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant).
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Offered Certificates should determine whether such an investment is permitted
under the governing Plan instruments and is prudent and appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. More generally, any Plan fiduciary which proposes to cause a
Plan to acquire any of the Offered Certificates or any other person proposing to
use the assets of a Plan to acquire any of the Offered Certificates should
consult with its counsel with respect to the potential consequences under ERISA
and the Code (including under the prohibited transactions rules described below)
of the acquisition and ownership of such Offered Certificates.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such plans may be invested in the
Offered Certificates without regard to the ERISA considerations described below,
subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under Section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
PROHIBITED TRANSACTIONS
GENERAL
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" (within
the meaning of the Code) and "parties in interest" (within the meaning of ERISA,
collectively "Parties in Interest") who have certain specified relationships to
the Plan, unless an exemption applies (see below). Therefore, a Plan fiduciary
or any other person using the assets of a Plan considering an investment in the
Offered Certificates should also consider whether such an investment might
constitute or give rise to a prohibited transaction under ERISA or the Code, or
whether there is an applicable exemption.
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<PAGE> 152
PLAN ASSET REGULATION
The United States Department of Labor ("DOL") has issued final regulations
defining the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (29 C.F.R. sec. 2510.3-101, the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan acquires
an "equity interest" in an entity that is neither a "publicly-offered security"
(defined as a security which is widely held, freely transferable and registered
under the Securities Exchange Act of 1934, as amended) nor a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended, the assets of the entity will be treated as assets of the Plan unless
certain exceptions apply. If the Offered Certificates were deemed to be equity
interests and no statutory, regulatory or administrative exemption applies, the
Trust Fund could be considered to hold plan assets by reason of a Plan's
investment in the Offered Certificates. Such plan assets would include an
undivided interest in any assets held by the Trust Fund. In such an event, the
Trustee and other persons, in providing services with respect to the Trust
Fund's assets, may be Parties in Interest with respect to such Plans, subject to
the fiduciary responsibility provisions of ERISA, including the prohibited
transaction provisions with respect to transactions involving the Trust Fund's
assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, the
DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
THE UNDERWRITER'S EXEMPTION
The DOL has granted to Morgan Stanley an administrative exemption
(Prohibited Transaction Exemption 90-24, 55 Fed. Reg. 20,548 (1990) (the
"Exemption") from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
in pass-through trusts that consist of certain receivables, loans, and other
obligations that meet the conditions and requirements of the Exemption. Morgan
Stanley believes that the Exemption will [not] apply to the acquisition and
holding of [Class A Certificates] by Plans.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the [Class A Certificates] by a Plan is on
terms (including the price for such [Class A 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 the [Class A Certificates]
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust Fund;
(3) the [Class A 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 one of Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc.
("Duff & Phelps") or Fitch Investors Service, L.P. ("Fitch");
S-43
<PAGE> 153
(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 the [Class A Certificates] represents
not more than reasonable compensation for underwriting such [Class A
Certificates ]; the sum of all payments made to and retained by the
Depositor pursuant to the assignment of the Mortgage Loans to the Trust
Fund represents not more than the fair market value of such Mortgage Loans;
the sum of all payments made to and retained by the Master Servicer and any
other servicer represents not more than reasonable compensation for such
person's services under the Pooling and Servicing Agreement and
reimbursements of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the [Class A Certificates] is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories of S&P,
Moody's, Fitch or Duff & Phelps for at least one year prior to the Plan's
acquisition of the [Class A 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 [Class A Certificates].
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations or receivables contained in the trust; (ii) the Plan is not a plan
with respect to which any member of the Restricted Group (as defined below) is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA); (iii) in the case
of an acquisition in connection with the initial issuance of certificates, at
least fifty percent of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group (as defined below)
and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) 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 (v) immediately after the acquisition, no more than twenty-five
percent of the assets of the Plan with respect to which such person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Seller, the Depositor, the Underwriter, the Trustee, the Master
Servicer, [the Certificate Insurer,] any obligor with respect to Mortgage Loans
included in the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of any of such parties (the "Restricted Group").
The Exemption may apply to the acquisition, holding and transfer of the
[Class A Certificates] by Plans if all of the conditions of the Exemption are
met, including those within the control of the investor. [Notwithstanding any of
the foregoing, the Exemption will not apply with respect to any [Class A
Certificates] until such time as the balance of the related Pre-Funding Account
is reduced to zero. Accordingly, until such time, the [Class A Certificates] may
not be purchased by Plans pursuant to the Exemption.] As of the date hereof,
there is no single Mortgage Loan included in the Trust Fund that constitutes
more than five percent of the aggregate unamortized principal balance of the
assets of the Trust Fund.
S-44
<PAGE> 154
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult with their legal
advisors with respect to the applicability of Prohibited Transaction Class
Exemption ("PTE") 95-60, regarding transactions by insurance company general
accounts. In addition to any exemption that may be available under PTE 95-60 for
the purchase and holding of Offered Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the Code, for
transactions involving an insurance company general account. Pursuant to Section
401(c) of ERISA, the DOL is required to issue final regulations ("401(c)
Regulations") no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute plan assets, unless (i) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (ii)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as plan assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Offered Certificates after
the date which is 18 months after the date the 401(c) Regulations become final.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated , 199 (the "Underwriting Agreement"), between the
Depositor and the Underwriter, an affiliate of the Depositor, the Depositor has
agreed to sell to the Underwriter, and the Underwriter has agreed to purchase
from the Depositor all the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates offered
hereby if any of the Certificates are purchased.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public in Europe and the United
States at the offering price set forth on the cover page hereof and to certain
dealers at such price less a discount not in excess of % of the Certificate
denominations. The Underwriter may allow and such dealers may reallow a discount
not in excess of % of the Certificate denominations to certain other dealers.
After the initial public offering, the public offering price, such concessions
and such discounts may be changed.
The distribution of the Certificates by the Underwriter will be effected
from time to time in one or more negotiated transactions or otherwise at varying
prices to be determined, in each case, at the time of sale. The Underwriter may
effect such transactions by selling the Certificates to or through dealers, and
such dealers may receive from the Underwriter compensation in the form of
underwriting discounts, concessions or commissions. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the
Certificates may be deemed to be underwriters, and any discounts, commissions or
concessions received by them, and any profit on the resale of the Certificates
purchased by them, may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Act").
S-45
<PAGE> 155
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
. [ ] will pass upon certain legal matters on behalf of
the Underwriters.
RATINGS
It is a condition to the issuance of the Senior Certificates that they be
rated by (" ") and, by (" " and, together with , the "Rating
Agencies"). It is a condition to the issuance of the Class B- , Class B- and
Class B- Certificates that they be rated at least , and
, respectively, by .
The ratings assigned by to mortgage pass-through certificates address the
likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. 's ratings take into consideration the credit quality
of the related mortgage pool, including any credit support providers, structural
and legal aspects associated with such certificates, and the extent to which the
payment stream on the mortgage pool is adequate to make the payments required by
such certificates. 's ratings on such certificates do not, however, constitute
a statement regarding frequency of payments of the mortgage loans.
The ratings assigned by to mortgage pass-through certificates address the
likelihood of the receipt of all distributions on the mortgage loans by the
related certificateholders under the agreements pursuant to which such
certificates are issued. 's ratings take into consideration the credit quality
of the related mortgage pool, including any credit support providers, structural
and legal aspects associated with such certificates, and the extent to which the
payment stream on such mortgage pool is adequate to make payments required by
such certificates. 's ratings on such certificates do not, however, constitute
a statement regarding frequency of prepayments on the related mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the Offered
Certificates or, if it does, what rating would be assigned by such other rating
agency. The rating assigned by such other rating agency to the Offered
Certificates could be lower than the respective ratings assigned by the Rating
Agencies.
S-46
<PAGE> 156
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Act................................................................................ S-45
Accredited Investor................................................................ S-44
401(c) Regulations................................................................. S-45
Advance............................................................................ S-9, 23
Agreement.......................................................................... S-6, 14
Applicable Credit Support Percentage............................................... S-30
Available Funds.................................................................... S-26
Bankruptcy Losses.................................................................. S-32
Bankruptcy Loss Coverage Amount.................................................... S-40
Beneficial Owner................................................................... S-24
CEDE............................................................................... S-24
Certificate Account................................................................ S-24
Certificateholder.................................................................. S-14, 24
Certificates....................................................................... S-1, 5
Class PO Principal Distribution Amount............................................. S-30
Code............................................................................... S-10
Cut-off Date Pool Principal Balance................................................ S-15
Debt Service Reduction............................................................. S-40
Deficient Valuation................................................................ S-40
Definitive Certificate............................................................. S-24
Deleted Mortgage Loan.............................................................. S-19
Depositor.......................................................................... S-6
Depository......................................................................... S-24
Discount Mortgage Loan............................................................. S-27
Distribution Account............................................................... S-24
Distribution Date.................................................................. S-6, 25
DOL................................................................................ S-43
Due Date........................................................................... S-15
Equity Interest.................................................................... S-43
ERISA.............................................................................. S-10, 42
Excess Losses...................................................................... S-32
Exemption.......................................................................... S-43
Fraud Loss Coverage Amount......................................................... S-40
Fraud Losses....................................................................... S-32
Insurance Proceeds................................................................. S-26
Interest Distribution Amount....................................................... S-26
Interest Accrual Period............................................................ S-7, 26
Liquidated Mortgage Loan........................................................... S-32
Liquidation Proceeds............................................................... S-26
Master Servicer.................................................................... S-6
Mortgage........................................................................... S-19
Mortgage File...................................................................... S-19
Mortgage Note...................................................................... S-19
Mortgage Pool...................................................................... S-1
Mortgage Rate...................................................................... S-26
Net Prepayment Interest Shortfall.................................................. S-27
Net Interest Shortfall............................................................. S-26
NMR................................................................................ S-27
Non-Discount Mortgage Loan......................................................... S-23, 27
Non-PO Formula Principal Amount.................................................... S-28, 30
</TABLE>
S-47
<PAGE> 157
<TABLE>
<S> <C>
Offered Certificates............................................................... S-1, 23
OID................................................................................ S-10, 41
Original Subordinated Principal Balance............................................ S-29
Original Applicable Credit Support Percentage...................................... S-30
Parties in Interest................................................................ S-42
Permitted Investments.............................................................. S-24
Plan............................................................................... S-42
Plan Assets........................................................................ S-43
Plan Asset Regulation.............................................................. S-43
Plan Sponsor....................................................................... S-44
Publicly Offered Security.......................................................... S-43
Prepayment Assumption.............................................................. S-41
Prepayment Interest Excess......................................................... S-22
Prepayment Interest Shortfall...................................................... S-27
Principal Only Certificates........................................................ S-36
Prospectus......................................................................... S-3
PTE................................................................................ S-45
Purchase Agreement................................................................. S-14
Rating Agencies.................................................................... S-11, 46
Realized Loss...................................................................... S-32
Record Date........................................................................ S-25
Regular Interests.................................................................. S-2, 10
Relief Act Reduction............................................................... S-27
REMIC.............................................................................. S-2, 10
REO Property....................................................................... S-23
Replacement Mortgage Loan.......................................................... S-19
Residual Interest.................................................................. S-2, 10
Restricted Classes................................................................. S-30
Restricted Group................................................................... S-44
Scheduled Payments................................................................. S-15
Seller............................................................................. S-2, 6
Senior Prepayment Percentage....................................................... S-35
Senior Certificates................................................................ S-23
Servicing Fee...................................................................... S-22
SMMEA.............................................................................. S-10
SPA................................................................................ S-32
Special Hazard Mortgage Loan....................................................... S-32
Special Hazard Losses.............................................................. S-32
Special Hazard Loss Coverage Amount................................................ S-40
Stated Principal Balance........................................................... S-28
Structuring Assumptions............................................................ S-32
Subordinated Certificates.......................................................... S-23
Substitution Adjustment Amount..................................................... S-20
Tax Counsel........................................................................ S-41
Trustee............................................................................ S-6
Trust Fund......................................................................... S-1, 6
Underwriter........................................................................ S-1
Underwriting Agreement............................................................. S-45
Underwritten Senior Certificates................................................... S-1
Underwritten Certificates.......................................................... S-1
Unpaid Interest Amounts............................................................ S-26
</TABLE>
S-48
<PAGE> 158
VERSION #4
Subject to Completion, Dated April 29, 1997
PROSPECTUS SUPPLEMENT (To Prospectus dated , 199 )
$
(Approximate)
Mortgaged Loan Asset-Backed Trust 199
Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199 -
$ [Adjustable Rate] Class A-1 Certificates
$ % Class A-2 Certificates
Distributions payable on the day of each month,
commencing in , 199
Morgan Stanley ABS Capital I Inc.
Depositor
[ ]
Master Servicer
------------------------
The Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199 - (the
"Certificates") will include the following two senior classes (the "Class A
Certificates"): (i) Class A-1 Certificates and (ii) Class A-2 Certificates. In
addition to the Class A Certificates, the Mortgage Loan Asset-Backed
Pass-Through Certificates Series 199 - will include the Class I S Certificates
(the "Group I Subordinate Certificates"), the Class II S Certificates (the
"Group II Subordinate Certificates"; and, together with the Group I Subordinate
Certificates, the "Subordinate Certificates") and the Class R Certificates (the
"Residual Certificates"). Only the Class A Certificates are offered hereby. The
Pass-Through Rate (as defined herein) on the Class A-1 Certificates is
adjustable and is calculated as described herein. The Pass-Through Rate on the
Class A-2 Certificates will be the rate set forth above, subject to increase as
described herein. Interest distributions on the Class A Certificates will be
payable monthly at one-twelfth the annual rate.
The Depositor has caused (the "Certificate Insurer") to issue two
certificate guaranty insurance policies (the "Certificate Insurance Policies")
for the benefit of the Class A Certificateholders pursuant to which it will
guarantee certain payments to the Class A Certificateholders as described
herein.
[INSURER]
------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-16 HEREIN AND ON PAGE 17 IN THE ACCOMPANYING
PROSPECTUS.
------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND AND PROCEEDS FROM THE CERTIFICATE
INSURANCE POLICIES ARE THE SOLE SOURCE OF PAYMENTS ON THE CLASS A CERTIFICATES.
THE CLASS A CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE CERTIFICATE INSURER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
BY THE DEPOSITOR, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
There is currently no secondary market for the Class A Certificates. Morgan
Stanley & Co. Incorporated (the "Underwriter") intends to make a secondary
market in the Class A Certificates, but is not obligated to do so. There can be
no assurance that a secondary market for the Class A Certificates will develop
or, if it does develop, that it will continue. The Class A Certificates will not
be listed on any securities exchange.
The Class A Certificates will be purchased from the Depositor by the
Underwriters and will be offered by the Underwriters from time to time to the
public in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. The proceeds to the Depositor from the sale of
the Class A Certificates, before deducting expenses payable by the Depositor,
will be equal to approximately % of the aggregate initial principal balance
of the Class A Certificates, plus accrued interest on the Class A-2 Certificates
from , 199 .
The Class A Certificates are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify such offer and to reject any order in whole or in part. It is
expected that delivery of the Class A Certificates will be made only in
book-entry form through the facilities of The Depository Trust Company, Cedel
Bank, societe anonyme, and the Euroclear System as further discussed herein, on
or about , 199 , against payment therefor in immediately available
funds. The Class A Certificates will be offered in Europe and the United States
of America.
------------------------
MORGAN STANLEY & CO.
Incorporated
, 199 .
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation, or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
<PAGE> 159
(Continued from cover page)
The Certificates will each evidence a beneficial ownership interest in one
of two loan groups (each, a "Loan Group") comprising Mortgage Loan Asset-Backed
Trust 199 (the "Trust Fund") consisting primarily of first, second and third
lien mortgage loans on one-to-four-family residential properties (the "Mortgage
Loans"), to be deposited by Morgan Stanley ABS Capital I Inc. (the "Depositor")
into the Trust Fund and any funds on deposit in the Interest Coverage Accounts
and the Pre-Funding Accounts (each as defined herein). The Mortgage Loans will
be purchased by the Depositor from (the "Seller"). The separate Loan
Groups are referred to as the "Group I Loans" and "Group II Loans." The Group I
Loans are adjustable-rate Mortgage Loans. The Group II Loans are fixed-rate
Mortgage Loans. Additional Group I Loans and Group II Loans are intended to be
purchased by the Trust Fund from the Depositor on or before , 199 from
funds on deposit in the Pre-Funding Accounts. On the Delivery Date (as defined
herein), the Depositor will pay to the Trustee approximately $ and
$ for deposit in the Group I and Group II Pre-Funding Account,
respectively. On the Delivery Date, the Depositor will also pay to the Trustee
for deposit in the Interest Coverage Accounts an amount as required by the
Certificate Insurer and specified in the Pooling and Servicing Agreement. The
interest rate (the "Mortgage Rate") on each Group I Loan [(i) with an Index of
Six-Month LIBOR (each as defined herein) will be subject to semi-annual
adjustment (in the case of certain of the Group I Loans, after an initial period
of two years or three years from origination), and (ii) with an Index of
One-Year CMT (as defined herein) will be subject to annual adjustment, in each
case based on the sum of the related Index and the related Gross Margin (as
defined herein), subject to certain periodic and lifetime rate limitations (as
described herein)]. The Mortgage Rate on each Group II Loan will be fixed. The
Index for the Group I Loans will be based on [either (i) six-month London
interbank offered rates for United States dollar deposits ("Six-Month LIBOR") or
(ii) the weekly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year ("One-Year CMT"), each as described herein.] Certain
characteristics of the Mortgage Loans are described herein under "The Mortgage
Pool." All distributions (other than Cross-Collateralization Payments as
described herein) and losses with respect to a Loan Group will be allocated
solely among the Certificates related to such Loan Group. The rights of the
holders of the Group I Subordinate Certificates to receive distributions with
respect to the Group I Loans will be subordinate to the rights of the holders of
the Class A-1 Certificates to the extent described herein and in the Prospectus.
The rights of the holders of the Group II Subordinate Certificates to receive
distributions with respect to the Group II Loans will be subordinate to the
rights of the holders of the Class A-2 Certificates to the extent described
herein and in the Prospectus.
It is a condition of the issuance of the Class A Certificates that they be
rated " " by (" "), " " by (" ")
and " " by (" ").
The Class A Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), as further described herein. The interests of beneficial owners of the
Class A Certificates will be represented by book entries on the records of DTC
and the participating members of DTC. Persons acquiring beneficial ownership
interests in the Class A Certificates may elect to hold such interests through
DTC in the United States, or Cedel or Euroclear (each as defined herein) in
Europe. Definitive certificates will be available for the Class A Certificates
only under the limited circumstances described herein. See "Description of the
Certificates -- Book-Entry Registration" herein.
As described herein, a "real estate mortgage investment conduit" ("REMIC")
election will be made in connection with the Trust Fund (exclusive of the
Interest Coverage Accounts and the Pre-Funding Accounts) for federal income tax
purposes. The Class A Certificates and the Subordinate Certificates will
represent ownership of "regular interests" in the REMIC and the Class R
Certificates will constitute the sole class of "residual interests" in the
REMIC. See "Federal Income Tax Consequences" herein and in the Prospectus.
Distributions on the Class A Certificates, will be made on the 25th day of
each month or, if such day is not a business day, then on the next business day,
commencing in 199 (each, a "Distribution Date"). As described herein,
interest payable with respect to each Distribution Date (i) on the Class A-1
Certificates, will accrue on the basis of a 360-day year and the actual number
of days elapsed during the period
S-2
<PAGE> 160
commencing on the Distribution Date immediately preceding the month on which
such Distribution Date occurs and ending on the calendar day immediately
preceding such Distribution Date, except with respect to the first Distribution
Date, which has an accrual period from , 199 to , 199 and
(ii) on the Class A-2 Certificates will accrue on the basis of a 30-day month,
and will be based on the Certificate Principal Balance thereof and the
then-applicable Pass-Through Rate thereof, as reduced by certain interest
shortfalls. Distributions in respect of principal of the Class A Certificates
will be made as described herein under "Description of the Certificates -- Class
A Principal Distribution Amount."
If purchased at a price other than par, the yield to maturity on the Class
A Certificates will be sensitive to the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans. The
Mortgage Loans generally may be prepaid in full or in part at any time; however,
a prepayment may subject the related Mortgagor to a prepayment charge with
respect to the majority of the Mortgage Loans in each Loan Group. The yield to
investors on the Class A Certificates will be adversely affected by any
shortfalls in interest collected on the Mortgage Loans due to prepayments,
liquidations or otherwise, to the extent not otherwise covered as described
herein. See "Summary -- Special Prepayment Considerations" and "-- Special Yield
Considerations" herein, "Yield and Prepayment Considerations" herein and in the
Prospectus.
S-3
<PAGE> 161
The Class A certificates offered by this Prospectus supplement constitute
part of a separate series of certificates issued by the depositor and are being
offered pursuant to its prospectus dated , 199 , of which this
Prospectus supplement is a part and which accompanies this prospectus
supplement. The Prospectus contains important information regarding this
offering which is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus supplement in full. Sales of the Class A
certificates may not be consummated unless the purchaser has received both this
Prospectus supplement and the Prospectus.
Until ninety days after the date of this Prospectus supplement, all dealers
effecting transactions in the Class A certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus supplement and the
Prospectus to which it relates. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or by the Underwriter. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Trustee on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus Supplement is delivered, on the written or oral
request of such person, a copy of any or all of the documents referred to in the
Prospectus under "Incorporation of Certain Documents by Reference" that have
been or may be incorporated by reference in the Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee at telephone: , facsimile number:
, attention: .
S-4
<PAGE> 162
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary............................................................................... S-6
Risk Factors.......................................................................... S-18
The Mortgage Pool..................................................................... S-21
Description of the Certificates....................................................... S-33
[Name of Insurer]..................................................................... S-43
Yield and Prepayment Considerations................................................... S-44
Servicing of Mortgage Loans........................................................... S-48
Federal Income Tax Consequences....................................................... S-51
Underwriting.......................................................................... S-53
Legal Matters......................................................................... S-53
Ratings............................................................................... S-53
Legal Investment...................................................................... S-54
ERISA Considerations.................................................................. S-54
Experts............................................................................... S-57
Index of Defined Terms................................................................ S-58
Underwriting Guidelines Applicable to the Mortgage Loans.............................. A-1
PROSPECTUS
Summary of Terms...................................................................... 6
Risk Factors.......................................................................... 17
The Trust Fund........................................................................ 27
Use of Proceeds....................................................................... 41
The Depositor......................................................................... 41
Description of the Securities......................................................... 41
Credit Enhancement.................................................................... 56
Yield and Prepayment Considerations................................................... 61
The Agreements........................................................................ 64
Certain Legal Aspects of the Loans.................................................... 77
Federal Income Tax Consequences....................................................... 91
State Tax Considerations.............................................................. 111
ERISA Considerations.................................................................. 111
Legal Investment...................................................................... 115
Method of Distribution................................................................ 116
Legal Matters......................................................................... 117
Financial Information................................................................. 117
Rating................................................................................ 117
Index of Defined Terms................................................................ 119
</TABLE>
S-5
<PAGE> 163
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Title of Securities........ Mortgage Loan Asset-Backed Pass-Through
Certificates, Series 199 - .
Depositor.................. Morgan Stanley ABS Capital I Inc. (the
"Depositor"). See "The Depositor" in the
Prospectus.
Master Servicer............ (the "Master Servicer"). See
"Servicing of Mortgage Loans -- The Master
Servicer" herein.
Seller..................... , (the "Seller"). See "The Mortgage
Pool" herein.
Trustee.................... (the "Trustee").
Statistical Reference
Date....................... , 199 . The statistical information
contained herein concerning the Initial Mortgage
Loans (unless otherwise stated) is based on the
principal balance of the Initial Mortgage Loans as
of the Statistical Reference Date. The Depositor
does not expect that such information would be
materially different as of the Cut-off Date.
Cut-off Date............... , 199 .
Delivery Date.............. On or about , 199 .
Denominations.............. The Class A Certificates will be issued, maintained
and transferred on the book-entry records of The
Depository Trust Company ("DTC") and its
Participants (as defined in the Prospectus). The
Class A Certificates will be issued in minimum
denominations of $[25,000] and integral multiples
of $[1] in excess thereof.
Certificate Registration... The Class A Certificates will be represented by one
or more certificates registered in the name of Cede
& Co., as nominee of DTC (Class A Certificates so
registered, "Book-Entry Certificates"). No person
acquiring an interest in the Book-Entry
Certificates (a "Certificate Owner") will be
entitled to receive a Class A Certificate in fully
registered, certificated form (a "Definitive
Certificate"), except under the limited
circumstances described herein. The interests of
Certificate Owners of the Book-Entry Certificates
will be represented by book entries on the records
of DTC and participating members of DTC.
Certificate Owners may elect to hold their
interests in the Class A Certificates through DTC
in the United States, or Cedel Bank, societe
anonyme ("Cedel"), or the Euroclear System
("Euroclear") in Europe. Transfers within DTC,
Cedel or Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through Citibank N.A. ("Citibank")
or Morgan Guaranty Trust Company of New York
("Morgan Guaranty" the relevant depositories of
Cedel and Euroclear, respectively, and each a
participating member of DTC. All references herein
to Class A Certificates and Class A
Certificateholders reflect the rights of
Certificate Owners only as such rights may be
exercised through DTC and its participating
organizations, for so long as such Certificates
remain Book-Entry Certificates. See "Risk
S-6
<PAGE> 164
Factors -- Book-Entry Certificates " and
"Description of the Certificates -- Book-Entry
Registration."
The Mortgage Pool.......... The Mortgage Pool will consist of two groups (each
a "Loan Group") of mortgage loans (the "Mortgage
Loans"). The separate Loan Groups are referred to
herein as the "Group I Loans" and "Group II Loans."
The Group I Loans are adjustable-rate, one- to
four-family mortgage loans. The Group II Loans are
fixed-rate, one- to four-family mortgage loans. The
Initial Group I Loans (as defined herein) have an
initial aggregate principal balance as of the
Statistical Reference Date of $ . The
Initial Group II Loans (as defined herein) have an
initial aggregate principal balance as of the
Statistical Reference Date of $ .
The Group I Loans and the Group II Loans are
secured by first liens, on fee simple interests in
one- to four-family residential real properties
(each, a "Mortgaged Property"). The Initial Group I
Loans had approximate individual principal balances
at origination of at least $ but not more
than $ with an average principal balance
at origination of approximately $ . The
Initial Group II Loans had approximate individual
principal balances at origination of at least
$ but not more than $ with an
average principal balance at origination of
approximately $ . Approximately % of the
Initial Group I Mortgage Loans have terms to
maturity from the date of origination or
modification of years and approximately % of
the Initial Group I Mortgage Loans have terms to
maturity from the date of origination or
modification of years or less. Approximately %
of the Initial Group II Mortgage Loans have terms
to maturity from the date of origination or
modification of years and % of the Initial
Group II Mortgage Loans have terms to maturity from
the date of origination or modification of years
or less. The Initial Group I Loans have a weighted
average remaining term to stated maturity of
approximately months as of the Statistical
Reference Date. Approximately % of the Initial
Group I Loans (by aggregate principal balance as of
the Statistical Reference Date) are refinance
mortgage loans. The Initial Group II Loans have a
weighted average remaining term to stated maturity
of approximately [years] [months] as of the
Statistical Reference Date. Approximately % of
the Initial Group II Loans (by aggregate principal
balance as of the Statistical Reference Date) are
refinance mortgage loans. None of the Initial Group
I Loans or Initial Group II Loans were thirty or
more days delinquent in their Monthly Payments
(such Mortgage Loans, "Delinquent Mortgage Loans")
as of the Cut-off Date. Prospective investors in
the Class A Certificates should be aware, however,
that only approximately % and % of the Initial
Group I Loans and Initial Group II Loans,
respectively (by aggregate principal balance as of
the Statistical Reference Date), had a first
Monthly Payment due on or before , 199 ,
and therefore, the remaining Initial Group I Loans
and Initial Group II Loans could not have been
Delinquent Mortgage Loans as of the Cut-off Date.
Approximately % of the Initial Group II Loans (by
aggregate principal balance as of the Statistical
Reference Date) will be secured by second liens on
the related Mortgaged Property. Approximately %
of the Initial Group II Loans (by aggregate
principal balance as of the Statistical Reference
Date) will be secured by third liens on the related
Mortgaged Property. Each of the Mortgage Loans will
have been
S-7
<PAGE> 165
originated by the Seller or acquired by the Seller
as described herein. For a further description of
the Mortgage Loans, see "The Mortgage Pool" herein.
The Mortgage Rate (as defined herein) on each Group
I Loan will be subject to adjustment, commencing
(i) with respect to approximately % of the
Initial Group I Loans, approximately months after
the date of origination, (ii) with respect to
approximately % of the Initial Group I Loans,
approximately years after origination (each such
Group I Loan, a " Loan") and (iii) with
respect to approximately % of the Initial Group I
Loans, approximately years after origination
(each such Group I Loan, a " Loan"), on
the date (the "Adjustment Date") specified in the
related Mortgage Note to a rate equal to the sum
(rounded as described herein) of the related Index
as described below and the Gross Margin (as defined
herein) set forth in the related Mortgage Note,
subject to the limitations described herein. The
amount of the monthly payment on each Group I Loan
[(i) with an Index of Six-Month LIBOR, will be
adjusted semi-annually (except with respect to
approximately % of the Initial Group I Loans,
which will adjust every ) or (ii) with an Index of
One-Year CMT, will be adjusted annually,] in each
case on the first day of the month following the
month in which the Adjustment Date occurs to the
amount necessary to pay interest at the then
applicable Mortgage Rate and to fully amortize the
outstanding principal balance of such Mortgage Loan
over its remaining term to stated maturity. As of
the Statistical Reference Date, the Initial Group I
Loans will bear interest at Mortgage Rates of at
least % per annum, but no more than % per
annum, with a weighted average Mortgage Rate of
approximately % per annum as of the Statistical
Reference Date. The Group I Loans will have
different Adjustment Dates, Gross Margins, Periodic
Rate Caps, Lifetime Rate Caps and Lifetime Rate
Floors, each as described herein.
The Mortgage Rate on each Group II Loan is fixed.
As of the Statistical Reference Date, the Initial
Group II Loans will bear interest at Mortgage Rates
of at least % per annum but no more than % per
annum, with a weighted average Mortgage Rate of
approximately % per annum as of the Statistical
Reference Date.
Pursuant to the Pooling and Servicing Agreement,
the Trust Fund will be obligated to purchase from
the Depositor on or before , 199 ,
additional Group I Loans and Group II Loans (the
"Group I Subsequent Mortgage Loans" and "Group II
Subsequent Mortgage Loans," respectively), subject
to certain conditions described herein. See "The
Mortgage Pool" herein.
The Mortgage Loans were underwritten in accordance
with the underwriting standards described in "The
Mortgage Pool -- Underwriting Standards" and
Appendix A to this Prospectus Supplement. See also
"Risk Factors -- Underwriting Standards" in this
Prospectus Supplement.
For a further description of the Mortgage Loans,
see "The Mortgage Pool" herein.
Pre-Funding Accounts....... On the Delivery Date, the Depositor will pay to the
Trustee approximately $ (the "Group I
Original Pre-Funded Amount") and $ (the
"Group II Original Pre-Funded Amount"; and together
S-8
<PAGE> 166
with the Group I Original Pre-Funded Amount, the
"Original Pre-Funded Amounts") for deposit in the
Pre-Funding Accounts to provide the Trust Fund with
sufficient funds to purchase Subsequent Mortgage
Loans for the Group I Loans and Group II Loans.
Each Original Pre-Funded Amount will be reduced
during the related Funding Period (as defined
herein) by the amount thereof used to purchase
Subsequent Mortgage Loans for the Group I Loans and
Group II Loans in accordance with the Pooling and
Servicing Agreement (on any date of determination,
the related Original Pre-Funded Amount as so
reduced, the related "Pre-Funded Amount"). See "The
Mortgage Pool -- Conveyance of Subsequent Mortgage
Loans and the Pre-Funding Accounts" herein.
Interest Coverage
Accounts................... On the Delivery Date, the Depositor will pay to the
Trustee for deposit in the Interest Coverage
Accounts an amount as required by the Certificate
Insurer and specified in the Pooling and Servicing
Agreement. Funds on deposit in the Interest
Coverage Accounts will be applied by the Trustee to
cover shortfalls in the Group I and Group II Class
A Interest Distribution Amount (each as defined
herein) attributable to the pre-funding feature
during the related Funding Period. See "Description
of the Certificates -- Interest Coverage Account"
herein.
The Index.................. The Index applicable with respect to the Group I
Loans shall be based upon either [(i) the average
of the interbank offered rates for six-month United
States dollar deposits in the London market
("Six-Month LIBOR") as published in The Wall Street
Journal and as most recently available as of the
first business day forty-five, thirty or five days
prior to the Adjustment Date, as specified in the
related Mortgage Note or (ii) the weekly average
yield on U.S. Treasury securities adjusted to a
constant maturity of one year ("One-Year CMT") as
published by the Federal Reserve Board in
Statistical Release H.15(519) and most recently
available as of the first business day forty-five
days prior to the Adjustment Date, as specified in
the related Mortgage Note.]
In the event that the Index specified in a Mortgage
Note is no longer available, an index reasonably
acceptable to the Trustee that is based on
comparable information will be selected by the
Master Servicer. See "The Mortgage Pool" herein.
The Class A Certificates... The Class A Certificates will each evidence a
beneficial ownership interest in a trust fund (the
"Trust Fund") consisting primarily of the Mortgage
Pool and any amounts on deposit in the Interest
Coverage Accounts and the Pre-Funding Accounts. The
Class A Certificates will be issued pursuant to a
Pooling and Servicing Agreement, to be dated as of
the Cut-off Date, among the Depositor, the Master
Servicer and the Trustee (the "Pooling and
Servicing Agreement"). The Class A Certificates
will have the following approximate Certificate
Principal Balances as of the Delivery Date:
$ Class A-1 Certificates
$ Class A-2 Certificates
For a description of the allocation of interest and
principal distributions to the Class A
Certificates, see "Summary-Interest Distributions"
and "-- Principal Distributions" below, and
"Description of the Certifi
S-9
<PAGE> 167
cates -- Class A Interest Distribution Amount" and
"-- Class A Principal Distribution Amount" herein.
The Class A Certificates will be entitled to the
benefit of two certificate guaranty insurance
policies (the "Certificate Insurance Policies") to
be issued by (the "Certificate
Insurer"), which will insure the payment of (i) on
each Distribution Date, an amount equal to (a) the
related Class A Interest Distribution Amount (as
defined herein) minus the related Available Funds
(as defined herein) and (b) the related
Subordination Deficit (as defined herein) (to the
extent not covered, with respect to the Class A-2
Certificates, by Cross-Collateralization Payments)
and (ii) the unpaid related Preference Amount (as
defined herein).
The Certificate Insurance Policies do not insure
the payment of the Group I Class A Available Funds
Cap Carry-Forward Amount (as defined herein). See
"Description of the Certificates."
Pass-Through Rate on the
Class A Certificates..... The Pass-Through Rate on the Class A-1 Certificates
is adjustable and is calculated as follows:
beginning on the Distribution Date in
199 , and on each Distribution Date
thereafter, the Pass-Through Rate applicable to the
Class A-1 Certificates will be adjusted to equal
the lesser of (i) (a) with respect to any
Distribution Date which occurs on or prior to the
date on which the aggregate Principal Balance of
the Mortgage Loans is less than % of the sum of
the aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date and the Original
Pre-Funded Amounts, One-Month LIBOR (as defined
herein) plus %, or (b) with respect to any
Distribution Date thereafter, One-Month LIBOR plus
% and (ii) the Group I Class A Available Funds
Pass-Through Rate.
The "Group I Class A Available Funds Pass-Through
Rate," as of any Distribution Date, is equal to (i)
the weighted average of the Mortgage Rates of the
Group I Loans, minus (ii) the sum of the Servicing
Fee Rate and the rates per annum at which the
Trustee's Fee and Premium Amount (each as defined
herein) accrue and minus (iii) commencing on the
seventh Distribution Date, % per annum.
The "Class A-1 Formula Pass-Through Rate" for a
Distribution Date is the lesser of (x) the rate
determined by clause (i) of the definition of
Pass-Through Rate for the Class A-1 Certificates on
such Distribution Date and (y) the weighted average
of Net Lifetime Rate Caps of the Group I Loans. The
Net Lifetime Rate Cap on each Group I Loan is equal
to the related Lifetime Rate Cap minus the sum of
the Servicing Fee Rate and the rates per annum, at
which the Trustee's Fee and the Premium Amount
accrue.
The Pooling and Servicing Agreement provides that
if the Pass-Through Rate on the Class A-1
Certificates is less than the Class A-1 Formula
Pass-Through Rate and any resulting shortfall in
interest is not paid on such Distribution Date from
any available Net Monthly Excess Cashflow, as
defined herein, then the amount of any such
shortfall will be carried forward and paid to the
extent of available funds, as described herein, to
the Holders of the Class A-1 Certificates on future
Distribution Dates and shall accrue interest at the
applicable Class A-1 Formula
S-10
<PAGE> 168
Pass-Through Rate, until paid (such shortfall,
together with such accrued interest, the "Group I
Class A Available Funds Cap Carry-Forward Amount").
The Certificate Insurance Policies do not cover the
Group I Class A Available Funds Cap Carry-Forward
Amount, nor do the ratings assigned to the Class
A-1 Certificates address the payment of the Group I
Class A Available Funds Cap Carry-Forward Amount.
The Pass-Through Rate with respect to the Class A-2
Certificates is equal to (i) with respect to any
Distribution Date which occurs on or prior to the
date on which the aggregate Principal Balance of
the Mortgage Loans is less than % of the sum of
the aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date and the Original
Pre-Funded Amounts, % per annum, and (ii) with
respect to any Distribution Date thereafter, %
per annum. See "Description of the
Certificates -- Class A Interest Distribution
Amounts" herein.
See "Description of the Certificates-Class A
Interest Distribution Amount" and "-- Calculation
of One-Month LIBOR" herein.
Interest Distributions..... On each Distribution Date, the holders of the Class
A Certificates will be entitled to receive, to the
extent of amounts available for distribution as
described herein, interest distributions in an
amount equal to the sum of (i) interest accrued for
the related Accrual Period (as defined herein) on
the Certificate Principal Balance thereof
immediately prior to such Distribution Date at the
then-applicable Pass-Through Rate (based on a
360-day year and the actual number of days elapsed,
with respect to the Class A-1 Certificates, and a
30-day month, with respect to the Class A-2
Certificates), subject to reduction only in the
event of shortfalls caused by the Relief Act (as
defined in the Prospectus and allocated as
described herein) or the failure of the Master
Servicer to cover Prepayment Interest Shortfalls to
the extent described herein and (ii) the Group I
Class A Carry-Forward Amount or Group II Class A
Carry-Forward Amount (each as defined herein), as
applicable, allocable to interest. The aggregate
amount of interest allocable to the Class A-1
Certificates and Class A-2 Certificates (the
related "Class A Interest Distribution Amount")
will be allocable to the related Class A
Certificates on a pro rata basis. See "Description
of the Certificates -- Priority of Payment" and
"-- Class A Interest Distribution Amount" herein.
Any Prepayment Interest Shortfalls (as defined
herein) resulting from full or partial prepayments
in any calendar month will be offset by the Master
Servicer on the Distribution Date in the following
calendar month to the extent such Prepayment
Interest Shortfalls do not exceed the Servicing Fee
payable to the Master Servicer with respect to such
Distribution Date. An amount equal to the Class A
Certificates' pro rata share, based on the amount
of interest payable on each such class, of any
Prepayment Interest Shortfalls not so covered by
the Master Servicer will be made available by the
Certificate Insurer for distribution to the Class A
Certificateholders. See "Servicing the Mortgage
Loans -- Servicing Compensation and Payment of
Expenses" and "Description of the
Certificates -- Class A Interest Distribution
Amount" herein.
Principal Distributions.... Holders of the Class A-1 Certificates and Class A-2
Certificates will be entitled to receive on each
Distribution Date, to the extent of amounts
S-11
<PAGE> 169
available for distribution as described herein
remaining after interest on the Class A-1
Certificates and Class A-2 Certificates,
respectively, is distributed, an amount (the
related "Class A Principal Distribution Amount")
equal to the sum of (i) the portion of any Group I
Class A Carry-Forward Amount or Group II Class A
Carry-Forward Amount, as applicable, which relates
to a shortfall in a distribution of a related
Subordination Deficit, (ii) all scheduled
installments of principal in respect of the
Mortgage Loans in the related Loan Group received
or advanced during the related Due Period, together
with all unscheduled recoveries of principal on
such Mortgage Loans received by the Master Servicer
during the prior calendar month, (iii) the
Principal Balance of each Mortgage Loan in the
related Loan Group that was repurchased by either
the Seller or by the Depositor, (iv) any amounts
delivered by the Depositor on the Master Servicer
Remittance Date (as defined herein) in connection
with a substitution of a Mortgage Loan in the
related Loan Group, (v) the net Liquidation
Proceeds (as defined in the Prospectus) collected
by the Master Servicer of all Mortgage Loans in the
related Loan Group during the prior calendar month
(to the extent such net Liquidation Proceeds are
related to principal), (vi) the amount of any
related Subordination Deficit for such Distribution
Date, (vii) the proceeds received by the Trustee of
any termination of the related Loan Group (to the
extent such proceeds are related to principal),
(viii) the amount of any related Subordination
Increase Amount (as defined herein) for such
Distribution Date and (ix) with respect to the
Class A-1 Certificates and Class A-2 Certificates,
with respect to the Distribution Date occurring in
, 199 , any amounts in the related Pre-
Funding Account after giving effect to any purchase
of related Subsequent Mortgage Loans; minus (x) the
amount of any related Subordination Reduction
Amount (as defined herein) for such Distribution
Date. In no event will any Class A Principal
Distribution Amount with respect to any
Distribution Date be less than zero or greater than
the Certificate Principal Balance of the related
Class A Certificates. See "Description of the
Certificates -- Priority of Payment" and "-- Class
A Principal Distribution Amount" herein.
Credit Enhancement......... The credit enhancement provided for the benefit of
the Class A Certificateholders consists solely of
(a) the overcollateralization mechanics which
utilize the internal cash flows of the Mortgage
Loans in the related Loan Group (and, to the extent
of Cross-Collateralization Payments payable to the
Class A-2 Certificates as described herein, cash
flows on the Mortgage Loans in Loan Group I) and
(b) the related Certificate Insurance Policy.
Overcollateralization. The subordination
provisions of the Trust Fund result in a limited
acceleration of the Class A Certificates relative
to the amortization of the Mortgage Loans in the
related Loan Group, generally in the early months
of the transaction. The accelerated amortization is
achieved by the application of certain excess
interest to the payment of the Certificate
Principal Balance of the related Class A
Certificates. This acceleration feature creates
overcollateralization which equals the excess of
the aggregate Principal Balances of the Mortgage
Loans in the related Loan Group and the related
Pre-Funded Amount over the Certificate Principal
Balance of the related Class A Certificates. Once
the required level of overcollateralization is
reached, and subject to the provisions
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<PAGE> 170
described in the next paragraph, the acceleration
feature will cease, unless necessary to maintain
the required level of overcollateralization.
The Pooling and Servicing Agreement provides that,
subject to certain trigger tests, the required
level of overcollateralization with respect to each
Loan Group may increase or decrease over time. An
increase would result in a temporary period of
accelerated amortization of the related Class A
Certificates to increase the actual level of
overcollateralization to its required level; a
decrease would result in a temporary period of
decelerated amortization to reduce the actual level
of overcollateralization to its required level. See
"Description of the
Certificates -- Overcollateralization Provisions."
The Certificate Insurance Policies. The Class A
Certificateholders will have the benefit of the
related Certificate Insurance Policy, as discussed
more fully below. See "Description of the
Certificates -- The Certificate Guaranty Insurance
Policies" herein.
Certificate Insurer........ (the "Certificate Insurer").
See " " herein.
Certificate Guaranty
Insurance Policies......... The Certificate Insurer will issue the Certificate
Insurance Policies as a means of providing
additional credit enhancement to the Class A
Certificates. Under the Certificate Insurance
Policies, the Certificate Insurer will pay the
Trustee, for the benefit of the holders of the
related Class A Certificates, as further described
herein, an amount that will insure the payment of
(i) on each Distribution Date, an amount equal to
(a) the related Class A Interest Distribution
Amount minus the related Available Funds and (b)
the related Subordination Deficit (to the extent
not covered, with respect to the Class A-2
Certificates, by Cross-Collateralization Payments)
and (ii) the related unpaid Preference Amount. The
Certificate Insurance Policies do not insure the
payment of the Group I Class A Available Funds Cap
Carry-Forward Amount. A payment by the Certificate
Insurer under a Certificate Insurance Policy is
referred to herein as an "Insured Payment." See
"Description of the Certificates -- The Certificate
Guaranty Insurance Policies" herein.
Cross-Collateralization.... In the event that on any Distribution Date after
giving effect to distributions pertaining to a
particular Loan Group and its related Certificates
(except for any payment to be made as principal
from proceeds of the related Certificate Insurance
Policy), either a Reimbursement Amount with respect
to either Loan Group exists or a Subordination
Deficit exists with respect to Loan Group II or the
Subordinated Amount with respect to Loan Group II
would be less than the related Required
Subordinated Amount (such difference, a "Cross-
Collateralized Subordination Shortfall"), the Class
A-2 Certificates or the Certificate Insurer, as the
case may be, will be entitled to receive an
additional payment (a "Cross-Collateralization
Payment") in respect of principal to the extent of
such Subordination Deficit or Cross-Collateralized
Subordination Shortfall or as reimbursement of the
Reimbursement Amount, as the case may be, out of
funds then on deposit in the Certificate Account
for the other Loan Group that is otherwise payable
on such Distribution Date to the Subordinate
Certificates related to such other Loan Group.
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<PAGE> 171
Mandatory Prepayments on
the Group I and Group II
Class A Certificates..... The Class A-1 Certificates and Class A-2
Certificates will be prepaid in part on the
, 199 Distribution Date in the event that
any amount remains on deposit in the related
Pre-Funding Account on such Distribution Date after
the purchase by the Trust Fund of the related
Subsequent Mortgage Loans, if any. Although no
assurance can be given, it is anticipated by the
Depositor that the principal amount of the related
Subsequent Mortgage Loans purchased by the Trust
Fund will require the application of substantially
all of the related Original Pre-Funded Amount (as
defined herein) and that there should be no
material amount of principal prepaid to the Class
A-1 Certificateholders and Class A-2
Certificateholders from the related Pre-Funding
Account. However, it is unlikely that the Depositor
will be able to deliver Subsequent Mortgage Loans
with an aggregate principal balance identical to
the related Original Pre-Funded Amount. See
"Description of the Certificates -- Mandatory
Prepayments on Class A-1 Certificates and Class A-2
Certificates" herein.
Advances................... The Master Servicer is required to make advances
("Advances") in respect of delinquent payments of
principal and interest on the Mortgage Loans,
subject to the limitations described herein. See
"Description of the Certificates -- Advances"
herein and in the Prospectus.
Optional Termination....... At its option, on any Distribution Date when the
aggregate Principal Balance of the Mortgage Loans
is less than % of the sum of the aggregate
principal balance of the Mortgage Loans as of the
Cut-off Date and the aggregate principal balance of
the Subsequent Mortgage Loans as of the related
Subsequent Cut-off Date (as defined herein), the
holder of a majority percentage interest of the
Class R Certificates (or the Master Servicer (or
the Certificate Insurer, if is removed as
Master Servicer) if the Principal Balance of the
Mortgage Loans is less than % of such sum) may
purchase from the Trust Fund all remaining Mortgage
Loans and other assets thereof at the price
described herein, and thereby effect early
retirement of the related Certificates. See
"Servicing of Mortgage Loans -- Termination" herein
and "The Agreements -- Termination; Optional
Termination" in the Prospectus.
Special Prepayment
Considerations........... The rate and timing of principal payments on the
Class A Certificates will depend, among other
things, on the rate and timing of principal
payments (including prepayments, defaults,
liquidations and purchases of the Mortgage Loans in
the related Loan Group due to a breach of a
representation or warranty) on the related Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Class A Certificates are
subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans in the
related Loan Group may be prepaid at any time;
[however, a prepayment may subject the related
Mortgagor to a prepayment charge with respect to
the majority of the Mortgage Loans in each Loan
Group.] Generally, when prevailing interest rates
increase, prepayment rates on mortgage loans tend
to decrease, resulting in a slower return of
principal to investors at a time when reinvestment
at such higher prevailing rates would be desirable.
Conversely, when prevailing
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<PAGE> 172
interest rates decline, prepayment rates on
mortgage loans tend to increase, resulting in a
faster return of principal to investors at a time
when reinvestment at comparable yields may not be
possible.
See "Description of the Certificates -- Class A
Principal Distribution Amount" and "Yield and
Prepayment Considerations" herein and in the
Prospectus.
Special Yield
Considerations............. The yield to maturity on the Class A Certificates
will depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations and purchases
of the Mortgage Loans in the related Loan Group due
to a breach of a representation or warranty) on the
Mortgage Loans in the related Loan Group and the
allocation thereof to reduce the Certificate
Principal Balance thereof. The yield to maturity on
the Class A Certificates will also depend on the
related Pass-Through Rate and the purchase price
for such Certificates.
If the Class A Certificates are purchased at a
premium and principal distributions thereon occur
at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of
purchase. Conversely, if the Class A Certificates
are purchased at a discount and principal
distributions thereon occur at a rate slower than
that assumed at the time of purchase, the
investor's actual yield to maturity will be lower
than that assumed at the time of purchase.
The Class A-1 Certificates were structured
assuming, among other things, a prepayment rate
equal to CPR (as defined herein) and
corresponding weighted average life as described
herein. The Class A-2 Certificates were structured
assuming, among other things, a prepayment rate
equal to of the Prepayment Assumption (as
defined herein) and corresponding weighted average
lives as described herein. The prepayment, yield
and other assumptions to be used for pricing
purposes for the Class A Certificates may vary as
determined at the time of sale.
See "Yield and Prepayment Considerations" herein
and in the Prospectus.
Federal Income Tax
Consequences............. A real estate mortgage investment conduit ("REMIC")
election will be made with respect to the Trust
Fund (exclusive of the Interest Coverage Accounts
and the Pre-Funding Accounts) for federal income
tax purposes. Upon the issuance of the Class A
Certificates, , counsel to the
Depositor, will issue an opinion generally to the
effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the Trust Fund
(exclusive of the Interest Coverage Accounts and
the Pre-Funding Accounts) will qualify as a REMIC
under Sections 860A through 86OG of the Internal
Revenue Code of 1986 (the "Code").
For federal income tax purposes, the Class R
Certificates will be the sole class of "residual
interests" in the REMIC and the Class A
Certificates and the Subordinate Certificates will
represent ownership of "regular interests" in the
REMIC and will generally be treated as representing
ownership of debt instruments of the REMIC.
S-15
<PAGE> 173
For federal income tax reporting purposes, the
Class A Certificates will not be treated as having
been issued with original issue discount. The
prepayment assumption that will be used in
determining the rate of accrual of original issue
discount, market discount and premium, if any, for
federal income tax purposes will be a rate equal to
CPR, with respect to the Class A-1
Certificates, and of the Prepayment
Assumption, with respect to the Class A-2
Certificates. No representation is made that the
Mortgage Loans will prepay at these rates or at any
other rates.
For further information regarding the federal
income tax consequences of investing in the Class A
Certificates, see "Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations....... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully
review with its legal advisors whether the purchase
or holding of Certificates could give rise to a
transaction prohibited or not otherwise permissible
under ERISA or the Code. Certain exemptions from
the prohibited transaction rules could be
applicable to the acquisition of the Certificates.
See "ERISA Considerations." The U.S. Department of
Labor has issued an individual exemption,
Prohibited Transaction Exemption 90-24, to Morgan
Stanley & Co. Incorporated that generally exempts
from the application of certain of the prohibited
transaction provisions ERISA and the Code,
transactions relating to the purchase, sale and
holding of pass-through certificates underwritten
by such Underwriter such as the [Class A
Certificates] and the servicing and operation of
asset pools, provided that certain conditions are
satisfied. [Certain classes of Certificates may not
be transferred unless the Trustee and the Depositor
are furnished with a letter of representation or an
opinion of counsel to the effect that such transfer
will not result in a violation of the prohibited
transaction provisions and will not subject the
Trustee, the Depositor or the Master Servicer to
additional obligations.] See "Description of the
Securities -- General" and "ERISA Considerations."
Legal Investment........... The Class A-1 Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") for so long as they are rated in at least
the second highest rating category by one or more
nationally recognized statistical rating agencies.
The Class A-2 Certificates will not constitute
"mortgage related securities" for purposes of SMMEA
because the Group II Loans include Mortgage Loans
that are secured by subordinate liens on the
related Mortgaged Properties. Institutions whose
investment activities are subject to legal
investment laws and regulations, regulatory capital
requirements or review by regulatory authorities
may be subject to restrictions on investment in the
Class A Certificates and should consult with their
legal advisors. See "Legal Investment" herein and
in the Prospectus.
Ratings.................... It is a condition to the issuance of the Class
Certificates that they be rated " " by
(" ") and " " by (" ") and " "
by (" "). The ratings of the Class A
Certificates should be evaluated independently from
similar ratings on other types of securities. A
rating
S-16
<PAGE> 174
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the rating organization.
A security rating does not address the frequency of
prepayments of Mortgage Loans, or the corresponding
effect on yield to investors. Also, the ratings
issued by , and on payment of principal
and interest do not cover the payment of the Group
I Class A Available Funds Cap Carry-Forward Amount.
See "Yield and Prepayment Considerations" and
"Ratings" herein and in the Prospectus.
Risk Factors............... For a discussion of certain risks associated with
an investment in the Certificates, see "Risk
Factors" on page S-18 herein and on page 17 in the
Prospectus.
S-17
<PAGE> 175
RISK FACTORS
[Description will depend on the particulars of the Mortgage Loans.]
Investors should consider, among other things, the items discussed under
"Risk Factors" in the Prospectus and the following factors in connection with
the purchase of the Certificates.
UNDERWRITING STANDARDS
The Mortgage Loans were underwritten by (the "Seller") in
accordance with its underwriting standards described in "The Mortgage
Pool -- Underwriting" below and in Appendix A to this Prospectus Supplement
which are primarily intended to provide single family mortgage loans for non-
conforming credits. A "non-conforming credit" means a mortgage loan which is
ineligible for purchase by FNMA or FHLMC due to credit characteristics that do
not meet the FNMA or FHLMC underwriting guidelines, including mortgagors whose
creditworthiness and repayment ability do not satisfy such FNMA or FHLMC
underwriting guidelines and mortgagors who may have a record of credit
write-offs, outstanding judgments, prior bankruptcies and other credit items
that do not satisfy such FNMA or FHLMC underwriting guidelines. ACCORDINGLY,
MORTGAGE LOANS UNDERWRITTEN UNDER THE SELLER'S NON-CONFORMING CREDIT
UNDERWRITING STANDARDS ARE LIKELY TO EXPERIENCE RATES OF DELINQUENCY,
FORECLOSURE AND LOSS THAT ARE HIGHER, AND MAY BE SUBSTANTIALLY HIGHER, THAN
MORTGAGE LOANS ORIGINATED IN ACCORDANCE WITH THE FNMA OR FHLMC UNDERWRITING
GUIDELINES.
Under the Seller's non-conforming credit underwriting standards, the
critical factors in underwriting a Mortgage Loan are the income and employment
history of the prospective mortgagor, the creditworthiness of the prospective
mortgagor, an assessment of the value of the related Mortgaged Property and the
adequacy of such property as collateral in relation to the amount of such
Mortgage Loan. Therefore, changes in values of the Mortgaged Properties may have
a greater effect on the delinquency, foreclosure and loss experience of the
related Mortgage Loans than on mortgage loans originated in accordance with the
FNMA or FHLMC credit underwriting guidelines. No assurance can be given that the
values of the Mortgaged Properties in the related Loan Group have remained or
will remain at the levels in effect on the dates of origination of the related
Mortgage Loans. If the values of the Mortgaged Properties in Loan Group I and
Loan Group II decline after the dates of origination of the related Mortgage
Loans, then the rates of delinquencies, foreclosures and losses on the Group I
Loans and Group II Loans may increase and such increase may be substantial.
CASH FLOW CONSIDERATIONS
Minimum monthly payments on the Mortgage Loans will at least equal and may
exceed accrued interest. Even assuming that the Mortgaged Properties provide
adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of Mortgage Loans that are
delinquent and resulting shortfalls in distributions to Certificateholders could
occur. Further, liquidation expenses (such as legal fees, real estate taxes, and
maintenance and preservation expenses) will reduce the proceeds payable to
Certificateholders and thereby reduce the security for the Mortgage Loans. In
the event any of the Mortgaged Properties fail to provide adequate security for
the related Mortgage Loans, Certificateholders could experience a loss.
PREPAYMENT CONSIDERATIONS AND RISKS
Substantially all of the Mortgage Loans may be prepaid in whole or in part
at any time without penalty. Home equity loans, such as the Mortgage Loans, have
been originated in significant volume only during the past few years and neither
the Depositor nor the Master Servicer is aware of any publicly available studies
or statistics on the rate of prepayment of such loans. Generally, home equity
loans are not viewed by borrowers as permanent financing. Accordingly, the
Mortgage Loans may experience a higher rate of prepayment than traditional
loans. The Trust's prepayment experience may be affected by a wide variety of
factors, including general economic conditions, interest rates, the availability
of alternative financing and homeowner mobility. In addition, substantially all
of the Mortgage Loans contain due-on-sale provisions and the Master Servicer
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<PAGE> 176
intends to enforce such provisions unless (i) such enforcement is not permitted
by applicable law or (ii) the Master Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related Mortgaged
Property to assume the Mortgage Loan. To the extent permitted by applicable law,
such assumption will not release the original borrower from its obligation under
any such Mortgage Loan. See "Yield and Prepayment Considerations" herein and
"Certain Legal Aspects of Loans -- Due-on-Sale Clauses" in the Prospectus for a
description of certain provisions of the Mortgage Loans that may affect the
prepayment experience thereof. The yield to maturity and weighted average life
of the Certificates will be affected primarily by the rate and timing of
prepayments on the Mortgage Loans. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Mortgage Loans will be borne
entirely by the Certificateholders. See "Yield and Prepayment Considerations"
herein and in the Prospectus.
CERTIFICATE RATING
The rating of the Certificates will depend primarily on an assessment by
the Rating Agencies of the Mortgage Loans. The rating by the Rating Agencies of
the Certificates is not a recommendation to purchase, hold or sell the
Certificates, inasmuch as such rating does not comment as to the market price or
suitability for a particular investor. There is no assurance that the ratings
will remain in place for any given period of time or that the ratings will not
be lowered or withdrawn by the Rating Agencies. In general, the ratings address
credit risk and do not address the likelihood of prepayments. The ratings of the
Certificates do not address the possibility of the imposition of United States
withholding tax with respect to non-U.S. persons.
BANKRUPTCY AND INSOLVENCY RISKS
The sale of the Mortgage Loans from the Seller to the Depositor will be
treated as a sale of the Mortgage Loans. However, in the event of an insolvency
of the Seller, the receiver of the Seller may attempt to recharacterize the sale
of the Mortgage Loans as a borrowing by the Seller, secured by a pledge of the
applicable Mortgage Loans. If the receiver decided to challenge such transfer,
delays in payments of the Certificates and reductions in the amounts thereof
could occur.
In the event of a bankruptcy or insolvency of the Master Servicer, the
bankruptcy trustee or receiver may have the power to prevent the Trustee or the
Certificateholders from appointing a successor Master Servicer.
GEOGRAPHIC CONCENTRATION
As of the Cut-off Date, approximately % (by Cut-off Date Pool
Principal Balance) of the Mortgaged Properties are located in the State of
. An overall decline in the residential real estate
market could adversely affect the values of the Mortgaged Properties securing
such Mortgage Loans such that the Principal Balances of the related Mortgage
Loans could equal or exceed the value of such Mortgaged Properties. As the
residential real estate market is influenced by many factors, including the
general condition of the economy and interest rates, no assurances may be given
that the residential real estate market will not weaken. If the
residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.
DELINQUENT MORTGAGE LOANS
The Trust Fund will include Mortgage Loans which are 89 or fewer days
delinquent as of the Cut-off Date. The Cut-off Date Pool Principal Balance of
Mortgage Loans which are between 30 days and 89 days delinquent as of the
Cut-off Date was $ . If there are not sufficient Available Funds on any
Distribution Dates, the aggregate amount of principal returned to the
Certificateholders may be less than the respective Class Certificate Principal
Balances on the day the Certificates were issued.
RISK OF MORTGAGE LOAN YIELD REDUCING PASS-THROUGH RATES ON THE CLASS A-1
CERTIFICATES
The Pass-Through Rate on the Class A-1 Certificates is generally expected
to be based upon clause (i) of the definition thereof, which is primarily based
upon the value of One-Month LIBOR (as defined herein) as
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<PAGE> 177
adjusted every month, while the Mortgage Rates on the Group I Loans adjust
semiannually or annually based upon different indices, either [Six-Month LIBOR
or One-Year CMT], as described under "The Mortgage Pool -- Mortgage Rate
Adjustment" herein. However, clause (ii) of the definition of the Pass-Through
Rate on the Class A-1 Certificates limits the Pass-Through Rate on the Class A-1
Certificates to the Group I Class A Available Funds Pass-Through Rate, which is
generally based upon the Mortgage Rates on the Group I Loans, which are subject
to [Six-Month LIBOR or One-Year CMT.] As a result, the interest paid to the
Class A-1 Certificates may be less than would be determined using clause (i) of
the related definition of Pass-Through Rate. In particular, because the Mortgage
Rates on the Group I Loans adjust less frequently, the Pass-Through Rate on the
Class A-1 Certificates may be determined by the Group I Class A Available Funds
Pass-Through Rate for extended periods in a rising interest rate environment. In
addition, with respect to the Class A-1 Certificates, One-Month LIBOR,
[Six-Month LIBOR and One-Year CMT] may respond to different economic and market
factors, and there is not necessarily any correlation between them. Thus, it is
possible, for example, that One-Month LIBOR may rise during periods in which
[Six-Month LIBOR or One-Year CMT] is stable or is failing or that, even if
One-Month LIBOR, [Six-Month LIBOR and One-Year CMT] all rise during the same
period, One-Month LIBOR may rise much more rapidly than [Six-Month LIBOR and
One-Year CMT]. In addition, the Mortgage Rates on the Group I Loans are subject
to the Periodic Rate Caps and to specified Lifetime Rate Caps and Lifetime Rate
Floors, and the Mortgage Rates on the Loans and Loans, which represent
% and % of the Initial Group I Loans, respectively (by aggregate
outstanding principal balance as of the Statistical Reference Date), will not
have a first Adjustment Date until years and years, respectively, from
the origination of each such Loan and Loan.
THE SUBSEQUENT MORTGAGE LOANS
Subsequent Mortgage Loans may have characteristics different from those of
the related Initial Mortgage Loans. However, each Subsequent Mortgage Loan must
satisfy the eligibility criteria referred to herein under "The Mortgage
Pool -- Conveyance of Subsequent Mortgage Loans and the Pre-Funding Accounts" at
the time of its conveyance to the Trust Fund and be underwritten in accordance
with the criteria set forth herein under "The Mortgage Pool -- Underwriting" and
Appendix A to this Prospectus Supplement.
MANDATORY PREPAYMENT
To the extent that amounts on deposit in the Pre-Funding Accounts have not
been fully applied to the purchase of Subsequent Mortgage Loans by the Trust
Fund by the end of the related Funding Period, the Holders of the related Class
A Certificates will receive, as described herein, on the Distribution Date
occurring in , 199 , any amounts in the related Pre-Funding Account
after giving effect to any purchase of related Subsequent Mortgage Loans.
Although no assurances can be given, the Depositor intends that the principal
amount of Subsequent Mortgage Loans sold to the Trust Fund will require the
application of substantially all amounts on deposit in the Pre-Funding Accounts
and that there will be no material principal payment to the related Class A
Certificateholders on such Distribution Date.
BOOK-ENTRY CERTIFICATES
Issuance of the Class A Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market since investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates -- Book-Entry Registration"
herein and "Risk Factors --Book-Entry Registration May Reduce Liquidity" in the
Prospectus.
Since transactions in the Book-Entry Certificates will be effected only
through DTC, Cedel, Euroclear, participating organizations, indirect
participants and certain banks, the ability of a Certificate Owner to pledge
Book-Entry Certificate to persons or entities that do not participate in the
DTC, Cedel or Euroclear systems may be limited due to lack of a physical
certificate representing such Certificates. See "Description of the
Certificates -- Book-Entry Registration" herein and "Risk Factors -- Book-Entry
Registration May Reduce Liquidity" in the Prospectus.
S-20
<PAGE> 178
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Book-Entry Certificates since
such distributions will be forwarded by the Trustee to DTC, and DTC will credit
such distributions to the accounts of its Participants (as defined herein) which
will thereafter credit them to the accounts of Certificate Owners either
directly or indirectly through indirect participants. Certificate Owners will
not be recognized as Certificateholders as such term is used in the Pooling and
Servicing Agreement, and Certificate Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its Participants.
See "Description of the Certificates -- Book-Entry Registration" herein and
"Risk Factors -- Book-Entry Registration May Reduce Liquidity" in the
Prospectus.
THE MORTGAGE POOL
GENERAL
The statistical information presented in this Prospectus Supplement
describes only the mortgage loans included in the Trust Fund as of the Delivery
Date (with respect to Loan Group I and Loan Group II, the "Initial Group I
Loans" and "Initial Group II Loans," respectively) and does not include mortgage
loans purchased by the Trust Fund after the Delivery Date (the "Subsequent
Mortgage Loans"). In addition, such statistical information is dated as of the
Statistical Reference Date, and not as of the Cut-off Date, so such information
will vary slightly from the final initial Mortgage Pool.
With respect to Loan Group I and Loan Group II, Subsequent Mortgage Loans
are intended to be purchased by the Trust Fund from the Depositor from time to
time on or before , 199 , from funds on deposit in the
Pre-Funding Accounts. The Subsequent Mortgage Loans, if available, will be
purchased by the Depositor, and sold by the Depositor to the Trust Fund to
become part of the related Loan Group. The Pooling and Servicing Agreement will
provide that the Group I Loans and Group II Loans, following the conveyance of
the Subsequent Mortgage Loans, must conform in the aggregate for each such Loan
Group as determined separately to certain specified characteristics described
below under "-- Conveyance of Subsequent Mortgage Loans and the Pre-Funding
Accounts." In the sole discretion of the Certificate Insurer, Subsequent
Mortgage Loans with characteristics varying from those described herein may be
purchased by the Trust Fund; provided, however, that the addition of such Group
I Loans and Group II Loans will not materially affect the aggregate
characteristics of the entire related Loan Group.
The Mortgage Loans underlying the Certificates consist of the "Group I
Loans," which had an aggregate outstanding principal balance as of the
Statistical Reference Date of $ and the "Group II Loans," which had an
aggregate outstanding principal balance as of the Statistical Reference Date of
$ (each such group of Mortgage Loans, "Loan Group I" or "Loan Group
II," respectively, or a "Loan Group"). The Group I Loans will consist of
adjustable rate, monthly payment, first lien mortgage loans with terms to
maturity of approximately years from the date of origination or modification.
The Group II Loans will generally consist of fixed-rate, monthly payment, first,
second and third lien mortgage loans. Approximately % of the Initial Group
II Mortgage Loans have terms to maturity from the date of origination or
modification of years and approximately % of the Initial Group II
Mortgage Loans have terms to maturity from the date of origination or
modification of years or less. The Mortgage Loans will be originated or
acquired by the Seller, substantially in accordance with the underwriting
criteria described herein under "--Underwriting" below and in Appendix A. The
Depositor will acquire the Group I Loans and Group II Loans to be included in
Mortgage Pool from the Seller. The Seller in turn either originated such
Mortgage Loans or acquired them pursuant to various mortgage loan purchase
agreements. The Seller will make certain representations and warranties with
respect to the Mortgage Loans and, as more particularly described in the
Prospectus, will have certain repurchase or substitution obligations in
connection with a breach of any such representation or warranty, as well as in
connection with an omission or defect in respect of certain constituent
documents required to be delivered with respect to the Mortgage Loans, in any
event if such breach, omission or defect cannot be cured and it materially and
adversely affects the interests of Certificateholders. See "The Trust
Fund -- Representations by Sellers or Originators; Repurchases" and "The
Agreements -- Assignment of Trust Fund Assets" in the Prospectus. The Mortgage
Loans will have
S-21
<PAGE> 179
been originated or acquired by the Seller in accordance with the underwriting
criteria described herein. See "-- Underwriting" below and Appendix A to this
Prospectus Supplement.
Pursuant to the terms of the Pooling and Servicing Agreement, the Depositor
will assign the representations and warranties made by the Seller to the Trustee
for the benefit of the Certificateholders and the Certificate Insurer.
Each Mortgage Loan will contain a customary "due-on-sale" clause. See
"Certain Legal Aspects of Loans -- Due-On-Sale Clauses" in the Prospectus.
Approximately % and % of the Initial Group I Loans and Initial
Group II Loans, respectively, provide for payment of a prepayment charge.
Generally, each such Mortgage Loan provides for payment of a prepayment charge
for certain partial prepayments and all prepayments in full made within
approximately three or five years of the origination of such Mortgage Loan, in
an amount equal to six months' advance interest on the amount of the prepayment
that, when added to all other amounts prepaid during the twelve-month period
immediately preceding the date of the prepayment, exceeds twenty percent of the
original principal amount of the Mortgage Loan. The Seller will be entitled to
all prepayment charges received on the Mortgage Loans and such amounts will not
be available for distribution on the Certificates.
[None] of the Mortgage Loans are covered by a primary mortgage insurance
policy. See "Credit Enhancement -- Pool Insurance Policies" in the Prospectus.
MORTGAGE RATE ADJUSTMENT
The Mortgage Rate (as defined herein) on each Group I Loan will be subject
to adjustment, commencing (i) with respect to approximately % of the
Initial Group I Loans, approximately
months after the date of origination, (ii) with respect to approximately %
of the Initial Group I Loans, approximately years after origination (each
such Group I Loan, a " Loan") and (iii) with respect to approximately
% of the Initial Group I Loans, approximately years after origination (each
such Group I Loan, a " Loan"). [The Mortgage Rate on each Group I Loan
(i) with an Index of Six-Month LIBOR, will adjust semi-annually (except with
respect to approximately % of the Initial Group I Loans, which will adjust
every three years) or (ii) with an Index of One-Year CMT, will adjust annually,
in each case on the first day of the months specified in the related Mortgage
Note (each such date, an "Adjustment Date") to a rate equal to the sum,
generally rounded to the nearest one-eighth of one percentage point (12.5 basis
points), of (i) the related Index plus (ii) a fixed percentage (the "Gross
Margin"), which is generally subject to a maximum increase or decrease in the
Mortgage Rate on any Adjustment Date (the "Periodic Rate Cap") of % with
respect to approximately % of the Initial Group I Loans and % with
respect to approximately % of the Initial Group I Loans (which percentage
includes the initial
Loans, which loans have a Periodic Rate Cap of for the first Adjustment
Date and for each Adjustment Date thereafter, and Loans, which loans have a
Periodic Rate Cap of % for the first Adjustment Date and for each
Adjustment Date thereafter), each by aggregate Principal Balance as of the
Statistical Reference Date and to specified maximum and minimum lifetime
Mortgage Rates ("Lifetime Rate Caps" and "Lifetime Rate Floors," respectively).]
The Mortgage Loans were generally originated with an initial Mortgage Rate below
the sum of the current Index and the Gross Margin. The Index applicable with
respect to the Group I Loans is based upon either [(i) the average of the
interbank offered rates for six-month United States dollar deposits in the
London market ("Six-Month LIBOR") as published in The Wall Street Journal and as
most recently available as of the first business day forty-five, thirty or five
days prior to the Adjustment Date, as specified in the related Mortgage Note or
(ii) the weekly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year ("One-Year CMT") as published by the Federal Reserve Board
in Statistical Release H.15(519) and most recently available as of the first
business day forty-five days prior to the Adjustment Date], as specified in the
related Mortgage Note. The Index for all of the Initial Group I Loans will be
[Six-Month LIBOR]. Subsequent Mortgage Loans in Loan Group I will have an Index
based on either [Six-Month LIBOR or One-Year CMT]. Due to the application of the
Periodic Rate Caps, Lifetime Rate Caps and Lifetime Rate Floors, the Mortgage
Rate on any Group I Loan as adjusted on any related Adjustment Date, may not
equal the sum of the related Index and the Gross Margin.
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<PAGE> 180
The Mortgage Rate on each Group II Loan is fixed. The Due Date is generally the
first day of the month of all of the Mortgage Loans.
Approximately % of the Initial Group I Loans, including all Initial
Group I Loans that are
Loans and Loans, will not have reached their first Adjustment Date on or
before the Statistical Reference Date. The initial Mortgage Rate with respect to
such Mortgage Loans is generally lower than the rate that would have been
produced if the applicable Gross Margin had been added to the Index in effect at
origination. Group I Loans that have not reached their first Adjustment Date
are, therefore, more likely to be subject to the Periodic Rate Cap on their
first Adjustment Date.
MORTGAGE LOAN CHARACTERISTICS
Group I Loans
The Initial Group I Loans will consist of Mortgage Loans with an aggregate
Principal Balance outstanding as of the Statistical Reference Date, after
deducting payments of principal due on or prior to such date, of $ .
All percentages of the Initial Group I Loans described herein are approximate
percentages (except as otherwise indicated) by aggregate principal balance as of
the Statistical Reference Date.
Approximately % of the Initial Group I Loans have original terms to
stated maturity of approximately years and approximately % of the
Initial Group I Loans have terms to stated maturity of approximately years.
Effective with the first payment due on a Group I Loan after each related
Adjustment Date, the Monthly Payment will be adjusted to an amount that will
fully amortize the outstanding principal balance of the Mortgage Loan over its
remaining term. The weighted average number of months from the Statistical
Reference Date to the next Adjustment Date for the Initial Group I Loans is
approximately months.
As of the Statistical Reference Date, each Initial Group I Loan will have
an unpaid principal balance of not less than $ or more than $
and the average unpaid principal balance of the Initial Group I Loans will be
approximately $ . The latest stated maturity date of any of the Initial
Group I Loans will be , 20 ; however, the actual date on
which any Mortgage Loan is paid in full may be earlier than the stated maturity
date due to unscheduled payments of principal. Based on information supplied by
the mortgagors in connection with their loan applications at origination,
approximately % of the Initial Group I Loans will be secured by Mortgaged
Properties which are owner occupied primary residences, approximately % of
the Initial Group I Loans will be secured by Mortgaged Properties which are
second homes and approximately % of the Initial Group I Loans will be
secured by Mortgaged Properties which are non-owner occupied properties. No
Initial Group I Loan provides for negative amortization or deferred interest.
Set forth below is a description of certain additional characteristics of
the Initial Group I Loans as of the Statistical Reference Date (except as
otherwise indicated). Dollar amounts and percentages may not add up to totals
due to rounding.
INITIAL MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
INITIAL MORTGAGE RATE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 181
The weighted average Initial Mortgage Rate of the Initial Group I Loans
will be approximately % per annum.
NEXT INTEREST ADJUSTMENT DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
GROSS MARGINS GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The weighted average remaining months to the next interest Adjustment Date
of the Initial Group I Loans will be approximately months.
GROSS MARGIN
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
GROSS MARGINS GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The weighted average Gross Margin of the Initial Group I Loans will be
approximately % per annum.
LIFETIME RATE CAP
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
LIFETIME RATE CAP GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ----------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The weighted average Lifetime Rate Cap of the Initial Group I Loans will be
approximately % per annum.
LIFETIME RATE FLOOR
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
LIFETIME RATE FLOOR GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
S-24
<PAGE> 182
The weighted average Lifetime Rate Floor of the Initial Group I Loans
(other than the Initial Group I Loans which have a Lifetime Rate Floor of
%) will be approximately % per annum.
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
REMAINING MONTHS NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
TO STATED MATURITY GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The weighted average remaining term to stated maturity of the Initial Group
I Loans will be approximately months.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
YEARS OF ORIGINATION GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The earliest month and year of origination of any Initial Group I Loan is
and the latest month and year of origination will be
.
ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL AGGREGATE UNPAID STATISTICAL REFERENCE
LOAN-TO-VALUE NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
RATIO GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The minimum and maximum Loan-to-Value Ratios at origination of the Initial
Group I Loans were approximately % and %, respectively, and the
weighted average Loan-to-Value Ratio at origination of the Initial Group I Loans
was approximately %.
MORTGAGE LOAN PROGRAM
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
LOAN PROGRAM GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
S-25
<PAGE> 183
See "-- Underwriting" below and Appendix A to the Prospectus Supplement for
a description of the Seller's mortgage loan documentation programs.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL AGGREGATE UNPAID STATISTICAL REFERENCE
MORTGAGE LOAN NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
** 3 ORIGINAL BALANCE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The average original principal balance of the Initial Group I Loans will be
approximately $ .
PROPERTY TYPES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
PROPERTY TYPE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
RISK CATEGORIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
RISK CLASSIFICATION GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
See "-- Underwriting" below and Appendix A to this Prospectus Supplement
for a description of the Seller's risk classifications.
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
STATE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
No more than approximately % of the Initial Group I Loans will be secured
by Mortgaged Properties located in any one zip code.
S-26
<PAGE> 184
PURPOSES OF GROUP I LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
LOAN PURPOSE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------ ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purposes (not for "equity take-out"), 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. Mortgage Loans made for "equity
take out" may involve use of a portion of the proceeds to pay in full the
principal balance of such previous mortgage loan and related costs but 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.
OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
OCCUPANCY GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
Group II Loans
The Initial Group II Loans will consist of Mortgage Loans with an aggregate
Principal Balance outstanding as of the Statistical Reference Date, after
deducting payments of principal due on or prior to such date, of $ .
All percentages of the Initial Group II Loans described herein are approximate
percentages (except as otherwise indicated) by aggregate principal balance as of
the Statistical Reference Date.
Approximately % of the Initial Group II Loans have original terms to
stated maturity of approximately years.
As of the Statistical Reference Date, each Initial Group II Loan will have
an unpaid principal balance of not less than $ or more than $
and the average unpaid principal balance of the Initial Group II Loans will be
approximately $ . The latest stated maturity date of any of the Initial
Group II Loans will be , 20 ; however, the actual date on which any
Mortgage Loan is paid in full may be earlier than the stated maturity date due
to unscheduled payments of principal. Based on information supplied by the
mortgagors in connection with their loan applications at origination,
approximately % of the Initial Group II Loans will be secured by Mortgaged
Properties which are owner occupied primary residences, approximately % of
the Initial Group II Loans will be secured by Mortgaged Properties which are
second homes and approximately % of the Initial Group II Loans will be
secured by Mortgaged Properties which are non-owner occupied properties. No
Initial Group II Loan provides for negative amortization or deferred interest.
S-27
<PAGE> 185
Set forth below is a description of certain additional characteristics of
the Group II Loans as of the Statistical Reference Date (except as otherwise
indicated). Dollar amounts and percentages may not add up to totals due to
rounding.
MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
MORTGAGE RATES GROUP I LOANS BALANCE PRINCIPAL BALANCE
- -------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The weighted average Mortgage Rate of the Initial Group II Loans will be
approximately % per annum.
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
REMAINING MONTHS TO NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
STATED MATURITY GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The weighted average remaining term to stated maturity of the Initial Group
II Loans will be approximately months.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
YEARS OF ORGANIZATION GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The earliest month and year of origination of any Initial Group II Loan is
and the latest month and year of origination is .
ORIGINAL LOAN-TO VALUE RATIOS(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL AGGREGATE UNPAID STATISTICAL REFERENCE
LOAN-TO-VALUE NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
RATIOS GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
- ---------------
(1) The Loan-to-Value Ratio of Group II Loans secured by second and third liens
includes the outstanding principal balance of the related senior liens.
S-28
<PAGE> 186
The minimum and maximum Loan-to-Value Ratios at origination of the Initial
Group II Loans were approximately % and %, respectively, and the weighted
average Loan-to-Value Ratio at origination of the Initial Group II Loans was
approximately %.
MORTGAGE LOAN PROGRAM
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
LOAN PROGRAM GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------ ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
See "-- Underwriting" below and Appendix A to the Prospectus Supplement for
a description of the Seller's mortgage loan documentation programs.
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
ORIGINAL AGGREGATE UNPAID STATISTICAL REFERENCE
MORTGAGE LOAN NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
PRINCIPAL BALANCE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ----------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
The average original principal balance of the Initial Group II Loans will
be approximately $ .
PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
PROPERTY TYPE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
RISK CATEGORIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
RISK CLASSIFICATION GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
See "-- Underwriting" below and Appendix A to this Prospectus Supplement
for a description of the Seller's risk classifications.
S-29
<PAGE> 187
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
STATE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- -------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
No more than approximately % of the Initial Group II Loans will be
secured by Mortgaged Properties located in any one zip code.
PROPERTIES OF GROUP II LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
LOAN PURPOSE GROUP I LOANS BALANCE PRINCIPAL BALANCE
- ------------ ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
In general, in the case of a Mortgage Loan made for "rate/term" refinance
purposes (not for "equity take-out"), 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. Mortgage Loans made for "equity
take out" may involve the use of a portion of the proceeds to pay in full the
principal balance of such previous mortgage loan and related costs but 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.
OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE UNPAID STATISTICAL REFERENCE
NUMBER OF INITIAL PRINCIPAL DATE AGGREGATE
OCCUPANCY GROUP I LOANS BALANCE PRINCIPAL BALANCE
- --------- ----------------- ---------------- ---------------------
<S> <C> <C> <C>
</TABLE>
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNTS
With respect to Loan Group I and Loan Group II, under the Pooling and
Servicing Agreement, following the initial issuance of the Certificates, the
Trust Fund will be obligated to purchase from the Depositor during the Funding
Period, subject to the availability thereof, additional Mortgage Loans (the
"Subsequent Mortgage Loans") secured by first, second and third liens on one-to
four-family residential properties. Each Subsequent Mortgage Loan will have been
underwritten in accordance with the criteria set forth herein under "The
Mortgage Pool -- Underwriting" and Appendix A to this Prospectus Supplement.
Subsequent Mortgage Loans will be transferred to the Trust Fund pursuant to
subsequent transfer instruments (the "Subsequent Transfer Instruments") between
the Depositor and the Trust Fund. In connection with the purchase of Subsequent
Mortgage Loans on such dates of transfer (the "Subsequent Transfer Dates"), the
Trust Fund
S-30
<PAGE> 188
will be required to pay to the Depositor from amounts on deposit in one of the
Pre-Funding Accounts (as defined below) a cash purchase price of 100% of the
principal balance thereof. The Depositor will designate the Subsequent Transfer
Date as the cut-off date (the "Subsequent Cut-off Date") with respect to the
related Subsequent Mortgage Loans purchased on such date. The amount paid from
each Pre-Funding Account on each Subsequent Transfer Date will not include
accrued interest on the related Subsequent Mortgage Loans. Following each
Subsequent Transfer Date, the aggregate principal balance of the Mortgage Loans
in the related Loan Group will increase by an amount equal to the aggregate
principal balance of the related Subsequent Mortgage Loans so purchased and the
amount in the related Pre-Funding Account will decrease accordingly.
Two accounts (each, a "Pre-Funding Account") will be established by the
Trustee and funded by the Depositor with approximately $ with respect
to Loan Group I (the "Original Group I Pre-Funded Amount") and $ with
respect to Loan Group II (the "Original Group II Pre-Funded Amount") on the
Delivery Date to provide the Trust Fund with sufficient funds to purchase
Subsequent Mortgage Loans. The related Original Pre-Funded Amount will be
reduced during the Funding Period by the amount used to purchase Subsequent
Mortgage Loans for a related Loan Group in accordance with the Pooling and
Servicing Agreement (on any date of determination, the related Original
Pre-Funded Amount as so reduced, the "Pre-Funded Amount"). During the period
(the "Funding Period"), determined separately for Loan Group I and Loan Group
II, from the Delivery Date until the earliest of (i) the date on which the
amount on deposit in the related Pre-Funding Account is less than $10,000 or
(ii) , 199 , the related Pre-Funded Amount will be maintained in the
related Pre-Funding Account.
Any conveyance of Subsequent Mortgage Loans on a Subsequent Transfer Date
is subject to certain conditions including, but not limited to: (a) each such
Subsequent Mortgage Loan must satisfy the representations and warranties
specified in the related Subsequent Transfer Instrument and the Pooling and
Servicing Agreement; (b) the Depositor will not select such Subsequent Mortgage
Loans in a manner that it believes is adverse to the interests of the
Certificateholders or the Certificate Insurer; (c) the Depositor will deliver
certain opinions of counsel acceptable to the Certificate Insurer with respect
to the validity of the conveyance of such Subsequent Mortgage Loans; (d) as of
the respective Subsequent Cutoff Date the Subsequent Mortgage Loans will satisfy
the following criteria: (i) such Subsequent Mortgage Loan may not be 30 or more
days contractually delinquent as of the related Subsequent Cut-off Date; (ii)
the remaining stated term to maturity of such Subsequent Mortgage Loan will not
exceed 360 months; (iii) such Subsequent Mortgage Loan may not provide for
negative amortization; (iv) such Subsequent Mortgage Loan will be underwritten
in accordance with the criteria set forth under "The Mortgage
Pool -- Underwriting" herein and Appendix A to this Prospectus Supplement; (v)
such Subsequent Mortgage Loan will not have a Loan-to-Value Ratio (or Combined
Loan-to-Value Ratio in the case of second lien Mortgage Loans) greater than
100%; and (vi) such Subsequent Mortgage Loans will have as of the end of the
Funding Period, a weighted average term since origination not in excess of [ ]
months. In addition, following the purchase of any Subsequent Mortgage Loan by
the Trust Fund, the Group I Loans and Group II Loans (including the related
Subsequent Mortgage Loans) will, as determined separately for each Loan Group:
(i) have a weighted average original term to stated maturity of not more than
360 months; (ii) have a weighted average Loan-to-Value Ratio (or weighted
average Combined Loan-to-Value Ratio in the case of second and third lien
Mortgage Loans) of not more than % with respect to Loan Group I, and % with
respect to Loan Group II, each by aggregate principal balance of the related
Mortgage Loans; (iii) have no related Mortgage Loan with a principal balance in
excess of $ ; and (iv) have a weighted average Gross Margin not less
than % with respect to the Group I Loans. In addition, the Trustee shall not
agree to any Subsequent Transfer without a signed certification from the
Certificate Insurer that the Subsequent Mortgage Loans meet the above criteria
plus any additional criteria in the Insurance Agreement. In the sole discretion
of the Certificate Insurer, Subsequent Mortgage Loans with characteristics
varying from those set forth above may be purchased by the Trust Fund; provided,
however, that the addition of such Mortgage Loans will not materially affect the
aggregate characteristics of the entire related Loan Group.
S-31
<PAGE> 189
UNDERWRITING
[Description will depend on the particulars of the Seller]
The Standard Non-Conforming Program
All of the Mortgage Loans were underwritten by the Seller in accordance
with the "Standard Non-Conforming Program" which does not meet the credit
underwriting standards of FNMA or FHLMC. This program is described in detail in
Appendix A to this Prospectus Supplement. The Seller's current single family
mortgage loan volume is generally originated based on loan packages submitted
through a mortgage broker network. Such loan packages, which generally contain
relevant credit, property and underwriting information on the loan request, are
compiled by the applicable mortgage broker and submitted to the Seller for
approval and funding. The mortgage broker receives as compensation all or a
portion of the loan origination fee charged to the mortgagor at the time the
loan is made. As part of their quality control procedures, the Seller accepts
loan packages submitted by preapproved mortgage brokers. In connection with the
approval process, they require that the mortgage broker be licensed by the
appropriate state agencies, as required, and review a package of documents
consisting of, among other things, an application, resumes of key personnel,
narrative of the company, organizational documentation and financial statements.
At least annually, the Seller reviews the performance of each of its respective
mortgage brokers for poor processing, misrepresentation, fraud or delinquency,
and substandard mortgage brokers are terminated.
Each prospective mortgagor completes a mortgage loan application that
includes information with respect to the applicant's liabilities, income, credit
history, employment history and personal information. At least two credit
reports on each applicant from national credit reporting companies are required.
The report typically contains information relating to such matters as credit
history with local and national merchants and lenders, installment debt payments
and any record of defaults, bankruptcies, repossessions, or judgments.
Mortgaged properties are appraised by licensed appraisers. The Seller does
not approve all appraisers but instead relies on the mortgage brokers to
evaluate the appraiser's experience and ability; however, in the event that a
mortgage broker uses an appraiser who has not been approved by the Seller, the
related appraisal will be reviewed by an approved appraiser of the Seller for
conformance with its guidelines. The Seller requires the appraiser to address
neighborhood conditions, site and zoning status and condition and valuation of
improvements. Following each appraisal, the appraiser prepares a report which
includes a reproduction cost analysis (when appropriate) based on the current
cost of constructing a similar home and a market value analysis based on recent
sales of comparable homes in the area. All appraisals are required to conform to
the Uniform Standards of Professional Appraisal Practice and FIRREA and must be
on forms acceptable to FNMA and FHLMC. Every appraisal is reviewed by a
non-affiliated appraisal review firm, or by another review appraiser acceptable
to the Seller before the mortgage loan is made.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Statistical Reference Date, as adjusted for the scheduled
principal payments due on or before such date. Prior to the issuance of the
Class A Certificates, Mortgage Loans may be removed from the Mortgage Pool as a
result of incomplete documentation or otherwise, if the Depositor deems such
removal necessary or appropriate. A limited number of other mortgage loans may
be added to the Mortgage Pool prior to the issuance of the Class A Certificates.
The Depositor believes that the information set forth herein will be
substantially representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Class A Certificates are issued although the
range of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K will be available to purchasers of the Class A
Certificates and will be filed, together with the Pooling and Servicing
Agreement, with the Securities and Exchange Commission within fifteen days after
the initial issuance of the Class A Certificates. In the event Mortgage Loans
are removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition
S-32
<PAGE> 190
will be noted in the Current Report on Form 8-K. In addition, a Current Report
on Form 8-K will be filed following each purchase of Subsequent Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199 ,
(the "Certificates") will include the following two senior classes (the
"Class A Certificates"): (i) Class A-1 Certificates (the "Class A-1
Certificates") and (ii) Class A-2 Certificates (the "Class A-2 Certificates").
In addition to the Class A Certificates, the Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199 , will include the Class I S
Certificates (the "Group I Subordinate Certificates"), the Class II S
Certificates (the "Group II Subordinate Certificates"; and, together with the
Group I Subordinate Certificates, the "Subordinate Certificates") and the Class
R Certificates (the "Residual Certificates"). Only the Class A Certificates are
offered hereby. The Pass-Through Rate (as defined herein) on the Class A-1
Certificates is adjustable and is calculated as described under "-- Class A
Interest Distribution Amounts" below. The Pass-Through Rate on the Class A-2
Certificates is fixed at % per annum, subject to increase as described herein.
Interest distributions on the Class A Certificates will be payable monthly at
one-twelfth the annual rate.
The Certificates will evidence the entire beneficial ownership interest in
the Trust Fund. The Trust Fund will consist of: (i) the Mortgage Loans; (ii)
such assets as from time to time are identified as deposited in respect of the
Mortgage Loans in the Certificate Accounts; (iii) property acquired by
foreclosure of such Mortgage Loans or deed in lieu of foreclosure; (iv) the
Trustee's rights with respect to the Mortgage Loans under all insurance policies
(including the Certificate Insurance Policies) required to be maintained
pursuant to the Pooling and Servicing Agreement and any proceeds thereof; (v)
liquidation proceeds; (vi) released mortgaged property proceeds; and (vii)
amounts on deposit in the Interest Coverage Accounts and the Pre-Funding
Accounts.
Distributions on the Class A Certificates will be made on the 25th day of
each month or, if such day is not a business day, then on the next succeeding
business day (each, a "Distribution Date"), commencing in 199 , to
Certificateholders of record on the immediately preceding Record Date. The
record date (the "Record Date") for each Distribution Date will be the close of
business on the last day of the month immediately preceding the related
Distribution Date.
The Class A Certificates will be issued, maintained and transferred on the
book-entry records of The Depository Trust Company ("DTC") and its Participants
(as defined in the Prospectus).
The Class A Certificates will be represented by one or more certificates
registered in the name of the nominee of DTC (Class A Certificates so
registered, "Book-Entry Certificates"). No person acquiring an interest in the
Class A Certificates will be entitled to receive a certificate representing such
person's interest (a "Definitive Certificate"), except as set forth below under
"-- Book-Entry Registration." Unless and until Definitive Certificates are
issued for the Class A Certificates under the limited circumstances described
herein, all references to actions by Certificateholders with respect to the
Class A Certificates shall refer to actions taken by DTC upon instructions from
its Participants, and all references herein to distributions, notices, reports
and statements to Certificateholders with respect to the Class A Certificates
shall refer to distributions, notices, reports and statements to DTC or its
nominee, as the registered holder of the Class A Certificates, for distribution
to Certificate Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the "Depository"). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the
S-33
<PAGE> 191
Book-Entry Certificates in minimum denominations representing an original
principal amount of $25,000] and integral multiples of [$1] in excess thereof.
One investor of each Class of Book-Entry Certificates may hold a beneficial
interest therein that is not an integral multiple of $1,000. The Depositor has
been informed by the Depository that its nominee will be Cede & Co. ("CEDE").
Accordingly, CEDE is expected to be the holder of record of the Book-Entry
Certificates. Except as described in the Prospectus under "Description of the
Securities -- Book-Entry Registration of Securities," no person acquiring a
Book-Entry Certificate (each, a "beneficial owner") will be entitled to receive
a physical certificate representing such Definitive Certificate.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Pooling and Servicing
Agreement. Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Monthly and annual reports on the Trust Fund provided to CEDE, as
nominee of the Depository, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see "Description of the Securities -- Book-Entry Registration of
Securities" in the Prospectus.
OVERCOLLATERALIZATION PROVISIONS AND SUPPORT FEATURES
Overcollateralization Resulting from Cash Flow Structure. The Pooling and
Servicing Agreement requires that, on each Distribution Date, the Net Monthly
Excess Cashflow with respect to each Loan Group, if any, be applied on such
Distribution Date as an accelerated payment of principal on the related Class A
Certificates, but only to the limited extent hereafter described. The "Net
Monthly Excess Cashflow" for any Distribution Date is equal to (x) the amount on
deposit in the Certificate Account on such Distribution Date with respect to the
Mortgage Loans in the related Loan Group, other than the related Insured
Payments and the Trustee's Fee and Premium Amount payable on such Distribution
Date (such amount, the related "Available Funds" for such Distribution Date)
minus (y) the sum of (i) the sum of the related Class A Interest Distribution
Amount and the related Class A Principal Distribution Amount (calculated for
this purpose without regard to any Subordination Increase Amount, Subordination
Reduction Amount or portion thereof included therein) and (ii) any related
Reimbursement Amount (as defined herein) owed to the Certificate Insurer. This
application has the effect of accelerating the amortization of the related Class
A Certificates relative to the amortization of the Mortgage Loans in the related
Loan Group.
With respect to any Distribution Date, the excess, if any, of (x) the sum
of the aggregate Principal Balances of the Mortgage Loans in the related Loan
Group as of the close of business on the last day of the related Due Period (as
defined herein) and the amount of funds in the related Pre-Funding Account as of
such Distribution Date over (y) the Certificate Principal Balance of the related
Class A Certificates as of such Distribution Date (and following the making of
all distributions on such Distribution Date) is the "Subordinated Amount" as of
such Distribution Date. The Pooling and Servicing Agreement requires that the
Net Monthly Excess Cashflows will be applied as an accelerated payment of
principal on the related Class A Certificates until the related Subordinated
Amount has increased to the level equal to the related Required Subordinated
Amount for such Distribution Date. Any amount of Net Monthly Excess Cashflow
actually applied as an accelerated payment of principal is a "Subordination
Increase Amount." The required level of the Subordinated Amount with respect to
a Distribution Date is the "Required Subordinated Amount" with respect to such
Distribution Date. Initially, the Required Subordinated Amount will be set at an
amount equal to a percentage, specified in the Pooling and Servicing Agreement,
of the aggregate Principal Balances of the related Mortgage Loans in the related
Loan Group as of the Cut-off Date and the related Original Pre-Funded Amount.
The Pooling and Servicing Agreement generally provides that the Required
Subordinated Amounts may, over time, decrease, or increase, subject to certain
floors, caps and triggers.
In the event that the Required Subordinated Amount is permitted to decrease
or "step down" on a Distribution Date in the future, the Pooling and Servicing
Agreement provides that a portion of the principal
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which would otherwise be distributed to the Holders of the related Class A
Certificates on such Distribution Date shall be distributed to the Holders of
the related Group I or Group II Subordinate Certificates on such Distribution
Date, or applied to the payment of any Group I Class A Available Funds Cap
Carry-Forward Amount. This has the effect of decelerating the amortization of
the Class A Certificates relative to the, amortization of the Mortgage Loans in
the related Loan Group, and of reducing the related Subordinated Amount. With
respect to any Distribution Date, the difference, if any, between (a) the
related Subordinated Amount that would apply on such Distribution Date after
taking into account all distributions to be made on such Distribution Date
(exclusive of any reductions thereto attributable to Subordination Reduction
Amounts (as described below) on such Distribution Date) and (b) the related
Required Subordinated Amount for such Distribution Date is the related "Excess
Subordinated Amount" with respect to such Distribution Date. With respect to any
Distribution Date, an amount equal to the lesser of (a) the related Excess
Subordinated Amount and (b) the principal collections received by the Master
Servicer with respect to the prior Due Period is the related "Subordination
Reduction Amount." In addition, due to the cash flow stricture of the
Certificates as described below, Subordination Reduction Amounts may result even
prior to the occurrence of any decrease or "step down" in the related Required
Subordinated Amount. This is because the Holders of the related Class A
Certificates will generally be entitled to receive 100% of collected principal,
even though the Certificate Principal Balances of the related Class A
Certificates will, following the accelerated amortization resulting from the
application of the related Net Monthly Excess Cashflow, represent less than 100%
of the related Mortgage Loan's principal balance. In the absence of the
provisions relating to Subordination Reduction Amounts, the foregoing may
otherwise increase the Subordinated Amounts above their Required Subordinated
Amount requirements even without the application of any Net Monthly Excess
Cashflow.
The Pooling and Servicing Agreement provides that, on any Distribution
Date, all unscheduled collections on account of principal (other than any such
amount applied to the payment of a Subordination Reduction Amount) with respect
to Mortgage Loans in the related Loan Group during the period beginning on the
second day of the calendar month preceding the calendar month in which such
Distribution Date occurs, and ending on the first day of the calendar month in
which such Distribution Date occurs (the "Due Period") will be distributed to
the Holders of the related Class A Certificates on such Distribution Date. If
any Mortgage Loan became a Liquidated Mortgage Loan (as defined below) during
such Due Period, the net Liquidation Proceeds (as defined in the Prospectus)
related thereto and allocated to principal may be less than the Principal
Balance of the related Mortgage Loan; the amount of any such insufficiency is a
"Liquidated Loan Loss." A "Liquidated Mortgage Loan" is, in general, a defaulted
Mortgage Loan as to which the Master Servicer has determined that all amounts
that it expects to recover on such Mortgage Loan have been recovered (exclusive
of any possibility of a deficiency judgment). In addition, the Pooling and
Servicing Agreement provides that the principal balance of any Mortgage Loan
after it becomes a Liquidated Mortgage Loan shall equal zero. The Pooling and
Servicing Agreement does not contain any rule which requires that the amount of
any Liquidated Loan Loss be distributed to the Holders of the related Class A
Certificates on the Distribution Date which immediately follows the event of
loss; in other words, the Pooling and Servicing Agreement does not require the
current recovery of losses. However, the occurrence of a Liquidated Loan Loss
will reduce the Subordinated Amount, which, to the extent that such reduction
causes the Subordinated Amount to be less than the related Required Subordinated
Amount applicable to the related Distribution Date, will require the payment of
a Subordination Increase Amount on such Distribution Date (or, if insufficient
funds are available on such Distribution Date, on subsequent Distribution Dates,
until the Subordinated Amount equals the related Required Subordinated Amount).
The effect of the foregoing is to allocate losses to the Holders of the related
Group I or Group II Subordinate Certificates by reducing, or eliminating
entirely, payments of Net Monthly Excess Cashflow and of Subordination Reduction
Amounts which such Holders would otherwise receive.
Overcollateralization and the Certificate Insurance Policies. The Pooling
and Servicing Agreement defines a "Subordination Deficit' with respect to a
Distribution Date to be the amount, if any, by which (x) the aggregate
Certificate Principal Balance of the related Class A Certificates as of such
Distribution Date, and following the making of all distributions to be made on
such Distribution Date (except for any payment to be made as to principal from
proceeds of the related Certificate Insurance Policy), exceeds (y) the aggregate
Principal Balances of the Mortgage Loans in the related Loan Group as of the
close of business on
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the preceding Due Date and the amount of funds in the related Pre-Funding
Account on such Distribution Date. The Pooling and Servicing Agreement requires
the Trustee to make a claim for an Insured Payment under the related Certificate
Insurance Policy not later than the second Business Day prior to any
Distribution Date as to which the Trustee has determined that a Subordination
Deficit will occur with respect to a Loan Group for the purpose of applying the
proceeds of such Insured Payment as a payment of principal to the Holders of the
related Class A Certificates on such Distribution Date. Investors in the Class A
Certificates should realize that, under extreme loss or delinquency scenarios,
they may temporarily receive no distributions of principal.
Cross-Collateralization Feature. In the event that on any Distribution
Date after giving effect to distributions pertaining to a particular Loan Group
and its related Certificates (except for any payment to be made as principal
from proceeds of the related Certificate Insurance Policy), either a
Reimbursement Amount exists with respect to either Loan Group or a Subordination
Deficit exists with respect to Loan Group II or the Subordinated Amount with
respect to Loan Group II would be less than the related Required Subordinated
Amount (such difference, a "Cross-Collateralized Subordination Shortfall"), the
Class A-2 Certificates or the Certificate Insurer, as the case may be, will be
entitled to receive an additional payment (a "Cross-Collateralization Payment")
in respect of principal to the extent of such Subordination Deficit or
Cross-Collateralized Subordination Shortfall or as reimbursement of the
Reimbursement Amount, as the case may be, out of funds then on deposit in the
Certificate Account for the other Loan Group that are otherwise payable on such
Distribution Date to the Subordinate Certificates related to such other Loan
Group.
PRIORITY OF PAYMENT
On each Distribution Date, the Trustee shall make the following
distributions, to the extent of funds on deposit in the related Certificate
Account with respect to each Loan Group and the amount of Insured Payments and
Cross-Collateralization Payments (if applicable) to be made on such Distribution
Date, as distributed separately with respect to the Group I and Group II
Certificates:
(a) to the Certificate Insurer, the Premium Amount (as defined herein)
with respect to such Loan Group;
(b) to the Trustee, an amount equal to the Trustee's Fees then due to
it with respect to such Loan Group;
(c) to the Certificate Insurer the lesser of (x) an amount equal to
(i) the amount then on deposit in the related Certificate Account remaining
after the foregoing distributions minus (ii) the Insured Distribution
Amount for such Distribution Date and (y) the amount of all Insured
Payments and other payments made by the Certificate Insurer pursuant to the
related Certificate Insurance Policy (together with interest thereon at the
Pass-Through Rate for the related Class A Certificates) which have not been
previously repaid (the "Reimbursement Amount") as of such Distribution
Date;
(d) from amounts then on deposit in the related Certificate Account
(including any Insured Payments), to the related Class A Certificateholders
an amount equal to the related Class A Interest Distribution Amount (as
described below), distributed on a pro rata basis to the related Class A
Certificateholders as described below;
(e) from amounts then on deposit in the related Certificate Account
(including any related Insured Payments), to the related Class A
Certificateholders an amount equal to the related Class A Principal
Distribution Amount (as described below) to the extent not covered by
payments to be made pursuant to clause (f) below with respect to a
Subordination Deficit allocated as described below;
(f) from amounts then on deposit in the Certificate Account related to
the Group I Loans, to the Class A-2 Certificateholders, an amount equal to
the Cross-Collateralization Payments required to be made on such
Certificates on such Distribution Date;
(g) from amounts then on deposit in the Certificate Accounts related
to the Group I Loans and the Group II Loans, to the Certificate Insurer, an
amount equal to the Cross-Collateralization Payments
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required to be made to the Certificate Insurer from such Certificate
Account on such Distribution Date, to the extent the Certificate Insurer
has not been reimbursed pursuant to clause (c) above;
(h) to the Class A-1 Certificates, an amount equal to the lesser of
(i) any amount then remaining in the related Certificate Account after the
applications described in clauses (a) through (g) above and (ii) the
aggregate Group I Class A Available Funds Cap Carry-Forward Amount for such
Distribution Date shall be paid to the Class A-1 Certificateholders on
account of the Group I Class A Available Funds Cap Carry-Forward Amount, if
any; and
(i) from amounts then on deposit in the related Certificate Account,
to the Holders of the related Group I or Group II Subordinate Certificates,
the amount remaining on such Distribution Date, if any.
CLASS A INTEREST DISTRIBUTION AMOUNTS
On each Distribution Date, holders of each class of Class A Certificates
will be entitled to receive interest distributions in an amount equal to the sum
of (a) interest accrued for the related Accrual Period (as defined below) on the
related Certificate Principal Balance thereof immediately prior to such
Distribution Date at the then-applicable related Pass-Through Rate (to the
extent of the amounts remaining for distributions after payments under clauses
(a) through (c) under "-- Priority of Payment" above), as reduced by shortfalls
caused by the Relief Act (as defined in the Prospectus) or the failure of the
Master Servicer to cover Prepayment Interest Shortfalls to the extent described
herein, with all such reductions allocated among the related Class A
Certificates in proportion to their respective amounts of related Class A
Interest Distribution Amount (as defined below) which would have resulted absent
such reductions and (b) the Group I Class A Carry-Forward Amount or Group II
Class A Carry-Forward Amount, as applicable, allocable to interest. The
aggregate amount of interest allocable to the Class A-1 Certificates and Class
A-2 Certificates as determined separately (the related "Class A Interest
Distribution Amount") will be allocable to the related Class A Certificates on a
pro rata basis in proportion to the amount of interest payable thereon. The
Class A Interest Distribution Amount with respect to the Class A-1 Certificates
is calculated on the basis of a 360-day year and the actual number of days
elapsed, provided that, for any Distribution Date for which clause (ii) of the
related definition of Pass-Through Rate is applicable, the Class A Interest
Distribution Amount will be calculated on the basis of a 30-day month. The Class
A Interest Distribution Amount with respect to the Class A-2 Certificates is
calculated on the basis of a 360-day year and a 30-day month.
With respect to any Distribution Date and the Class A-1 Certificates and
Class A-2 Certificates, the sum of the related Class A Interest Distribution
Amount and the amount of the related Subordination Deficit, if any, with respect
to such Distribution Date is the related "Insured Distribution Amount" for such
Distribution Date.
For each Distribution Date, (i) with respect to the Class A-1 Certificates,
the "Accrual Period" is the period commencing on the Distribution Date
immediately preceding the month on which such Distribution Date occurs and
ending on the calendar day immediately preceding such Distribution Date, except
with respect to the first Distribution Date, which has an accrual period from
, 199 to , 199 and (ii) with respect to the
Class A-2 Certificates, the "Accrual Period" is the previous calendar month.
With respect to the Class A-1 Certificates, the "Group I Class A
Carry-Forward Amount" as of any Distribution Date equals the sum of (a) the
amount, if any, by which (i) the related Insured Distribution Amount for the
immediately preceding Distribution Date exceeded (ii) the amount actually
distributed to the Holders of the Class A-1 Certificates on such Distribution
Date in respect thereof (including, without Imitation, amounts paid under a
Certificate Insurance Policy) and (b) 30 days' interest on such amount at the
Pass-Through Rate applicable to the Class A-1 Certificates for such Distribution
Date. The Group I Class A Carry-Forward Amount does not include any Group I
Class A Available Funds Cap Carry-Forward Amount.
The "Class A-1 Formula Pass-Through Rate" for a Distribution-Date is the
lesser of (x) the rate determined by clause (i) of the definition of
Pass-Through Rate for the Class A-1 Certificates on such Distribution Date and
(y) the weighted average of Net Lifetime Rate Caps of the Group I Loans. The Net
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Lifetime Rate Cap on each Group I Loan is equal to the related Lifetime Rate Cap
minus the sum of the Servicing FeeRate and the rates per annum at which the
Trustee's Fee and the Premium Amount accrue.
The Pooling and Servicing Agreement provides that if the Pass-Through Rate
on the Class A-1 Certificates is less than the Class A-1 Formula Pass-Through
Rate and any resulting shortfall in interest is not paid on such Distribution
Date from any available Net Monthly Excess Cashflow, as described below, then
the amount of any such shortfall will be carried forward and be paid to the
extent of available funds, as described herein, to the Holders of the Class A-1
Certificates on future Distribution Dates and shall accrue interest at the
applicable Class A-1 Formula Pass-Through Rate, until paid (such shortfall,
together with such accrued interest, the "Group I Class A Available Funds Cap
Carry-Forward Amount"). The Certificate Insurance Policy does not cover the
Group I Class A Available Funds Cap Carry-Forward Amount, nor do the ratings
assigned to the Class A-1 Certificates address the payment of the Group I Class
A Available Funds Cap Carry-Forward Amount.
With respect to the Class A-2 Certificates, the "Group II Class A
Carry-Forward Amount" as of any Distribution Date equals the sum of (a) the
amount, if any, by which (i) the related Insured Distribution Amount for the
immediately preceding Distribution Date exceeded (ii) the amount actually
distributed to the Holders of the Class A-2 Certificates on such Distribution
Date in respect thereof (including, without limitation, amounts paid under a
Certificate Insurance Policy) and (b) 30 days' interest on such amount at the
Pass-Through Rate applicable to the Class A-2 Certificates for such Distribution
Date.
The "Prepayment Interest Shortfall" for any Distribution Date is equal to
the aggregate shortfalls if any, in collections of interest (minus the related
Servicing Fee) resulting from Mortgagor prepayments on the Mortgage Loans during
the preceding calendar month. Such shortfalls will result because interest on
prepayments in full is distributed only to the date of prepayment, and because
no interest is distributed on prepayments in part, as such prepayments in part
are applied to reduce the outstanding principal balance of the related Mortgage
Loans as of the Due Date in the month of prepayment. However, with respect to
any Distribution Date, any Prepayment Interest Shortfalls resulting from full or
partial prepayments during the preceding calendar month will be offset by the
Master Servicer, but only to the extent such Prepayment Interest Shortfalls do
not exceed an amount equal to the Servicing Fee payable to the Master Servicer
in respect of its servicing activities with respect to such Distribution Date.
See "Servicing of Mortgage Loans -- Servicing Compensation and Payment of
Expenses" herein. An amount equal to the Class A Certificates' pro rata share,
based on the amount of interest payable on each such class, of any Prepayment
Interest Shortfalls not so covered by the Master Servicer will be made available
by the Certificate Insurer for distribution to the Class A Certificateholders.
The Pass-Through Rate on the Class A-1 Certificates is adjustable and is
calculated as follows: beginning on the Distribution Date in 199 ,
and on each Distribution Date thereafter, the Pass-Through Rate on the Class A-1
Certificates will be adjusted to equal the lesser of (i) (a) with respect to any
Distribution Date which occurs on or prior to the date on which the aggregate
Principal Balance of the Mortgage Loans is less than % of the sum of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date and the
Original Pre-Funded Amounts, One-Month LIBOR (as defined in "Description of the
Certificates -- Calculation of One-Month LIBOR" below) plus % or (b) with
respect to any Distribution Date thereafter, One-Month LIBOR plus % and (ii)
the Group I Class A Available Funds Pass-Through Rate.
The "Group I Class A Available Funds Pass-Through Rate," as of any
Distribution Date, is equal to (i) the weighted average of the Mortgage Rates of
the Group I Loans, minus (ii) the sum of the Servicing Fee Rate and the rates
per annum at which the Trustee's Fee and Premium Amount accrue and minus (iii)
commencing on the seventh Distribution Date, % per annum.
The Pass-Through Rate with respect to the Class A-2 Certificates is equal
to (i) with respect to any Distribution Date which occurs on or prior to the
date on which the aggregate Principal Balance of the Mortgage Loans is less than
% of the sum of the aggregate Principal Balance of the Mortgage Loans as of
the Cut-off Date and the Original Pre-Funded Amounts, % per annum, and (ii)
with respect to any Distribution Date thereafter, % per annum.
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As described herein, the Class A Interest Distribution Amounts allocable to
the Class A Certificates is based on the Certificate Principal Balances thereof
immediately prior to the related Distribution Date. The Certificate Principal
Balance of any Class A Certificate as of any date of determination is equal to
the initial Certificate Principal Balance thereof, reduced as described herein
with respect to such Certificate.
On any Distribution Date, the amount of the premium (the "Premium Amount")
payable to the Certificate Insurer is equal to one-twelfth of the product of a
percentage specified in an exhibit to the Pooling and Servicing Agreement and
the Certificate Principal Balance of the Class A Certificates.
CALCULATION OF ONE-MONTH LIBOR
With respect to the first Distribution Date, on the Delivery Date, and,
with respect to each Distribution Date thereafter, on the second LIBOR Business
Day preceding such Distribution Date (each such date, an "Interest Determination
Date"), One-Month LIBOR shall be established by the Trustee and as to any
Accrual Period, One-Month LIBOR with respect to the Class A-1 Certificates will
equal the rate for United States dollar deposits for one month which appears on
the Telerate Screen Page 3750 as of 11:00 A.M., London time, on such Interest
Determination Date. "Telerate Screen Page 3750" means the display designated as
page 3750 on the Telerate Service (or such other page as may replace page 3750
on that service for the purpose of displaying London interbank offered rates of
major banks). If such rate does not appear on such page (or such other page as
may replace that page on that service, or if such service is no longer offered,
such other service for displaying One-Month LIBOR or comparable rates as may be
selected by the Trustee), the rate will be the Reference Bank Rate. The
"Reference Bank Rate" will be determined on the basis of the rates at which
deposits in U.S. Dollars are offered by the reference banks (which shall be
three major banks that are engaged in transactions in the London interbank
market, selected by the Trustee) as of 11:00 A.M., London time, on the Interest
Determination Date, to prime banks in the London interbank market for a period
of one month in amounts approximately equal to the aggregate Certificate
Principal Balance of the Class A-1 Certificates. The Trustee will request the
principal London office of each of the reference banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate will be the
arithmetic mean of the quotations. If on such date fewer than two quotations are
provided as requested, the rate will be the arithmetic mean of the rates quoted
by one or more major banks in New York City, selected by the Trustee, as of
11:00 A.M., New York City time, on the Interest Determination Date, for loans in
U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the aggregate Certificate Principal Balance of the Class
A-1 Certificates. If no such quotations can be obtained, the rate will be
One-Month LIBOR for the prior Distribution Date. "LIBOR Business Day" means any
day other than (i) a Saturday or a Sunday or (ii) a day on which banking
institutions in the city of London, England are required or authorized by law to
be closed.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable to
the Class A-1 Certificates for the related Accrual Period shall (in the absence
of manifest error) be final and binding.
CLASS A PRINCIPAL DISTRIBUTION AMOUNT
Holders of the Class A Certificates will be entitled to receive on each
Distribution Date, to the extent of the portion of the amounts remaining for
distribution after payments under clauses (a) through (d) under "-- Priority of
Payment" above, an amount (as determined separately for the Class A-1
Certificates and Class A-2 Certificates, the related "Class A Principal
Distribution Amount"), in reduction of the Certificate Principal Balance thereof
as described below, which equals the sum of (i) the portion of any Group I Class
A Carry-Forward Amount or Group II Class A Carry-Forward Amount, as applicable,
which relates to a shortfall in a distribution of a related Subordination
Deficit, (ii) all scheduled installments of principal in respect of the Mortgage
Loans in the related Loan Group received or advanced during the related Due
Period, together with all unscheduled recoveries of principal on such Mortgage
Loan received by the Master Servicer during the prior calendar month, (iii) the
Principal Balance of each Mortgage Loan in the related Loan Group that was
repurchased by either the Seller or by the Depositor, (iv) any amounts delivered
by the Depositor on the Master Servicer Remittance Date (as defined herein) in
connection with a substitution of a Mortgage
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Loan in the related Loan Group, (v) the net Liquidation Proceeds (as defined in
the Prospectus) collected by the Master Servicer of all Mortgage Loans in the
related Loan Group during the prior calendar month (to the extent such net
Liquidation Proceeds are related to principal), (vi) the amount of any related
Subordination Deficit for such Distribution Date, (vii) the proceeds received by
the Trustee of any termination of the related Loan Group (to the extent such
proceeds are related to principal), (viii) the amount of any related
Subordination Increase Amount (as defined herein) for such Distribution Date,
and (ix) with respect to the Class A-1 Certificates and Class A-2 Certificates,
with respect to the Distribution Date occurring in 199 , any amounts
in the related Pre-Funding Account after giving effect to any purchase of
related Subsequent Mortgage Loans; minus (x) the amount of any related
Subordination Reduction Amount (as defined herein) for such Distribution Date.
In no event will the Class A Principal Distribution Amount with respect to
any Distribution Date be (x) less than zero or (y) greater than the then
outstanding Certificate Principal Balance of the Class A Certificates.
Distributions of the Class A Principal Distribution Amount with respect to
the Class A-1 Certificates will be allocated to the Class A-1 Certificates in
reduction of the Certificate Principal Balance thereof, until such Certificate
Principal Balance has been reduced to zero. Distributions of the Class A
Principal Distribution Amount with respect to the Class A-2 Certificates will be
allocated to the Class A-2 Certificates in reduction of the Certificate
Principal Balance thereof, until such Certificate Principal Balance has been
reduced to zero.
The "Master Servicer Remittance Date" with respect to any Distribution Date
is the 18th day of the month in which such Distribution Date occurs, or if such
18th day is not a business day, the business day immediately preceding such 18th
day.
The "Principal Balance" of any Mortgage Loan as of any date of
determination is the principal balance of such Mortgage Loan as of the Due Date
preceding such date of determination, as such principal balance is specified for
such Due Date in the amortization schedule, (before any adjustment to such
amortization schedule by reason of any bankruptcy (other than Deficient
Valuations (as defined in the Prospectus)) or similar proceeding or any
moratorium or similar waiver or grace period) after giving effect to prepayments
received prior to such Due Date, Deficient Valuations incurred prior to such Due
Date, and to the payment of principal due on such Due Date and irrespective of
any delinquency in payment by the related Mortgagor. The Principal Balance of a
Mortgage Loan which becomes a Liquidated Mortgage Loan (as defined herein) on or
prior to such Due Date shall be zero.
See "Summary -- Special Prepayment Considerations" and "-- Special Yield
Considerations" and "Yield and Prepayment Considerations" herein.
ADVANCES
Prior to each Distribution Date, the Master Servicer is required to make
Advances with respect to any payments of principal and interest (net of the
related servicing fees) which were due on the Mortgage Loans on the immediately
preceding Due Date and have not been received as of the business day immediately
preceding the related Master Servicer Remittance Date. Such Advances are
required to be made by the Master Servicer only to the extent they are deemed by
the Master Servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making such Advances is to
maintain a regular cash flow to the Certificateholders, to maintain a specified
level of overcollateralization and to pay the premium due the Certificate
Insurer and to pay the Trustee, rather than to guarantee or insure against
losses. The Master Servicer will not be required to make any advances with
respect to reductions in the amount of the monthly payments on the Mortgage
Loans due to application of the Relief Act. Any failure by the Master Servicer
to make an Advance as required under the Pooling and Servicing Agreement will
constitute an Event of Default thereunder, in which case the Trustee, as
successor servicer, will be obligated to make any such Advance, in accordance
with the terms of the Pooling and Servicing Agreement.
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All Advances will be reimbursable to the Master Servicer making the Advance
subject to certain conditions and restrictions from late collections, insurance
proceeds and liquidation proceeds from the Mortgage Loan as to which such
unreimbursed Advance was made.
CERTIFICATE GUARANTY INSURANCE POLICIES
The following information regarding the Certificate Insurance Policies has
been supplied by the Certificate Insurer for inclusion in this Prospectus
Supplement.
The Certificate Insurer, in consideration of the payment of the premium and
subject to the terms of the Certificate Insurance Policies, thereby
unconditionally and irrevocably guarantees to any Owner (as defined below) that
an amount equal to each full and complete Insured Payment (as defined below)
will be received by the Trustee, or its successor as Trustee for the Owners, on
behalf of the Owners from the Certificate Insurer, for distribution by the
Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Certificate Insurer's obligations under the Certificate Insurance
Policies with respect to a particular Insured Payment shall be discharged to the
extent funds, equal to the applicable Insured Payment are received by the
Trustee, whether or not such funds are properly applied by the Trustee. Insured
Payments shall be made only at the time set forth in the Certificate Insurance
Policies, and no accelerated Insured Payments shall be made regardless of any
acceleration of the Class A Certificates, unless such acceleration is at the
sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance Policies
do not cover shortfalls, if any, attributable to the liability of the Trust
Fund, the REMIC or the Trustee for withholding taxes, if any (including interest
and penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount (as described below) on the Business Day following receipt on a Business
Day by the Fiscal Agent (as described below) of (i) a certified copy of the
order requiring the return of a preference payment, (ii) an opinion of counsel
satisfactory to the Certificate Insurer that such order is final and not subject
to appeal, (iii) an assignment in such form as is reasonably required by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Owner relating to or arising under the Class A Certificates
against the debtor which made such preference payment or otherwise with respect
to such preference payment and (iv) appropriate instruments to effect the
appointment of the Certificate Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Certificate Insurer, provided that if such documents are
received after 12:00 noon New York City time on such Business Day, they will be
deemed to be received on the following Business Day. Such payments shall be
disbursed to the receiver or trustee in bankruptcy named in the final order of
the court exercising jurisdiction on behalf of the Owner and not to any Owner
directly unless such Owner has returned principal or interest paid on the Class
A Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policies no later than 12:00 noon, New York City time, on
the later of the Distribution Date on which the related Insured Payment is due
or the Business Day following receipt in New York, New York on a Business Day by
, as the Certificate Insurer's Fiscal Agent or any successor fiscal
agent appointed by the Certificate Insurer (the "Certificate Insurer's Fiscal
Agent") of a Notice (as described below); provided that if such Notice is
received after 12:00 noon, New York City time, on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice received
by the Certificate Insurer's Fiscal Agent is not in proper form or is otherwise
insufficient for the purpose of making a claim under any Certificate Insurance
Policy it shall be deemed not to have been received by the Certificate Insurer's
Fiscal Agent for purposes of this paragraph, and the Certificate Insurer or the
Certificate Insurer's Fiscal Agent, as the case may be, shall promptly so advise
the Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the Certificate Insurance Policies, unless
otherwise stated therein, will be disbursed by the Certificate Insurer's Fiscal
Agent to the Trustee on behalf of the Owners by wire transfer of immediately
available funds in the amount of the Insured Payment less, in respect of Insured
Payments
S-41
<PAGE> 199
related to Preference Amounts, any amount held by the Trustee for the payment of
such Insured Payment and legally available therefor.
The Certificate Insurer's Fiscal Agent is the agent of the Certificate
Insurer only and the Certificate Insurer's Fiscal Agent shall in no event be
liable to Owners for any acts of the Certificate Insurer's Fiscal Agent or any
failure of the Certificate Insurer to deposit, or cause to be deposited,
sufficient funds to make payments due under the Certificate Insurance Policies.
As used in the Certificate Insurance Policies, the following terms shall
have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Pooling and Servicing Agreement
is located are authorized or obligated by law or executive order to close.
"Insured Payment" means (i) as of any Distribution Date, an amount equal to
the sum of (a) the related Class A Interest Distribution Amount minus the
related Available Funds and (b) the related Subordination Deficit (to the extent
not covered, with respect to the Class A-2 Certificates, by
Cross-Collateralization Payments) and (ii) the related unpaid Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to each
Certificate Insurance Policy, the original of which is subsequently delivered by
registered or certified mail, from the Trustee specifying the Insured Payment
which shall be due and owing on the applicable Distribution Date.
"Owner" means each related Class A Certificateholder (as defined in the
Pooling and Servicing Agreement) who, on the applicable Distribution Date, is
entitled under the terms of the applicable Class A Certificate, to payment under
the related Certificate Insurance Policy.
"Preference Amount" means any amount previously distributed to an Owner on
the related Class A Certificates that is recoverable and sought to be recovered
as a voidable preference by a trustee in bankruptcy pursuant to the United
States Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance
with a final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Certificate Insurance Policies and not
otherwise defined in the Certificate Insurance Policies shall have the
respective meanings set forth in the Pooling and Servicing Agreement as of the
date of execution of the Certificate Insurance Policies, without giving effect
to any subsequent amendment or modification to the Pooling and Servicing
Agreement unless such amendment or modification has been approved in writing by
the Certificate Insurer.
Any notice under the Certificate Insurance Policies or service of process
on the Certificate Insurer's Fiscal Agent may be made at the address listed
below for the Certificate Insurer's Fiscal Agent or such other address as the
Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Certificate Insurer's Fiscal Agent is
, Attention: , or such other address as the Certificate
Insurer's Fiscal Agent shall specify to the Trustee in writing.
The Certificate Insurance Policies are being issued under and pursuant to,
and shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policies is not covered
by the Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law.
The Certificate Insurance Policies are not cancelable for any reason. The
premium on each of the Certificate Insurance Policies is not refundable for any
reason including payment, or provision being made for payment, prior to maturity
of the Class A Certificates.
MANDATORY PREPAYMENTS ON CLASS A-1 CERTIFICATES AND CLASS A-2 CERTIFICATES
The Class A-1 Certificates and Class A-2 Certificates will be prepaid on
the 199 Distribution Date to the extent that any amount remains on
deposit in the related Pre-Funding Account on
S-42
<PAGE> 200
such Distribution Date. Although no assurance can be given, it is anticipated by
the Depositor that the principal amount of Subsequent Mortgage Loans sold to the
Trust Fund will require the application of substantially all of the related
Original Pre-Funded Amount and that there should be no material amount of
principal prepaid to the Class A-1 Certificateholders and Class A-2
Certificateholders from the Pre-Funding Accounts. However, it is unlikely that
the Depositor will be able to deliver Subsequent Mortgage Loans for Loan Group I
and Loan Group II with an aggregate principal balance identical to the related
Original Pre-Funded Amount.
INTEREST COVERAGE ACCOUNT
The Depositor will establish for the benefit of Class A-1
Certificateholders and Class A-2 Certificateholders two trust accounts (the
"Group I Interest Coverage Account" and the "Group II Interest Coverage
Account"; and together the "Interest Coverage Accounts"). On the Delivery Date,
the Depositor will deposit in each such account a cash amount as required by the
Certificate Insurer and specified in the Pooling and Servicing Agreement. On
each Distribution Date during the Funding Period and on the Distribution Date
immediately following, funds on deposit in the Interest Coverage Accounts will
be applied by the Trustee to cover shortfalls in the Group I and Group II Class
A Interest Distribution Amount attributable to the pre-funding feature during
the related Funding Period. Such shortfall initially will exist during the
Funding Period because while the Class A-1 Certificateholders and Class A-2
Certificateholders are entitled to receive interest accruing on the Certificate
Principal Balance of the Class A-1 Certificates and Class A-2 Certificates, the
Certificate Principal Balance of the Class A Certificates during the Funding
Period will be greater than the aggregate principal balance of the related
Mortgage Loans on the Delivery Date. On the first business day following the
first Distribution Date following the termination of the related Funding Period,
funds on deposit in the related Interest Coverage Account will be released by
the Trustee to the Depositor.
[NAME OF INSURER]
The following information about this Certificate Insurer has been supplied
by the Certificate Insurer for inclusion in this Prospectus Supplement:
.
The Certificate Insurer does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Certificate Insurance Policies and the
Certificate Insurer set forth under the heading "Description of the
Certificates -- Certificate Guaranty Insurance Policies" and "[Name of
Insurer]." The Certificate Insurer makes no additional representations regarding
the Class A Certificates or the advisability of investing in the Class A
Certificates.
rates the claims paying ability of the
Certificate Insurer " ."
rates the claims paying ability of the
Certificate Insurer " ."
rates the claims paying ability of the
Certificate Insurer " ."
Each rating of the Certificate Insurer should be evaluated independently.
The ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Certificate Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class A
Certificates and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Class A
Certificates. The Certificate Insurer does not guaranty the market price of the
Class A Certificates nor does it guaranty that the ratings on the Class A
Certificates will not be reversed or withdrawn.
S-43
<PAGE> 201
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity and the aggregate amount of distributions on the
Class A Certificates will be affected by the rate and timing of principal
payments on the Mortgage Loans in the related Loan Group and the amount, if any,
distributed from the related Pre-Funding Account at the end of the related
Funding Period. Such yield may be adversely affected by a higher or lower than
anticipated rate of principal payments on the Mortgage Loans in the related Loan
Group. The rate of principal payments on such Mortgage Loans will in turn be
affected by the amortization schedules of the Mortgage Loans, the rate and
timing of principal prepayments thereon by the Mortgagors, liquidations of
defaulted Mortgage Loans and purchases of Mortgage Loans in the related Loan
Group due to certain breaches of representations or warranties. The timing of
changes in the rate of prepayments, liquidations and purchases of the Mortgage
Loans in the related Loan Group may, and the timing of losses on the Mortgage
Loans in the related Loan Group will, significantly affect the yield on the
related Class A Certificates to an investor, even if the average rate of
principal payments experienced over time is consistent with an investor's
expectation. Since the rate and timing of principal payments on the Mortgage
Loans in the related Loan Group will depend on future events and on a variety of
factors (as described herein and in the Prospectus under "Yield and Prepayment
Considerations"), no assurance can be given as to such rate or the timing of
principal payments on the related Class A Certificates.
The Mortgage Loans may be prepaid by the mortgagors at any time; [however,
a majority of the Mortgage Loans in each Loan Group are subject to a prepayment
charge for prepayments.] See "The Mortgage Pool" herein. In addition, the
Mortgage Loans contain a provision that may result in the acceleration of the
payment of the Mortgage Loan in the event of the transfer or sale of the related
Mortgaged Property. Prepayments, liquidations and purchases of the Mortgage
Loans in the related Loan Group will result in distributions to holders of the
related Class A Certificates of principal amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans in the related Loan
Group. Factors affecting prepayment (including defaults and liquidations) of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties, changes in the
value of the mortgaged properties, mortgage market interest rates, solicitations
and servicing decisions. In addition, if prevailing mortgage rates fell
significantly below the Mortgage Rates on the Mortgage Loans, the rate of
prepayments (including refinancings) would be expected to increase. Conversely,
if prevailing mortgage rates rose significantly above the Mortgage Rates on the
Mortgage Loans, the rate of prepayments on the Mortgage Loans would be expected
to decrease.
In addition, the yield to maturity on the Class A Certificates will depend
on, among other things, the price paid by the holders of the Class A
Certificates and the related Pass-Through Rate. The extent to which the yield to
maturity of a Class A Certificate is sensitive to prepayments will depend, in
part, upon the degree to which it is purchased at a discount or premium. In
general, if a class of Class A Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a class of Class A
Certificates is purchased at a discount and principal distributions thereon
occur at a rate slower than that assumed at the time of purchase, the investor's
actual yield to maturity will be lower than that assumed at the time of
purchase. For additional considerations relating to the yield on the
Certificates, see "Yield and Prepayment Considerations" in the Prospectus.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. The rate of default on Mortgage Loans which are refinance or limited
documentation mortgage loans, and on Mortgage Loans with high Loan-to-Value
Ratios, may be higher than for other types of Mortgage Loans. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the Mortgage Loans
will be affected by the general economic condition of the region of the country
in which the related Mortgaged Properties are located. The risk of delinquencies
and loss is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other factors,
increasing unemployment or falling property values. See "Yield and Prepayment
Considerations" in the Prospectus.
S-44
<PAGE> 202
To the extent that the Original Pre-Funded Amounts have not been fully
applied to the purchase of Subsequent Mortgage Loans by the Trust Fund by the
end of the Funding Period, the Holders of the related Class A-1 Certificates and
Class A-2 Certificates will receive on the first Distribution Date following the
termination of the Funding Period a prepayment of principal in an amount equal
to the lesser of (i) the related Pre-Funded Amount remaining in the related
Pre-Funding Account and (ii) the outstanding Certificate Principal Balance of
the related Class A Certificates. Although no assurance can be given, it is
anticipated by the Depositor that the principal amount of Subsequent Mortgage
Loans sold to the Trust Fund will require the application of substantially all
amounts on deposit in the Pre-Funding Accounts and that there will be no
material amount of principal prepaid to the Class A-1 Certificateholders and
Class A-2 Certificateholders. However, it is unlikely that the Depositor will be
able to deliver Subsequent Mortgage Loans with an aggregate principal balance
identical to the related Pre-Funded Amounts.
The following discussion assumes the characteristics set forth in the
tables below. The Final Scheduled Maturity Date for the Class A Certificates is
as follows: Class A-1 Certificates, , 20 ; Class A-2 Certificates,
, 20 . Such Final Scheduled Maturity Dates (i) with respect to the
Class A-1 Certificates is based on a CPR and (ii) with respect to
the Class A-2 Certificates is based on a Prepayment Assumption, in
each case with no Net Monthly Excess Cashflow used to make accelerated payments
of principal on such classes of Class A Certificates and in each case assuming
that a subsequent Mortgage Loan in the related Loan Group has a first Due Date
of , 199 , and amortizes according to its fully amortizing term of
months, plus twelve months. The weighted average life of the Class A
Certificates is likely to be shorter than would be the case if payments actually
made on the Mortgage Loans conformed to the foregoing assumption, and the final
Distribution Date with respect to the Class A Certificates could occur
significantly earlier than the Final Scheduled Maturity Date because (i)
prepayments (including, for this purpose, prepayments attributable to
foreclosure, liquidation, repurchase and the like) on Mortgage Loans are likely
to occur, (ii) in the case of the Class A-1 Certificates and the Class A-2
Certificates, twelve months have been added to obtain the Final Scheduled
Maturity Date above, and (iii) the holder of a majority interest in the Class R
Certificates or the Master Servicer may cause a liquidation of the Mortgage
Loans when the aggregate outstanding principal amount of the Mortgage Loans is
less than 10% (5% with respect to the Master Servicer (or the Certificate
Insurer, if is removed as Master Servicer)) of the sum of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date and the
aggregate principal balance of the Subsequent Mortgage Loans as of the related
Subsequent Cut-off Date.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security is scheduled to be repaid to an investor (assuming no losses). The
weighted average life of the Class A Certificates will be influenced by the rate
at which principal of the Mortgage Loans is paid, which may be in the form of
scheduled amortization or prepayments (for this purpose, the term "prepayment"
includes liquidations due to default). Prepayments on mortgage loans are
commonly measured relative to a prepayment standard or model. The model used in
this Prospectus Supplement with respect to the Class A-1 Certificates is a
constant prepayment assumption ("CPR"), which represents an assumed constant
rate of prepayment, each month relative to the then outstanding principal
balance of the pool of mortgage loans for the life of such mortgage loans. The
model used in this Prospectus Supplement with respect to the Class A-2
Certificates is a prepayment assumption (the "Prepayment Assumption"), which
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of the pool of mortgage loans for the life of such
mortgage loans. A 100% Prepayment Assumption assumes a conditional prepayment
rate of % per annum of the outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans and an additional
approximate % (precisely ) (expressed as a percentage 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
conditional prepayment rate of % per annum each month is assumed. As used in
the table below, a % CPR or a % Prepayment Assumption assumes a prepayment
rate equal to % CPR or % of the Prepayment Assumption, i.e., no prepayments.
Correspondingly, % Prepayment Assumption assumes prepayment rates equal to %
of the Prepayment Assumption, and so forth. Neither CPR nor the
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<PAGE> 203
Prepayment Assumption purports to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans.
The following tables have been prepared assuming that Loan Group I and Loan
Group II are comprised of Mortgage Loans having the following characteristics
(dollar amounts are approximate):
LOAN GROUP I
(i) the 1st through th hypothetical Mortgage Loans set forth below
comprise the Initial Group I Loans included in Loan Group I and the th
hypothetical Mortgage Loan set forth below comprises the Subsequent Mortgage
Loans included in Loan Group I:
<TABLE>
<CAPTION>
ORIGINAL MONTHS TO REMAINING
TERMS TO NEXT RATE TERM TO GROSS GROSS GROSS
PRINCIPAL MATURITY MORTGAGE ADJUSTMENT MATURITY GROSS LIFETIME LIFETIME PERIODIC
NET MORTGAGE BALANCE RATE (IN MONTHS) DATE (IN MONTHS) RATE MARGIN CAP FLOOR CAP
- ------------- ------------ ----------- --------- ----------- -------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
(ii) the th hypothetical Mortgage Loan set forth above has an initial Due
Date of , 199 ; however, on the Delivery Date, an amount equal to
interest at % per annum on the principal balance of the Mortgage Loan will be
deposited into the related Certificate Account and will be available for the
Distribution Date occurring in 199 .
LOAN GROUP II
(i) the 1st through th and the th hypothetical Mortgage Loans set
forth below comprise the Initial Group II Loans included in Loan Group II and
the th hypothetical Mortgage Loan set forth below comprises the Subsequent
Mortgage Loans included in Loan Group II:
<TABLE>
<CAPTION>
REMAINING ORIGINAL
TERM TO TERM TO
MATURITY MATURITY
PRINCIPAL BALANCE MORTGAGE RATE NET MORTGAGE RATE (IN MONTHS) (IN MONTHS)
- ------------------ ------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
</TABLE>
(ii) the th hypothetical Mortgage Loan set forth above has an initial Due
Date of , 199 ; however, on the Delivery Date an amount equal to
the interest at % per annum on the principal balance of the Mortgage Loan will
be deposited into the related Certificate Account and will be available for the
Distribution Date occurring in 199 ; (iii) the th hypothetical
Mortgage Loan is a balloon Mortgage Loan with a Balloon Payment on the th
month.]
In addition, the following tables have been prepared assuming that the Mortgage
Loans in each Loan Group have the following characteristics: (i) with respect to
the Group I Loans and Group II Loans, the Subsequent Mortgage Loans are
purchased by , 199 , resulting in no mandatory prepayment from
the Pre-Funding Accounts on the Distribution Date in , 199 ; (ii)
all calculations for the Mortgage Loans are done on the basis of a 360-day year
consisting of twelve 30-day months; (iii) with respect to the Class A
Certificates, all weighted average lives are calculated on the basis of a
360-day year and a 30-day month; (iv) Due Dates on each Mortgage Loan are the
first day of the month; (v) all scheduled monthly payments on the Mortgage Loans
are made in a timely fashion on the first day of each month, commencing in
199 , and prepayments are assumed to be received on the last day
of each month, commencing in 199 ; (vi) the Mortgage Rate for the
Group I Loans is adjusted on its next Adjustment Date and on subsequent
Adjustment Dates as necessary to a rate equal to the sum of the Index and the
related
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<PAGE> 204
Gross Margin, subject to the related Periodic Rate Cap, Lifetime Rate Cap and
Lifetime Rate Floor; (vii) there are no Prepayment Interest Shortfalls; (viii)
distributions on the Class A Certificates are made on the 25th day of each
month, commencing in 199 ; (ix) the Delivery Date is
, 199 ; (x) the Index is [Six-Month LIBOR and remains constant at
% per annum and One-Month LIBOR remains constant at % per annum]; (xi) the
Required Subordinated Amounts will be set as provided in the Pooling and
Servicing Agreement; (xii) the Mortgage Loans will prepay at the indicated
assumed percentages of CPR or the Prepayment Assumption in the corresponding
order set forth below; and (xiii) and with regard to the weighted average lives
neither the holder of a majority percentage interest of the Class R Certificates
or the Master Servicer (or the Certificate Insurer, if is removed
as Master Servicer) exercises its option to terminate the Trust Fund when the
aggregate principal balance of the Mortgage Loans is reduced to less than 10%
(or 5% in the case of the Master Servicer or the Certificate Insurer) of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date and the
aggregate Principal Balance of the Subsequent Mortgage Loans as of the related
Subsequent Cut-off Date.
Based upon the foregoing assumptions, certain of which may not reflect
actual experience, the following tables indicate the projected weighted average
life of each class of Class A Certificates and the percentages of the initial
Certificate Principal Balance of each such class that would be outstanding after
each of the dates shown at various percentages of CPR and the Prepayment
Assumption which will occur simultaneously for both Loan Groups. Investors in
the Class A Certificates should note that, irrespective of the assumptions
above, including the assumption of no losses on the Mortgage Loans, the
following tables show both CPR with respect to Loan Group I and the Prepayment
Assumption with respect to Loan Group II because Cross-Collateralization
Payments will occur with respect to distributions on Loan Group I being paid to
the Group II Certificates.
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION AND CPR
CLASS A-1 CERTIFICATES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP I (CPR)........................ 0% 15% 18% 20% 25% 30% 35% 40%
GROUP II (PPA)....................... 0% 50% 75% 100% 115% 125% 150% 200%
---- ---- ---- ---- ---- ---- ---- ----
- - - - - - - -
DISTRIBUTION DATE....................
---- ---- ---- ---- ---- ---- ---- ----
- - - - - - - -
</TABLE>
- ---------------
(1) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each distribution in reduction of the Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the initial Certificate Principal Balance of the Certificate.
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR AND
THE PREPAYMENT ASSUMPTION
CLASS A-2 CERTIFICATES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP I (CPR)........................ 0% 15% 18% 20% 25% 30% 35% 40%
GROUP II (PPA)....................... 0% 50% 75% 100% 115% 125% 150% 200%
---- ---- ---- ---- ---- ---- ---- ----
- - - - - - - -
DISTRIBUTION DATE....................
---- ---- ---- ---- ---- ---- ---- ----
- - - - - - - -
</TABLE>
- ---------------
(1) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each distribution in reduction of the Certificate Principal
Balance by the number of years from the date of issuance of the Certificate
to the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the initial Certificate Principal Balance of the Certificate.
S-47
<PAGE> 205
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth above,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at the
given levels of CPR or the Prepayment Assumption until maturity or that all of
the Mortgage Loans will prepay at the same level of CPR or the Prepayment
Assumption. Moreover, the diverse remaining terms to maturity of the Mortgage
Loans could produce slower or faster principal distributions than indicated in
the table at the various percentages of CPR or the Prepayment Assumption
specified, even if the weighted average remaining term to maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment or loss experience, will affect the percentages of initial
Certificate Principal Balances outstanding over time and the weighted average
lives of the Class A Certificates.
SERVICING OF MORTGAGE LOANS
GENERAL
The Master Servicer will service the Mortgage Loans in accordance with the
terms set forth in the Pooling and Servicing Agreement. The Master Servicer may
perform any of its obligations under the Pooling and Servicing Agreement through
one or more subservicers. Notwithstanding any such subservicing arrangement, the
Master Servicer will remain liable for its servicing duties and obligations
under the Pooling and Servicing Agreement as if the Master Servicer alone were
servicing the Mortgage Loans. [As of the Closing Date, the Master Servicer will
service the Mortgage Loans without subservicing arrangements.]
The information set forth in the following section through and including
the section captioned "Delinquency Status as of , 199 " has
been provided by the Master Servicer. No representation is made by the Depositor
or any of its affiliates as to the accuracy or completeness of any such
information.
THE MASTER SERVICER
[ ] will act as the Master Servicer of the Mortgage
Loans pursuant to the Pooling and Servicing Agreement.
As of , 199 , the Master Servicer provided servicing
for approximately $ [million] in mortgage loans.
The principal executive offices of the Master Servicer are located at
. Its telephone number is ( ) - .
LOAN SERVICING
[The Master Servicer services substantially all of the mortgage loans it
originates or acquires. Servicing includes, but is not limited to, collecting
and remitting mortgage loan payments, accounting for principal and interest,
holding escrow (impound) funds for payment of taxes and insurance, making
inspections as required of the mortgaged properties, preparation of tax related
information in connection with the mortgage loans, supervision of delinquent
mortgage loans, loss mitigation efforts, foreclosure proceedings and, if
applicable, the
disposition of mortgaged properties, and generally administering the mortgage
loans, for which it receives servicing fees.]
COLLECTION PROCEDURES
When a mortgagor fails to make a payment on a mortgage loan, the Master
Servicer attempts to cause the deficiency to be cured by corresponding with the
mortgagor. In most cases, deficiencies are cured promptly. Pursuant to the
Master Servicer's servicing procedures, the Master Servicer generally mails to
the mortgagor a notice of intent to foreclose after the loan becomes 31 days
past due (two payments due but not
S-48
<PAGE> 206
received) and, within 60 days thereafter, if the loan remains delinquent,
institutes appropriate legal action to foreclose on the mortgaged property.
Foreclosure proceedings may be terminated if the delinquency is cured. Mortgage
loans to borrowers in bankruptcy proceedings may be restructured in accordance
with law and with a view to maximizing recovery of such loans, including any
deficiencies.
Once foreclosure is initiated by the Master Servicer, a foreclosure
tracking system is used to monitor the progress of the proceedings. The system
includes state specific parameters to monitor whether proceedings are
progressing within the time frame typical for the state in which the mortgaged
property is located. During the foreclosure proceeding, the Master Servicer
determines the amount of the foreclosure bid and whether to liquidate the
mortgage loan.
After foreclosure, the Master Servicer may liquidate the mortgaged property
and charge-off the loan balance which was not recovered through liquidation
proceeds. If foreclosed, the mortgaged property is sold at a public or private
sale and may be purchased by the Master Servicer.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the Master Servicer's business
judgment, changes in the servicing portfolio and applicable laws and
regulations.
FORECLOSURE AND DELINQUENCY EXPERIENCE
The following table summarizes the delinquency experience of mortgage loans
serviced by the Master Servicer as of , 199 . A mortgage
loan is characterized as delinquent if the borrower has not paid the minimum
payment due by the due date. The table below excludes mortgage loans where the
mortgage loan is in foreclosure or the borrower has filed for bankruptcy. The
delinquency percentages may be affected by the size and relative lack of
seasoning of the servicing portfolio because many of such loans were not
outstanding long enough to give rise to some or all of the periods of
delinquency indicated in the chart below. Accordingly, the information should
not be considered as a basis for assessing the likelihood, amount, or severity
of delinquency or losses on the Mortgage Loans, and no assurances can be given
that the foreclosure experience presented in the second paragraph below the
table will be indicative of such experience on the Mortgage Loans.
DELINQUENCY STATUS AS OF , 199
<TABLE>
<CAPTION>
DOLLARS PERCENT UNITS PERCENT
------- ------- ----- -------
<S> <C> <C> <C> <C>
Current.............................. $ % %
30-59 Days........................... $ % %
60-89 Days........................... $ % %
90+ Days............................. $ % %
------- ---- ---- ----
Total...................... $ % %
======= ==== ==== ====
</TABLE>
This table does not include mortgage loans with principal
balances aggregating $ that were sold, but were being serviced on an
interim basis pending transfer of servicing, as of , 199 .
As of the date hereof, servicing with respect to such mortgage loans has been
transferred.
Delinquencies are reported on a contractual basis. As of
, 199 , mortgage loans with an aggregate principal balance
of $ were in foreclosure and, there were loans in
bankruptcy with a combined loan balance of $ .
[Over the last several years, there has been a general deterioration of the
real estate market and weakening economy in many regions of the country,
including . The general deterioration of the real estate
market has been reflected in increases in delinquencies of loans secured by real
estate, slower absorption rates of real estate into the market and lower sales
prices for real estate. The general weakening of the economy has been reflected
in decreases in the financial strength of borrowers and decreases in the value
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of collateral serving as security for loans. If the real estate market and
economy continue to decline, the Master Servicer may experience an increase in
delinquencies on the loans it services and higher net losses on liquidated
mortgage loans.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
[The Master Servicer will be paid a monthly fee from interest collected
with respect to each Mortgage Loan (as well as from any liquidation proceeds
from a Liquidated Mortgage Loan that are applied to accrued and unpaid interest)
equal to one-twelfth of the Stated Principal Balance thereof multiplied by the
Servicing Fee Rate (such product, the "Servicing Fee"). The Servicing Fee Rate
for each Mortgage Loan will equal % per annum. The amount of the monthly
Servicing Fee is subject to adjustment with respect to prepaid Mortgage Loans,
as described herein under "-- Adjustment to Master Servicing Fee in Connection
with Certain Prepaid Mortgage Loans." The Master Servicer is also entitled to
receive, as additional servicing compensation, amounts in respect of interest
paid on Principal Prepayments (as defined below) received from the 2nd day
through the 15th day of a month ("Prepayment Interest Excess"), all late payment
fees, assumption fees, prepayment penalties and other similar charges and all
reinvestment income earned on amounts on deposit in the Certificate Account and
Distribution Account. The Master Servicer is obligated to pay certain ongoing
expenses associated with the Mortgage Loans and incurred by the Trustee in
connection with its responsibilities under the Pooling and Servicing Agreement.]
ADJUSTMENT TO MASTER SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE
LOANS
When a borrower prepays a Mortgage Loan between Due Dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
and not thereafter. Except with respect to the month of the Cut-off Date,
principal prepayments by borrowers received by the Master Servicer from the
first day through the fifteenth day of a calendar month will be distributed to
Certificateholders on the Distribution Date in the same month in which such
prepayments are received and, accordingly, no shortfall in the amount of
interest to be distributed to Certificateholders with respect to the prepaid
Mortgage Loans results. Conversely, principal prepayments by borrowers received
by the Master Servicer from the sixteenth day (or, in the case of the first
Distribution Date, from the Cut-off Date) through the last day of a calendar
month will be distributed to Certificateholders on the Distribution Date in the
month following the month of receipt and, accordingly, a shortfall in the amount
of interest to be distributed to Certificateholders with respect to such prepaid
Mortgage Loans would result. Pursuant to the Pooling and Servicing Agreement,
the Master Servicing Fee for any month will be reduced, [but not by more than
one-half of such Master Servicing Fee,] by an amount sufficient to pass through
to Certificateholders the full amount of interest to which they would be
entitled in respect of each such prepaid Mortgage Loan on the related
Distribution Date. If shortfalls in interest as a result of prepayments in any
Prepayment Period exceed an amount equal to [one-half of] the Master Servicing
Fee otherwise payable on the related Distribution Date, the amount of interest
available to be distributed to Certificateholders will be reduced by the amount
of such excess. See "Description of the Certificates -- Class A Interest
Distribution Amounts" herein.
TERMINATION
The Pooling and Servicing Agreement will terminate upon notice to the
Trustee of either: (a) the later of the distribution to Certificateholders of
the final payment or collection with respect to the last Mortgage Loan (or
Advances of same by the Master Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due under the
Pooling and Servicing Agreement and the payment of all amounts due and payable
to the Certificate Insurer and the Trustee or (b) mutual consent of the Master
Servicer, the Certificate Insurer and all Certificateholders in writing;
provided, however, that in no event will the Trust Fund established by the
Pooling and Servicing Agreement terminate later than twenty-one years after the
death of the last surviving lineal descendant of the person named in the Pooling
and Servicing Agreement.
Subject to provisions in the Pooling and Servicing Agreement, the holder of
a majority percentage interest of the Class R Certificates or the Master
Servicer (or the Certificate Insurer, if is removed
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as Master Servicer) may, at its option and at its sole cost and expense, on any
Distribution Date when the aggregate Principal Balance of the Mortgage Loans is
less than % ( % with respect to the exercise of this option by the Master
Servicer or the Certificate Insurer) of the sum of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date and the aggregate principal
balance of the Subsequent Mortgage Loans as of the related Subsequent Cut-off
Date, purchase from the Trust Fund all of the outstanding Mortgage Loans at a
price equal to the sum of (a) 100% of the Principal Balance of each outstanding
Mortgage Loan, (b) the aggregate amount of accrued and unpaid interest on the
Mortgage Loans through the related Due Period and 30 days' accrued interest
thereon at a rate equal to the Mortgage Rate (net of the Servicing Fee Rate in
the case of such a purchase by the Master Servicer), (c) any unreimbursed
amounts due to the Certificate Insurer under the Pooling and Servicing Agreement
or the Insurance Agreement (as defined in the Pooling and Servicing Agreement),
(d) any excess of the actual stated principal balance of each such Mortgage Loan
over the Principal Balance thereof, the aggregate amount of accrued and unpaid
interest on such excess through the related due period and 30 days' interest on
such excess at a rate equal to the related Mortgage Interest Rate with respect
to each related Mortgage Loan and (e) any other unpaid or unreimbursed amounts
owed to the Master Servicer and not included in clauses (a) through (d) above.
Any such purchase shall be accomplished by deposit into the related Certificate
Account of the purchase price specified above. From the amount so deposited, the
Trustee shall reimburse the Master Servicer for the amount of any unpaid
Servicing Fees, unreimbursed Advances and unreimbursed servicing advances. No
such termination is permitted without the prior written consent of the
Certificate Insurer if it would result in a draw on the related Certificate
Insurance Policy. See "The Agreements -- Termination; Optional Termination" in
the Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Class A Certificates, ,
counsel to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the Trust Fund (exclusive of the Interest
Coverage Accounts and the Pre-Funding Accounts) will qualify as a REMIC under
the Code.
For federal income tax purposes, the Class A Certificates and the
Subordinate Certificates will represent ownership of "regular interests" in the
REMIC and will generally be treated as representing ownership of debt
instruments issued by the REMIC and the Class R Certificates will constitute the
sole class of "residual interests" in the REMIC. See "Federal Income Tax
Consequences -- Taxation of the REMICs and its Holders" in the Prospectus.
For federal income tax reporting purposes, the Class A Certificates will
not be treated as having been issued with original issue discount. The
prepayment assumption that will be used with respect to the Class A-1
Certificates and the Class A-2 Certificates in determining the rate of accrual
of original issue discount, market discount and premium, if any, for federal
income tax purposes will be based on the assumption that, subsequent to the date
of any determination the Mortgage Loans will prepay at a rate equal to a % CPR
and a % Prepayment Assumption, respectively. No representation is made that
the Mortgage Loans will prepay at this rate or at any other rate. See "Federal
Income Tax Consequences -- General -- Interest and Acquisition Discount" in the
Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations (the "OID
Regulations") under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the Class A Certificates should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
securities such as the Class A Certificates. In addition, there is considerable
uncertainty concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on an adjustable rate. Because of
the uncertainty concerning the application of Section 1272(a)(6) of the Code to
such Certificates and because the rules of the OID Regulations relating to debt
instruments having an adjustable rate of interest are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the IRS could assert that
the Class A Certificates are issued with original
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issue discount or should be governed by the rules applicable to debt instruments
having contingent payments or by some other method not yet set forth in
regulations. Prospective purchasers of the Class A Certificates are advised to
consult their tax advisors concerning the tax treatment of such Certificates.
A reasonable method of reporting original issue discount with respect to
the Class A Certificates if the IRS determines such Certificates are issued with
original issue discount generally would be to report all income with respect to
such Certificates as original issue discount for each period, computing such
original issue discount (i) by assuming that the value of the applicable index
will remain constant for purposes of determining the original yield to maturity
of, and projecting future distributions on, each Class of such Certificates,
thereby treating such Certificates as fixed rate instruments to which the
original issue discount computation rules described in the Prospectus can be
applied, and (ii) by accounting for any positive or negative variation in the
actual value of the applicable index in any period from its assumed value as a
current adjustment to original issue discount with respect to such period. See
"Federal Income Tax Consequences -- General -- Interest and Acquisition
Discount" in the Prospectus.
In certain circumstances the OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that the holder of a
Certificate may be able to select a method for recognizing original issue
discount that differs from that used in preparing reports to the
Certificateholders and the IRS.
The Class A Certificates may be treated for federal income tax purposes as
having been issued at a premium. Whether any holder of a Class A Certificate
will be treated as holding a certificate with amortizable bond premium will
depend on such Certificateholder's purchase price and the distributions
remaining to be made on such Certificate at the time of its acquisition by such
Certificateholder. Holders of the Class A Certificates should consult their tax
advisors regarding the possibility of making an election to amortize such
premium. See "Federal Income Tax Consequences -- General -- Premium" in the
Prospectus.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(5)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Class A Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code generally to the extent that such Class A
Certificates are treated as "real estate assets" under Section 856(c)(5)(A) of
the Code. To the extent the manufactured housing loans meet the requirements of
Section 25(e)(10) of the Code, the Class A Certificates will be treated as
assets described in the foregoing sections of the Code. Moreover, the Class A
Certificates will represent qualifying assets under Section 860G(a)(3) of the
Code if acquired by a REMIC within the time periods prescribed by the Code. See
"Servicing the Mortgage Loans -- Termination" herein and "Federal Income Tax
Consequences -- General -- Taxation of Debt Securities Status as Real Property
Loans" in the Prospectus.
The holders of the Residual Certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a Residual Certificate recognized by
a holder may be treated as "excess inclusion" income which, with limited
exceptions, is subject to U.S. federal income tax.
Prospective purchasers of a Residual Certificate should consider carefully
the tax consequences of an investment in Residual Certificates discussed in the
Prospectus and should consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Consequences -- Taxation on Holders of
Residual Interest Securities" in the Prospectus. Specifically, prospective
holders of Residual Certificates should consult their tax advisors regarding
whether, at the time of acquisition, a Residual Certificate will be treated as a
"noneconomic" residual interest, a "non-significant value" residual interest and
a "tax avoidance potential" residual interest. See "Federal Income Tax
Consequences -- Taxation of Holders of Residual Interest Securities" in the
Prospectus. Additionally, for information regarding Prohibited Transactions and
Treatment of Realized Losses, see "Federal Income Tax Consequences" in the
Prospectus.
For further information regarding federal income tax consequences of
investing in the Class A Certificates, see "Federal Income Tax Consequences" in
the Prospectus.
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<PAGE> 210
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated , 199 (the "Underwriting Agreement"),
between the Depositor and the Underwriter, an affiliate of the Depositor, the
Depositor has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase from the Depositor all the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates offered
hereby if any of the Certificates are purchased.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public in Europe and the United
States and to certain dealers at such price less a discount not in excess of
% of the Certificate denominations. The Underwriter may allow and such
dealers may reallow a discount not in excess of % of the Certificate
denominations to certain other dealers. After the initial public offering, the
public offering price, such concessions and such discounts may be changed.
The distribution of the Certificates by the Underwriter will be effected
from time to time in one or more negotiated transactions or otherwise at varying
prices to be determined, in each case, at the time of sale. The Underwriter may
effect such transactions by selling the Certificates to or through dealers, and
such dealers may receive from the Underwriter compensation in the form of
underwriting discounts, concessions or commissions. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the
Certificates may be deemed to be underwriters, and any discounts, commissions or
concessions received by them, and any profit on the resale of the Certificates
purchased by them, may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Act").
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Act.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
, will pass upon certain legal matters
on behalf of the Underwriter.
RATINGS
It is a condition to the issuance of the Class A Certificates that they be
rated " " by (" "), " " by (" ") and
" " by (" " and, together with and ,
the "Rating Agencies").
The ratings assigned by the Rating Agencies to mortgage pass-through
certificates address the likelihood of the receipt of all distributions on the
mortgage loans by the related certificateholders under the agreements pursuant
to which such certificates are issued. The Rating Agencies' ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on the mortgage pool is
adequate to make the payments required by such certificates. The Rating
Agencies' ratings on such certificates do not, however, constitute a statement
regarding frequency of payments of the mortgage loans.
The ratings of the Rating Agencies do not address the possibility that, as
a result of principal prepayments, Certificateholders may receive a lower than
anticipated yield.
The security ratings assigned to the Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Certificates by any rating
agency other than the Rating Agencies; there can be no assurance, however, as to
whether any other rating agency will rate the Certificates
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or, if it does, what rating would be assigned by such other rating agency. The
rating assigned by such other rating agency to the Certificates could be lower
than the respective ratings assigned by the Rating Agencies.
LEGAL INVESTMENT
The Class A-1 Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
for so long as they are rated in at least the second highest rating category by
one or more nationally recognized statistical rating agencies, and, as such, are
legal investments for certain entities to the extent provided in SMMEA. SMMEA
provides, however, that states could override its provision on legal investment
and restrict or condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991. The Class A-2 Certificates will
not constitute "mortgage related securities" for purposes of SMMEA because the
Group II Loans include Mortgage Loans that are secured by subordinate liens on
the related Mortgaged Properties.
The Depositor makes no representations as to the proper characterization of
the Class A Certificates for legal investment or other purposes, or as to the
ability of particular investors to purchase the Class A Certificates under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Class A Certificates. Accordingly, all institutions
whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their legal advisors in determining whether and to what
extent the Class A Certificates constitutes a legal investment or is subject to
investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts in which such plans
or arrangements are invested (all of which are hereinafter referred to as a
"Plan"). Generally, ERISA applies to investments made by Plans. Among other
things, ERISA requires that the assets of Plans be held in trust and that the
trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant).
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Certificates should determine whether such an investment is permitted under the
governing Plan instruments and is prudent and appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. More generally, any Plan fiduciary which proposes to cause a Plan to
acquire any of the Certificates or any other person proposing to use the assets
of a Plan to acquire any of the Certificates should consult with its counsel
with respect to the potential consequences under ERISA and the Code (including
under the prohibited transactions rules described below) of the acquisition and
ownership of such Certificates.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below, subject
to other applicable federal and state law. However, any such governmental or
church plan which is qualified under section 401(a) of the Code and exempt from
taxation under section 501(a) of the Code is subject to the prohibited
transaction rules set forth in section 503 of the Code.
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<PAGE> 212
PROHIBITED TRANSACTIONS
General
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" (within
the meaning of the Code) and "parties in interest" (within the meaning of ERISA,
collectively "Parties in Interest") who have certain specified relationships to
the Plan, unless an exemption applies (see below). Therefore, a Plan fiduciary
or any other person using the assets of a Plan considering an investment in the
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code, or whether there
is an applicable exemption.
PLAN ASSET REGULATION
The United States Department of Labor ("DOL") has issued final regulations
defining the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (29 C.F.R. sec. 2510.3-101, the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan acquires
an "equity interest" in an entity that is neither a "publicly-offered security"
(defined as a security which is widely held, freely transferable and registered
under the Securities Exchange Act of 1934, as amended) nor a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended, the assets of the entity will be treated as assets of the Plan unless
certain exceptions apply. If the Certificates were deemed to be equity interests
and no statutory, regulatory or administrative exemption applies, the Trust Fund
could be considered to hold plan assets by reason of a Plan's investment in the
Certificates. Such plan assets would include an undivided interest in any assets
held by the Trust Fund. In such an event, the Trustee and other persons, in
providing services with respect to the Trust Fund's assets, may be Parties in
Interest with respect to such Plans, subject to the fiduciary responsibility
provisions of ERISA, including the prohibited transaction provisions with
respect to transactions involving the Trust Fund's assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, the
DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
THE UNDERWRITER'S EXEMPTION
The DOL has granted to Morgan Stanley & Co. Incorporated ("Morgan Stanley")
an administrative exemption (Prohibited Transaction Exemption 90-24, 55 Fed.
Reg. 20,548 (1990) (the "Exemption") from certain of the prohibited transaction
rules of ERISA and the related excise tax provisions of Section 4975 of the Code
with respect to the initial purchase, the holding and the subsequent resale by
Plans of certificates in pass-through trusts that consist of certain
receivables, loans, and other obligations that meet the conditions and
requirements of the Exemption. Morgan Stanley believes that the Exemption will
[not] apply to the acquisition and holding of [Class A Certificates] by Plans.
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<PAGE> 213
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the [Class A Certificates] by a Plan is on
terms (including the price for such [Class A 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 the [Class A Certificates]
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust Fund;
(3) the [Class A 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 one of Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc.
("Duff & Phelps") or Fitch Investors Service, L.P. ("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 the [Class A Certificates] represents
not more than reasonable compensation for underwriting such [Class A
Certificates]; the sum of all payments made to and retained by the
Depositor pursuant to the assignment of the [Mortgage Loans] to the Trust
Fund represents not more than the fair market value of such [Mortgage
Loans]; the sum of all payments made to and retained by the Master Servicer
and any other servicer represents not more than reasonable compensation for
such person's services under the Pooling and Servicing Agreement and
reimbursements of such person's reasonable expenses in connection
therewith; and
(6) the Plan investing in the [Class A Certificates] is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consists solely of assets of
the type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment
pools must have been rated in one of the three highest rating categories
of S&P, Moody's, Fitch or Duff & Phelps for at least one year prior to
the Plan's acquisition of the [Class A 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 [Class A
Certificates].
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations or receivables contained in the trust; (ii) the Plan is not a plan
with respect to which any member of the Restricted Group (as defined below) is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA); (iii) in the case
of an acquisition in connection with the initial issuance of certificates, at
least fifty percent of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group (as defined below)
and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) 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 (v) immediately after the acquisition, no more than twenty-five
percent of the assets of the Plan with respect to which such person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Seller, the
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Depositor, the Underwriter, the Trustee, the Master Servicer, [the Certificate
Insurer,] any obligor with respect to Mortgage Loans included in the Trust Fund
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of any of such parties
(the "Restricted Group").
The Exemption may apply to the acquisition, holding and transfer of the
[Class A Certificates] by Plans if all of the conditions of the Exemption are
met, including those within the control of the investor. [Notwithstanding any of
the foregoing, the Exemption will not apply with respect to any [Class A
Certificates] until such time as the balance of the related Pre-Funding Account
is reduced to zero. Accordingly, until such time, the [Class A Certificates] may
not be purchased by Plans pursuant to the Exemption.] As of the date hereof,
there is no single [Mortgage Loan] included in the Trust Fund that constitutes
more than five percent of the aggregate unamortized principal balance of the
assets of the Trust Fund.
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult with their legal
advisors with respect to the applicability of Prohibited Transaction Class
Exemption ("PTE") 95-60, regarding transactions by insurance company general
accounts. In addition to any exemption that may be available under PTE 95-60 for
the purchase and holding of Certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the Code, for
transactions involving an insurance company general account. Pursuant to Section
401(c) of ERISA, the DOL is required to issue final regulations ("401(c)
Regulations") no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute plan assets, unless (i) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (ii)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as plan assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Certificates should consult with their legal counsel with
respect to the applicability of Section 401(c) of ERISA, including the general
account's ability to continue to hold the Certificates after the date which is
18 months after the date the 401(c) Regulations become final.
EXPERTS
The consolidated financial statements of the Certificate Insurer and its
subsidiaries as of , 199 and , 199 and for the three
years ended , 199 , incorporated by reference into this Prospectus
Supplement, have been audited by , independent accountants, as set
forth in their report thereon incorporated by reference herein in reliance upon
the authority of such firm as experts in accounting and auditing.
S-57
<PAGE> 215
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------- -----------
<S> <C>
401(c) Regulations.............................................................. S-57
Accrual Period.................................................................. S-37
Act............................................................................. S-53
Adjustment Date................................................................. S-8, 22
Advances........................................................................ S-14
Available Funds................................................................. S-34
Beneficial owner................................................................ S-34
Book Entry Certificates......................................................... S-6, 33
Business Day.................................................................... S-42
CEDE............................................................................ S-34
Cedel........................................................................... S-6
Certificate Insurance Policies.................................................. S-1, 10
Certificate Insurer............................................................. S-1, 10, 13
Certificate Insurer's Fiscal Agent.............................................. S-41
Certificate Owner............................................................... S-6
Certificates.................................................................... S-1, 33
Citibank........................................................................ S-6
Class A Certificates............................................................ S-1, 33
Class A Interest Distribution Amount............................................ S-11, 37
Class A Principal Distribution Amount........................................... S-12, 39
Class A-1 Certificates.......................................................... S-33
Class A-1 Formula Pass Through Rate............................................. S-10
Class A-2 Certificates.......................................................... S-33
Code............................................................................ S-15
CPR............................................................................. S-45
Cross-Collateralized Subordination Shortfall.................................... S-13, 36
Cross-Collateralization Payment................................................. S-36
Cross-Collateralized Payment.................................................... S-13
Cross-Collateralized Subordination Shortfall.................................... S-13, 36
Definitive Certificate.......................................................... S-6, 33
Delinquent Mortgage Loans....................................................... S-7
Depositor....................................................................... S-2, 6
Depository...................................................................... S-33
Distribution Date............................................................... S-2, 33
DOL............................................................................. S-55
DTC............................................................................. S-6, 33
Due Period...................................................................... S-35
ERISA........................................................................... S-16, 54
Euroclear....................................................................... S-6
Excess Subordinated Amount...................................................... S-35
Exemption....................................................................... S-55
Fitch........................................................................... S-56
Funding Period.................................................................. S-31
Gross Margin.................................................................... S-22
Group I Class A Available Funds Pass-Through Rate............................... S-10, 37
Group I Class A Available Funds Cap Carry Forward Amount........................ S-11, 38
</TABLE>
S-58
<PAGE> 216
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------- -----------
<S> <C>
Group I Class A Carry-Forward Amount............................................ S-37
Group I Interest Coverage Account............................................... S-43
Group I Loans................................................................... S-2, 7, 21
Group I Original Pre-Funded Amount.............................................. S-8
Group I Subordinate Certificates................................................ S-1, 33
Group I Subsequent Mortgage Loans............................................... S-8
Group II Class A Carry-Forward Amount........................................... S-38
Group II Interest Coverage Account.............................................. S-43
Group II Loans.................................................................. S-2, 7, 21
Group II Original Pre-Funded Amount............................................. S-8
Group II Subordinate Certificates............................................... S-1, 33
Group II Subsequent Mortgage Loans.............................................. S-8
Initial Group I Loans........................................................... S-21
Initial Group II Loans.......................................................... S-21
Insured Distribution Amount..................................................... S-37
Insured Payment................................................................. S-13, 42
Interest Coverage Accounts...................................................... S-43
Interest Determination Date..................................................... S-39
IRS............................................................................. S-51
LIBOR Business Day.............................................................. S-39
Lifetime Rate Caps.............................................................. S-22
Lifetime Rate Floors............................................................ S-22
Liquidated Loan Loss............................................................ S-35
Liquidated Mortgage Loan........................................................ S-35
Loan Group...................................................................... S-2, 7, 21
Loan Group I.................................................................... S-21
Loan Group II................................................................... S-21
Master Servicer................................................................. S-6
Master Servicer Remittance Date................................................. S-40
Morgan Guaranty................................................................. S-6
Morgan Stanley.................................................................. S-55
Mortgage Loans.................................................................. S-2, 7
Mortgage Rate................................................................... S-2
Mortgaged Property.............................................................. S-7
Net Monthly Excess Cashflow..................................................... S-34
Non-conforming credit........................................................... S-18
Notice.......................................................................... S-42
OID Regulations................................................................. S-51
One Year CMT.................................................................... S-2, 9, 22
Original Group I Pre-Funded Amount.............................................. S-31
Original Group II Pre-Funded Amount............................................. S-31
Original Pre-funded Amounts..................................................... S-9
Owner........................................................................... S-42
Parties in Interest............................................................. S-55
Periodic Rate Cap............................................................... S-22
Plan............................................................................ S-54
Plan Asset Regulation........................................................... S-55
Pooling and Servicing Agreement................................................. S-9
</TABLE>
S-59
<PAGE> 217
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------- -----------
<S> <C>
Pre-Funded Account.............................................................. S-31
Pre-Funded Amount............................................................... S-9, 31
Premium Amount.................................................................. S-39
Prepayment Assumption........................................................... S-45
Prepayment Interest Excess...................................................... S-50
PTE............................................................................. S-57
Rating Agencies................................................................. S-53
Record Date..................................................................... S-33
Reimbursement Amount............................................................ S-36
REMIC........................................................................... S-2, 15
Residual Certificates........................................................... S-1, 33
Restricted Group................................................................ S-57
Seller.......................................................................... S-6, 18
Servicing Fee................................................................... S-50
Six-Month LIBOR................................................................. S-2, 9, 22
SMMEA........................................................................... S-16, 54
Subordinate Certificates........................................................ S-1, 33
Subsequent Cut-off-Date......................................................... S-31
Subsequent Mortgage Loans....................................................... S-21, 30
Subsequent Transfer Dates....................................................... S-30
Subsequent Transfer Instruments................................................. S-30
Trust Fund...................................................................... S-2, 9
Trustee......................................................................... S-6
Underwriter..................................................................... S-1
Underwriting Agreement.......................................................... S-53
Weighted average life........................................................... S-45
</TABLE>
S-60
<PAGE> 218
APPENDIX A
UNDERWRITING GUIDELINES APPLICABLE TO THE MORTGAGE LOANS
[Description will depend on the Seller and the particulars of the Mortgage
Loans]
The Mortgage Loans were originated by the Seller under its "Standard
Non-Conforming Program" applicable to residential loans which, for credit
reasons, do not conform to FNMA or FHLMC underwriting guidelines.
THE STANDARD NON-CONFORMING PROGRAM
The Mortgage Loans underwritten under the Standard Non-Conforming Program
were underwritten in accordance with the underwriting criteria of the Seller.
The Seller's underwriting standards under the Standard Non-Conforming
Program are primarily intended to assess creditworthiness of the mortgagor, the
value of the mortgaged property and to evaluate the adequacy of such property as
collateral for the mortgage loan. While their primary consideration in
underwriting a mortgage loan is the mortgagor's employment stability and
debt-to-income ratio, the value of the mortgaged property relative to the amount
of the mortgage loan is another critical factor. In addition, they also
consider, among other things, a mortgagor's credit history and repayment
ability, as well as the type and use of the mortgaged property. All of the
Mortgage Loans underwritten under this program are adjustable rate loans, and
generally bear higher rates of interest than mortgage loans that are originated
in accordance with FNMA and FHLMC standards.
The Mortgage Loans underwritten under the Standard Non-Conforming Program
were underwritten pursuant to the "Non-Conforming Full Documentation,"
"Non-Conforming Alternative Documentation" and "Non-Conforming No-Income
Qualifier" residential loan programs. Under each of these programs, the Seller
reviews the loan applicant's source of income, calculates the amount of income
from sources indicated on the loan application or similar documentation, reviews
the credit history of the applicant, calculates the debt service-to-income ratio
to determine the applicant's ability to repay the loan, reviews the type and use
of the property being financed and reviews the property for compliance with
their standards. In determining the ability of the applicant to repay the
Mortgage Loan, the Seller uses a rate (the "Qualifying Rate") which generally is
a rate equal to the Mortgage Rate at origination plus the amount of the Periodic
Cap. The Seller's underwriting standards are applied in a standardized procedure
which complies with applicable federal and state laws and regulations.
The Seller's criteria require it to verify the income of each borrower and
the source of funds (if any) required to be deposited by the applicant into
escrow under its various programs. Borrowers are generally required to submit
written verification of income signed by the employer covering the most recent
two-year period, together with a current paystub and two years' W-2 forms. Under
the Non-Conforming Alternative Documentation program, borrowers are generally
required to submit two years' W-2 Forms and the most recent paystub showing
year-to-date earnings. A telephone confirmation of employment is made regardless
of the origination program. Under the Non-Conforming No-Income Qualifier
program, borrowers may be qualified based upon monthly income as stated on the
mortgage loan application, without verification; however, self-employed
borrowers are required to submit a business license, one year's bank statements
and a current profit and loss statement. A business credit report, if
applicable, is obtained. Verification of the source of funds (if any) required
to be deposited by the applicant into escrow is generally required under all
documentation programs in the form of a standard verification of deposit or two
months' consecutive bank statements or other acceptable documentation. Twelve
months' mortgage payment or rental history must be verified by lender or
landlord. If appropriate compensating factors exist, the Seller may waive
certain documentation requirements for individual borrowers. All documentation
must be no more than 90 days old at underwriting and no more than 120 days old
at the time of the funding of the related loan.
A-1
<PAGE> 219
The Seller uses the following categories and characteristics as guidelines
to grade the potential likelihood that the mortgagor will satisfy the repayment
conditions of a mortgage loan:
"A-" Risk. Under the "A-" risk category, the prospective mortgagor must
have generally repaid installment or revolving debt according to its terms with
a maximum of three 30-day late payments within the last 12 months or five 30-day
late payments or two 60-day late payments within the last 24 months. Within this
24 month period, however, a maximum of one 30-day late payment, and no 60-day
late payments are acceptable in the last 12 months, or a maximum of two 30-day
late payments, and no 60-day late payments, within the last 24 months are
acceptable on an existing mortgage loan on the subject property. The existing
mortgage obligation must be current. Minor derogatory items are allowed as to
non-mortgage credit. No collection accounts or charge-offs or judgments over
$ within the last five years are allowed. No bankruptcy or notice of
default filings by the borrower may have occurred during the preceding five
years. A maximum Loan-to-Value Ratio of up to % (or % for mortgage
loans originated under the Non-Conforming No-Income Qualifier program, but
% if the borrower is self-employed) is permitted for a mortgage loan on a
single family owner-occupied property. A maximum Loan-to-Value Ratio of %
(or % for mortgage loans originated under the Non-Conforming No-Income
Qualifier program but % if the borrower is self-employed) is permitted for
a mortgage loan on a non-owner occupied property or a second home property. The
debt service-to-income ratio generally is % or less based on the Qualifying
Rate. The maximum loan amount is $ for single-family owner-occupied
properties, regardless of the documentation program. Exceptions to the maximum
loan amount for single-family, owner occupied properties are considered by the
Seller on a limited basis. The maximum loan amount is $ (or $
for mortgage loans originated under the Non-Conforming No-Income Qualifier
Program) for mortgage loans on single-family non-owner-occupied properties or
second homes.
"A" Risk. Under the "A" risk category, the prospective mortgagor must have
generally repaid installment or revolving debt according to its terms with a
maximum of five 30-day late payments or two 60-day late payments on such
obligations within the last 12 months. A maximum of two 30-day payments, and no
60-day late payments, within the last 12 months is acceptable on an existing
mortgage loan on the subject property. The existing mortgage obligation must be
current. Minor derogatory items are allowed as to non-mortgage credit. No unpaid
collection accounts, charge-offs or judgments over $ within the last
two years are allowed. No bankruptcy or notice of default filings by the
borrower may have occurred during the preceding two years. A maximum
Loan-to-Value Ratio of up to % (or % for mortgage loans originated
under the Non-Conforming No-Income Qualifier program, but % if the borrower
is self-employed) is permitted for a mortgage loan on a single family
owner-occupied property. A maximum Loan-to-Value Ratio of up to % (or
% for mortgage loans originated under the Non-Conforming No-Income
Qualifier program) is permitted for a mortgage loan on a non-owner occupied
property or a second home. The debt service-to-income ratio generally is %
or less based on the Qualifying Rate. The maximum loan amount is $ for
single-family owner-occupied properties, under the Non-Conforming Full
Documentation Program. Exceptions to the maximum loan amount for single-family,
owner occupied properties are considered by the Seller on a limited basis. The
maximum loan amount is $ for mortgage loans on single-family
owner-occupied properties under the Non-Conforming No-Income Qualifier Program.
The maximum loan amount is $ (or $ for mortgage loans
originated under the Non-Conforming No-income Qualifier Program) for mortgage
loans on a single-family non-owner-occupied properties or second homes. Loan
applicants with less favorable credit ratings generally are offered loans with
higher interests rates and lower Loan-to-Value ratios than applicants with more
favorable ratings.
"B" Risk. Under the "B" risk category, the prospective mortgagor must have
generally repaid consumer debt according to its terms, with a maximum of eight
30-day late payments or four 60-day late payments or two 90-day late payments on
such obligations within the last 12 months. A maximum of four 30-day late
payment, or three 30-day late payments and one 60-day late payment, within the
last 12 months is acceptable on an existing mortgage loan on the subject
property. The existing mortgage obligation must be current. As to non-mortgage
credit, some prior defaults may have occurred. Isolated and insignificant
collections and/or charge-offs and judgments within the last 18 months,
totalling less than $ are acceptable. No bankruptcy or notice of
default filings by the borrower may have occurred during the preceding 18
months. A
A-2
<PAGE> 220
maximum Loan-to-Value Ratio of % (or % for mortgage loans originated
under the Non-Conforming No-Income Qualifier program, but % if the borrower
is self-employed) is permitted for a mortgage loan on a single family,
owner-occupied property. A maximum Loan-to-Value Ratio of % (or % for
mortgage loans originated under the NonConforming No-Income Qualifier Program)
is permitted for a mortgage loan on a non-owner occupied property or a second
home. The debt service-to-income ratio generally is % or less based on the
Qualifying Rate. The maximum loan amount is $ for single-family
owner-occupied properties, under the Non-Conforming Full Documentation Program.
The maximum loan amount is $ (or $ for mortgage loans
originated under the Non-Conforming No-Income Qualifier Program) for mortgage
loans on a non-owner-occupied property or a second home.
"C" Risk. Under the "C" risk category, the prospective mortgagor may have
experienced significant credit problems in the past. A maximum of twelve 30-day
late payments or six 60-day late payments, or four 90-day late payments, on
consumer debt within the last twelve months is acceptable. A maximum of five
30-day late payments or three 30-day late payments and two 60-day late payments
or three 30-day late payments and one 90-day late payment, within the last 12
months is acceptable on an existing mortgage loan on the subject property. The
existing mortgage obligation can be up to 40 days past due at the funding of the
loan. As to non-mortgage credit, significant prior defaults may have occurred.
There may be open collections or charge-offs not to exceed $ and up to
$ in isolated circumstances. No bankruptcy or notice of default filings
by the borrower may have occurred during the preceding year. A maximum Loan-to-
Value Ratio of % (or % for mortgage loans originated under the
Non-Conforming No-Income Qualifier Program, but % if the borrower is
self-employed) is permitted for a mortgage loan on a single-family
owner-occupied property. A maximum Loan-to-Value Ratio of % (or % for
mortgage loans originated under the Non-Conforming No-Income Qualifier Program,
but % if the borrower is self-employed) is permitted for a mortgage loan on
a non-owner-occupied property or a second home. The debt service-to-income ratio
is generally % or less based on the Qualifying Rate. The maximum loan
amount is $ (or $ for mortgage loans originated under the
Non-Conforming No-Income Qualifier Program) for mortgage loans on single-family
owner-occupied properties. The maximum loan amount is $ (or $
for mortgage loans originated under the Non-Conforming No-Income Qualifier
Program) for mortgage loans on nonowner-occupied properties or second homes.
"CX" Risk. Under the "CX" risk category, the prospective mortgagor may
have experienced significant credit problems in the past. As to non-mortgage
credit, significant prior defaults may have occurred. The borrower is sporadic
in some or all areas with a disregard for timely payment or credit standing.
With respect to an existing mortgage loan on the subject property, no payment
can be more than 90 days past due. Such existing mortgage loan is not required
to be current at the time the application is submitted. The borrower may have
open collections, charge-offs and judgments, all of which must be paid prior to
the funding of the loan, but such items must be paid through the loan proceeds.
No bankruptcy or notice of default filings by the borrower may have occurred
during the preceding six months. A maximum Loan-to-Value Ratio of % (or
% or % for mortgage loans originated under the Non-Conforming
No-Income Qualifier Program, depending on whether the borrower is self-employed)
is permitted for a mortgage loan on a single-family owner-occupied property. No
mortgage loans on non-owner-occupied property or second homes are made in the
"CX" risk category. The maximum loan amount is $ under the
Non-Conforming Full Documentation Program or $ (or $ in the
case of borrowers who are self-employed) under the Non-Conforming No-Income
Qualifier Program. The debt service-to-income ratio generally is % or less
based on the Qualifying Rate.
"D" Risk. Under the "D" risk category, the prospective mortgagor may have
experienced significant credit problems in the past. As to non-mortgage credit,
significant prior defaults may have occurred. The borrower is sporadic in some
or all areas with a general disregard for timely payment or credit standing.
With respect to an existing mortgage loan on the subject property, no payment
can be more than 120 days past due. Such existing mortgage loan is not required
to be current at the time the application is submitted. The borrower may have
open collections, charge-offs and judgments, all of which must be paid
simultaneously with the funding of the loan. No current bankruptcy filings by
the borrower are allowed. Borrowers who are in foreclosure are considered. A
maximum Loan-to-Value Ratio of % (or % for mortgage loans
A-3
<PAGE> 221
originated under the Non-Conforming No-Income Qualifier Program, but % if
the borrower is self-employed) is permitted for a mortgage loan in a
single-family owner-occupied property. No mortgage loans on a non-owner-occupied
property or a second home are made in the "D" risk category. The maximum loan
amount is $ under the Non-Conforming No-Income Qualifier Program, but
$ if the borrower is self-employed) for mortgage loans on a
nonowner-occupied property or a second home. The debt service-to-income ratio is
% or less based on the Qualifying Rate.
Exceptions. As described above, the Seller uses the foregoing categories
and characteristics as underwriting guidelines only. On a case-by-case basis, it
may determine that the prospective mortgagor warrants a risk category upgrade, a
debt service-to-income ratio exception, a pricing exception, a loan-to-value
exception or an exception from certain requirements of a particular risk
category (collectively called an "upgrade" or an "exception"). An upgrade or
exception may generally be allowed if the application reflects certain
compensating factors, among others: low loan-to-value ratio; pride of ownership;
a maximum of one 30-day late payment on all mortgage loans during the last 12
months; stable employment, and the length of residence in the subject property.
Accordingly, they may classify certain mortgage loan applications in a more
favorable risk category than other mortgage loan applications that, in the
absence of such compensating factors, would satisfy only the criteria of a less
favorable risk category.
A-4
<PAGE> 222
INFORMATION CONTAINED HEREON IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, dated April 29, 1997
PROSPECTUS SUPPLEMENT (To Prospectus Supplement dated , 199
and Prospectus dated , 199 )
[ ] Trust, Series 199
[Home Equity Loan Asset Backed Certificates, Series 199 ]
[Home Equity Loan Asset Backed Notes, Series 199 ]
[Home Equity Loan Asset Backed Certificates, Series 199 ]
[Mortgage Loan Asset-Backed Pass Through Certificates, Series 199 ]
Morgan Stanley ABS Capital I Inc.
DEPOSITOR
[ ]
MASTER SERVICER
------------------------
The Prospectus dated , 199 and the Prospectus Supplement dated
, 199 are hereby amended and supplemented as indicated below. Terms
used herein and not otherwise defined have the meanings given them in the
Prospectus and Prospectus Supplement.
This Supplement reflects the issuance on , 199 of
in an original principal amount of $ [and
in an original principal amount of $ ].
Because this Supplement is to be used in connection with offers and sales
related to market-making transactions in the [Certificates] [Securities]
[Underwritten Certificates] [Class A Certificates], the following portions of
the Prospectus Supplement and Prospectus do not apply and are deemed deleted
from such documents to the extent they are used for market-making transactions:
(a) the sentence[s] on [the cover page] [page S-2] of the Prospectus
Supplement stating that ["[t]here can be no assurance that a secondary
market for the Certificates will develop or, if it does develop, that it
will continue".] ["[t]here is currently no market for the Securities offered
hereby and there can be no assurance that such a market will develop or if
it does develop that it will continue."] ["[t]here is currently no secondary
market for the Offered Certificates and there can be no assurance that such
a market will develop or, if it does develop, that it will continue or that
it will provide Certificateholders with a sufficient level of liquidity of
investment."] ["[t]here is no secondary market for the Class A Certificates.
There can be no assurance that a secondary market for the Class A
Certificates will develop or, if it does develop, that it will continue."]
(Continued on next page)
------------------------
This Supplement to the Prospectus and Prospectus Supplement is to be used by
Morgan Stanley & Co. Incorporated in connection with offers and sales from time
to time related to market-making transactions in the [Certificates] [Securities]
[Underwritten Certificates] [Class A Certificates] in which Morgan Stanley & Co.
Incorporated acts as principal. Morgan Stanley & Co. Incorporated also may act
as agent in such transactions. Sales will be made at negotiated prices
determined at the time of sale. Certain information with respect to the
Prospectus and Prospectus Supplement will be updated periodically by an
incorporation by reference of filings made by the Depositor on behalf of the
Trust Fund pursuant to the Securities and Exchange Act of 1934, as amended. See
"Available Information" herein.
------------------------
MORGAN STANLEY & CO.
Incorporated
, 199 .
<PAGE> 223
(b) [the pricing table and related footnotes on the cover page of the
Prospectus Supplement] [the sentence on the front cover page of the
Prospectus Supplement with respect to the purchase of the [Securities]
[Underwritten Certificates] [Class A Certificates] by [Morgan Stanley & Co.
Incorporated] [the Underwriters] from the Depositor and the offering
thereof] and [the sentence on the front cover page of the Prospectus
Supplement with respect to the proceeds to the Depositor from the sale of
the [Notes and Certificates] [Underwritten Certificates] [Class A
Certificates];
(c) the [paragraph] [sentences] with respect to delivery of the
[Certificates] [Securities and Notes] [Underwritten Senior Certificates and
Class A-R Certificates] [Class A Certificates] on the cover page of the
Prospectus Supplement;
[(d) the paragraph with respect to stabilization activities of Morgan
Stanley & Co. Incorporated on page S-2 of the Prospectus Supplement;]
(e) the "Underwriting" section of the prospectus Supplement; and
(f) the "Use of Proceeds" section of the Prospectus.
METHOD OF DISTRIBUTION
The "Method of Distribution" section of the Prospectus is replaced with
the following:
This Supplement is to be used by Morgan Stanley & Co. Incorporated in
connection with offers and sales from time to time related to market-making
transactions in the Securities in which Morgan Stanley & Co. Incorporated acts
as principal. Morgan Stanley & Co. Incorporated also may act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale. Morgan Stanley & Co. Incorporated has no obligation to make a market in
the Securities and may discontinue its market-making activities at any time
without notice, in its sole discretion. There is no assurance that any secondary
market will develop or, that if such market develops, that it will continue.
AVAILABLE INFORMATION
The last sentence of the third paragraph under the "Available
Information" section of the Prospectus is deemed deleted and the following
paragraph is added immediately after such third paragraph:
The Trust Fund is subject to the informational requirements of
the Securities and Exchange Act of 1934, as amended, and, in
accordance therewith, the Depositor, on behalf of the Trust Fund,
files reports and other information with the Securities and
Exchange Commission. Such reports filed by the Depositor on behalf
of the Trust Fund are available for inspection without charge at
the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; 7 World Trade Center, Suite 1300 New York,
New York 10048; and the Midwest Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. Such reports
and other documents may also be obtained from the web site that
the Securities and Exchange Commission maintains at
http://www.sec.gov. Such reports and other information are hereby
incorporated by reference in this Supplement. The information
provided in the monthly reports to Securityholders will be
included in such reports, which will include, but are not limited
to, information relating to the principal and interest distributed
to Securityholders on the most recent Distribution Date, the
amount of any Advance, the outstanding principal balance or
notional amounts of each class of the related Series, the
percentage of principal payments and Principal Payments on the
Loans, the amount of servicing compensation retained by Master
Servicer, the delinquency status of the Loans, the book value of
any real estate acquired through foreclosure or grant of a deed in
lieu of foreclosure,and certain Pass-Through Rates or interest
rates. See "Description of the Securities -- Reports to
Securityholders" in the Prospectus.
<PAGE> 224
INFORMATION CONTAINED HEREON IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, dated April 29, 1997
PROSPECTUS
Morgan Stanley ABS Capital I Inc.
DEPOSITOR
$1,000,000
(AGGREGATE AMOUNT)
ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
------------------------
This Prospectus relates to the issuance of Asset Backed Certificates (the
"Certificates") and Asset Backed Notes (the "Notes" and, together with the
Certificates, the "Securities"), which may be sold from time to time in one or
more series (each, a "Series") by Morgan Stanley ABS Capital I Inc. (the
"Depositor") or by a Trust Fund (as defined below) on terms determined at the
time of sale and described in this Prospectus and the related Prospectus
Supplement. The Securities of a Series will consist of Certificates which
evidence beneficial ownership of a trust established by the Depositor (each, a
"Trust Fund"), and/or Notes secured by the assets of a Trust Fund. As specified
in the related Prospectus Supplement, the Trust Fund for a Series of Securities
will include assets (the "Trust Fund Assets") which will consist of: (a) single
family mortgage loans (the "Loans"), including (i) mortgage loans secured by
first, second and/or more subordinate liens on one- to four-family residential
properties, (ii) closed-end and/or more revolving home equity loan (the "Home
Equity Loans") secured by first, second and/or more subordinate liens on one- to
four-family residential properties, (iii) home improvement installment sale
contracts and installment loan agreements (the "Home Improvement Contracts")
that are either unsecured or secured by first, second and/or more subordinate
liens on one- to four-family residential properties, or by purchase money
security interests in the home improvements financed thereby (the "Home
Improvements"), including loans insured under the FHA Title I Credit Insurance
program administered pursuant to the National Housing Act of 1934, and (iv)
manufactured housing installment sales contracts and installment loan agreements
(the "Manufactured Housing Contracts," and together with the Home Improvement
Contracts, the "Contracts") secured by first, second and/or more subordinate
liens on Manufactured Homes (as defined herein) or by mortgages on real estate
on which the related Manufactured Homes are located; (b) mortgage-backed
securities issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC") (the "Agency Securities"); (c) privately
issued mortgage-backed securities ("Private Mortgage-Backed Securities" or
"PMBS"); and (d) all monies due thereunder net, if and as provided in the
related Prospectus Supplement, of certain amounts payable to the servicer of the
Loans, Agency Securities or Private Mortgage-Backed Securities. The Trust Fund
Assets will be acquired by the Depositor, either directly or indirectly, from
one or more institutions (each, a "Seller"), which may be affiliates of the
Depositor, and conveyed by the Depositor to the related Trust Fund. A Trust Fund
may include a number of different types and concentrations of Trust Fund Assets
to the extent described in the related Prospectus Supplement. A Trust Fund also
may include insurance policies, surety bonds, cash accounts, reinvestment
income, guaranties or letters of credit to the extent described in the related
Prospectus Supplement. See "Index of Defined Terms" on page 119 of this
Prospectus for the location of the definitions of certain capitalized terms.
------------------------
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES,
SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 17.
------------------------
THE CERTIFICATES OF A GIVEN SERIES WILL REPRESENT BENEFICIAL INTERESTS IN, AND
THE NOTES OF A GIVEN SERIES WILL REPRESENT OBLIGATIONS OF, THE RELATED TRUST
FUND ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR,
MORGAN STANLEY & CO. INCORPORATED, THE MASTER SERVICER, ANY SELLER OR ANY
AFFILIATES THEREOF, EXCEPT TO THE EXTENT DESCRIBED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE SECURITIES AND THE LOANS WILL NOT BE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR OR ANY OTHER
PERSON OR ENTITY, EXCEPT IN EACH CASE TO THE EXTENT DESCRIBED IN THE RELATED
PROSPECTUS SUPPLEMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prior to issuance there will have been no market for the Securities of any
Series and there can be no assurance
that a secondary market for any Securities will develop, or if it does develop,
that it will continue or provide Securityholders with a sufficient level of
liquidity of investment.
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by Morgan Stanley & Co. Incorporated ("Morgan Stanley")
and the other underwriters set forth in the related Prospectus Supplement, if
any, subject to prior sale, to withdrawal, cancellation or modification of the
offer without notice to, delivery to and acceptance by Morgan Stanley and the
other underwriters, if any, and certain further conditions. Retain this
Prospectus for future reference. This Prospectus may not be used to consummate
sales of the Securities offered hereby unless accompanied by a Prospectus
Supplement.
------------------------
MORGAN STANLEY & CO.
Incorporated
, 199
<PAGE> 225
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on the related Trust Fund Assets. Each class of Notes of a Series will be
secured by the related Trust Fund Assets or, if so specified in the related
Prospectus Supplement, a portion thereof. A Series of Securities may include one
or more classes that are senior in right of payment to one or more other classes
of Securities of such Series. One or more classes of Securities of a Series may
be entitled to receive distributions of principal, interest or any combination
thereof prior to one or more other classes of Securities of such Series or after
the occurrence of specified events, in each case as specified in the related
Prospectus Supplement.
Distributions to holders of Securities ("Securityholders") will be made
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the Securities
of a Series will be made from the related Trust Fund Assets or proceeds thereof
pledged for the benefit of the Securityholders as specified in the related
Prospectus Supplement.
The related Prospectus Supplement will describe any insurance or guarantee
provided with respect to the related Series of Securities including, without
limitation, any insurance or guarantee provided by the Department of Housing and
Urban Development, the United States Department of Veterans' Affairs or any
private insurer or guarantor. Unless otherwise specified in the related
Prospectus Supplement, the only obligations of the Depositor with respect to a
Series of Securities will be to obtain certain representations and warranties
from each Seller or each originator (the "Originator") of the Trust Fund Assets
and to assign to the Trustee for the related Series of Securities the
Depositor's rights with respect to such representations and warranties. The
principal obligations of the Master Servicer named in the related Prospectus
Supplement with respect to the related Series of Securities will be limited to
obligations pursuant to certain representations and warranties and to its
contractual servicing obligations, including any obligation it may have to
advance delinquent payments on the related Trust Fund Assets.
The yield on each class of Securities of a Series will be affected by,
among other things, the rate of payments of principal (including prepayments) on
the related Trust Fund Assets and the timing of receipt of such payments as
described under "Risk Factors -- Prepayment and Yield Considerations and
Reinvestment Risk" and "Yield and Prepayment Considerations" herein and in the
related Prospectus Supplement. A Trust Fund may be subject to early termination
under the circumstances described under "The Agreements -- Termination; Optional
Termination" herein and in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, one or more elections
may be made to treat a Trust Fund or specified portions thereof as a "real
estate mortgage investment conduit" ("REMIC") for federal income tax purposes.
See "Federal Income Tax Consequences."
Until 90 days after the date of each prospectus supplement, all dealers
effecting transactions in the securities covered by such prospectus supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
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<PAGE> 226
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each Series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) the aggregate
principal amount, interest rate and authorized denominations of each class of
such Series of Securities; (ii) information as to the assets comprising the
Trust Fund, including the general characteristics of the related Trust Fund
Assets included therein and, if applicable, the insurance policies, surety
bonds, guaranties, letters of credit or other instruments or agreements included
in the Trust Fund or otherwise, and the amount and source of any reserve account
or other cash account; (iii) the circumstances, if any, under which the Trust
Fund may be subject to early termination; (iv) the circumstances, if any, under
which the Notes of such Series are subject to redemption; (v) the method used to
calculate the amount of principal to be distributed or paid with respect to each
class of Securities; (vi) the order of application of distributions or payments
to each of the classes within such Series, whether sequential, pro rata, or
otherwise; (vii) the Distribution Dates with respect to such Series; (viii)
additional information with respect to the method of distribution of such
Securities; (ix) whether one or more REMIC elections will be made with respect
to the Trust Fund and, if so, the designation of the regular interests and the
residual interests; (x) the aggregate original percentage ownership interest in
the Trust Fund to be evidenced by each class of Certificates; (xi) the stated
maturity of each class of Notes of such Series; (xii) information as to the
nature and extent of subordination with respect to any class of Securities that
is subordinate in right of payment to any other class; and (xiii) information as
to the Seller, the Master Servicer and the Trustee.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part of
the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain descriptions of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at its Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices located as follows:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048. The Commission also maintains a Web site at
http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by such Trust Fund shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to
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<PAGE> 227
constitute a part of this Prospectus. Neither the Depositor nor the Master
Servicer for any Series intends to file with the Commission periodic reports
with respect to the related Trust Fund following completion of the reporting
period required by Rule 15d-1 or Regulation 15D under the Exchange Act.
The Trustee or such other entity specified in the related Prospectus
Supplement on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the Corporate
Trust Office of the Trustee or the address of such other entity specified in the
accompanying Prospectus Supplement. Included in the accompanying Prospectus
Supplement is the name, address, telephone number and, if available, facsimile
number of the office or contact person at the Corporate Trust Office of the
Trustee or such other entity.
Requests to the Depositor should be directed in writing to Morgan Stanley
ABS Capital I Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 2nd
Floor, New York, New York 10036, Attention: President, or by telephone at (212)
761-4000. The Depositor has determined that its financial statements are not
material to the offering of any class of Securities.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities will be forwarded to Securityholders. However, such reports will
neither be examined nor reported on by an independent public accountant. See
"Description of the Securities -- Reports to Securityholders."
4
<PAGE> 228
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Terms....................................................................... 6
Risk Factors........................................................................... 17
The Trust Fund......................................................................... 27
Use of Proceeds........................................................................ 41
The Depositor.......................................................................... 41
Description of the Securities.......................................................... 41
Credit Enhancement..................................................................... 56
Yield and Prepayment Considerations.................................................... 61
The Agreements......................................................................... 64
Certain Legal Aspects of the Loans..................................................... 77
Federal Income Tax Consequences........................................................ 91
State Tax Consequences................................................................. 111
Erisa Considerations................................................................... 111
Legal Investment....................................................................... 115
Method of Distribution................................................................. 116
Legal Matters.......................................................................... 117
Financial Information.................................................................. 117
Rating................................................................................. 117
Index of Defined Terms................................................................. 119
</TABLE>
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<PAGE> 229
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the Series of Securities offered thereby and to the
related Agreement (as such term is defined below) which will be prepared in
connection with each Series of Securities. Unless otherwise specified,
capitalized terms used and not defined in this Summary of Terms have the
meanings given to them in this Prospectus and in the related Prospectus
Supplement. See "Index of Defined Terms" on Page 119 of this Prospectus for the
location of the definitions of certain capitalized terms.
Title of Securities........ Asset Backed Certificates (the "Certificates") and
Asset Backed Notes (the "Notes" and, together with
the Certificates, the "Securities"), which are
issuable in Series.
Depositor.................. Morgan Stanley ABS Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc. None of
Morgan Stanley, Morgan Stanley Group Inc. or any
other affiliate of the Depositor, the Master
Servicer, the Trustee or the Seller has guaranteed
or is otherwise obligated with respect to the
Securities of any Series. See "The Depositor."
Trustee.................... The trustee(s) (the "Trustee") for each Series of
Securities will be specified in the related
Prospectus Supplement. See "The Agreements" herein
for a description of the Trustee's rights and
obligations.
Master Servicer............ The entity or entities named as Master Servicer
(the "Master Servicer") in the related Prospectus
Supplement. See "The Agreements -- Certain Matters
Regarding the Master Servicer and the Depositor."
Trust Fund Assets.......... Assets of the Trust Fund for a Series of Securities
will include assets (the "Trust Fund Assets") which
will consist of Loans, Agency Securities and/or
Private Mortgage-Backed Securities, together with
payments in respect of such Trust Fund Assets, as
specified in the related Prospectus Supplement. At
the time of issuance of Securities of a Series, the
Depositor will cause Loans, Agency Securities
and/or Private Mortgage-Backed Securities
comprising the related Trust Fund to be assigned to
the Trustee, without recourse. The Loans, Agency
Securities and/or Private Mortgage-Backed
Securities will be collected in a pool (each, a
"Pool") as of the first day of the month of the
issuance of the related Series of Securities or
such other date specified in the related Prospectus
Supplement (the "Cut-off Date"). A Trust Fund may
include a number of different types and
concentrations of Trust Fund Assets to the extent
described in the related Prospectus Supplement.
Trust Fund Assets also may include insurance
policies, surety bonds, cash accounts, spread
accounts, reinvestment income, guaranties, letters
of credit, interest rate cap agreements or interest
rate swap agreements. See "Credit Enhancement." In
addition, if the related Prospectus Supplement so
provides, the related Trust Funds Asset will
include the funds on deposit in an account (a
"Pre-Funding Account") which will be used to
purchase additional Loans during the period
specified in such Prospectus Supplement. See "The
Agreements -- Pre-Funding Account."
A. Loans................... The Loans will consist of (i) mortgage loans
secured by first, second and/or more subordinate
liens on one-to four-family residential properties
or security interests in shares issued by
cooperative housing corporations (each, a "Mortgage
Loan"), (ii) closed-end loans (the "Closed-End
Loans") and/or revolving home equity loans or
certain balances
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thereof (the "Revolving Credit Line Loans,"
together with the Closed-End Loans, the "Home
Equity Loans") secured by first, second and/or more
subordinate liens on one- to four-family
residential properties, (iii) home improvement
installment sales contracts and installment loan
agreements (the "Home Improvement Contracts") that
are either unsecured or secured by first, second
and/or more subordinate liens on one- to
four-family residential properties, or by security
interests in the home improvements financed thereby
(the "Home Improvements"), including loans insured
under the FHA Title I Credit Insurance program
administered pursuant to the National Housing Act
of 1934, and (iv) manufactured housing installment
sales contracts and installment loan agreements
(the "Manufactured Housing Contracts" and together
with the Home Improvement Contracts, the
"Contracts") secured by first, second and/or more
subordinate liens on Manufactured Homes (as defined
herein) or by mortgages on real estate on which the
related Manufactured Homes are located. All Loans,
Agency Securities and Private Mortgage-Backed
Securities will have been purchased by the
Depositor, either directly or through an affiliate,
from one or more Sellers.
As specified in the related Prospectus Supplement,
the Home Equity Loans will, and the Contracts may,
be secured by mortgages or deeds of trust or other
similar security instruments creating a lien on a
Mortgaged Property, which may be subordinated to
one or more senior liens on the Mortgaged Property,
as described in the related Prospectus Supplement.
As specified in the related Prospectus Supplement,
Contracts may be unsecured or secured by purchase
money security interests in the Home Improvements
or Manufactured Homes financed thereby. The
Mortgaged Properties, Home Improvements and
Manufactured Homes are collectively referred to
herein as the "Properties."
B. Agency Securities....... The Agency Securities will consist of (i) fully
modified pass-through mortgage-backed certificates
guaranteed as to timely payment of principal and
interest by the Government National Mortgage
Association ("GNMA Certificates"), (ii) guaranteed
mortgage pass-through certificates issued and
guaranteed as to timely payment of principal and
interest by the Federal National Mortgage
Association ("FNMA Certificates"), (iii) mortgage
participation certificates issued and guaranteed as
to timely payment of interest and, unless otherwise
specified in the related Prospectus Supplement,
ultimate payment of principal by the Federal Home
Loan Mortgage Corporation ("FHLMC Certificates"),
(iv) stripped mortgage-backed securities
representing an undivided interest in all or a part
of either the principal distributions (but not the
interest distributions) or the interest
distributions (but not the principal distributions)
or in some specified portion of the principal and
interest distributions (but not all of such
distributions) on certain GNMA, FNMA, FHLMC or
other government agency or government- sponsored
agency certificates and, unless otherwise specified
in the related Prospectus Supplement, guaranteed to
the same extent as the underlying securities, (v)
another type of guaranteed pass-through certificate
issued or guaranteed by GNMA, FNMA, FHLMC or other
government agency or government-sponsored agency
and described in the related Prospectus Supplement,
or (vi) a combination of such Agency Securities.
All GNMA Certificates will be backed by the full
faith and credit of
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the United States. No FNMA or FHLMC Certificates
will be backed, directly or indirectly, by the full
faith and credit of the United States. The Agency
Securities may consist of pass-through securities
issued under the GNMA I Program, the GNMA II
Program, FHLMC's Cash or Guarantor Program or
another program specified in the Prospectus
Supplement. The payment characteristics of the
Mortgage Loans underlying the Agency Securities
will be described in the related Prospectus
Supplement. See "The Trust Fund -- Agency
Securities."
C. Private Mortgage-Backed
Securities............ Private Mortgage-Backed Securities may include (i)
pass-through certificates representing beneficial
interests in certain mortgage loans or (ii)
collateralized mortgage obligations ("CMOs")
secured by such mortgage loans. Although mortgage
loans underlying a Private Mortgage-Backed Security
may be insured or guaranteed by the United States
or an agency or instrumentality thereof, they need
not be, and the Private Mortgage-Backed Securities
themselves will not be, so insured or guaranteed.
Unless otherwise specified in the Prospectus
Supplement relating to a Series of Securities,
payments on the Private Mortgage-Backed Securities
will be distributed directly to the Trustee as
registered owner of such Private Mortgage-Backed
Securities. The Prospectus Supplement for each
Series of Securities will specify, with respect to
any Private Mortgage-Backed Securities owned by the
related Trust Fund: (i) the aggregate approximate
principal amount and type of Private
Mortgage-Backed Securities; (ii) certain
characteristics of the mortgage loans underlying
the Private Mortgage-Backed Securities, including
(A) the payment features of such mortgage loans,
(B) the approximate aggregate principal amount, if
known, of the underlying mortgage loans which are
insured or guaranteed by a governmental entity, (C)
the servicing fee or range of servicing fees with
respect to such mortgage loans, and (D) the minimum
and maximum stated maturities of the mortgage loans
at origination; (iii) the maximum original
term-to-stated maturity of the Private
Mortgage-Backed Securities; (iv) the weighted
average term-to-stated maturity of the Private
Mortgage-Backed Securities; (v) the pass-through or
certificate rate or ranges thereof for the Private
Mortgage-Backed Securities; (vi) the weighted
average pass-through or certificate rate of the
Private Mortgage-Backed Securities; (vii) the
issuer of the Private Mortgage-Backed Securities
(the "PMBS Issuer"), the servicer of the Private
Mortgage-Backed Securities (the "PMBS Servicer")
and the trustee of the Private Mortgage-Backed
Securities (the "PMBS Trustee"); (viii) certain
characteristics of credit support, if any, such as
reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies or
third party guarantees, relating to the mortgage
loans underlying the Private Mortgage-Backed
Securities, or to such Private Mortgage-Backed
Securities themselves; (ix) the terms on which
underlying mortgage loans for such Private
Mortgage-Backed Securities may, or are required to,
be repurchased prior to stated maturity; and (x)
the terms on which substitute mortgage loans may be
delivered to replace those initially deposited with
the PMBS Trustee. See "The Trust Fund -- Private
Mortgage-Backed Securities."
Description of the
Securities................. Each Security will represent a beneficial ownership
interest in, or be secured by the assets of, a
Trust Fund created by the Depositor pursuant to an
Agreement among the Depositor, the Master Servicer
and the
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<PAGE> 232
Trustee for the related Series. The Securities of
any Series may be issued in one or more classes as
specified in the related Prospectus Supplement. A
Series of Securities may include one or more
classes of senior Securities (collectively, the
"Senior Securities") and one or more classes of
subordinate Securities (collectively, the
"Subordinated Securities"). Certain Series or
classes of Securities may be covered by insurance
policies or other forms of credit enhancement, in
each case as described under "Credit Enhancement"
herein and in the related Prospectus Supplement.
One or more classes of Securities of each Series
(i) may be entitled to receive distributions
allocable only to principal, only to interest or to
any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of
principal throughout the lives of the Securities or
during specified periods; (iii) may be subordinated
in the right to receive distributions of scheduled
payments of principal, prepayments of principal,
interest or any combination thereof to one or more
other classes of Securities of such Series
throughout the lives of the Securities or during
specified periods or may be subordinated with
respect to certain losses and delinquencies; (iv)
may be entitled to receive such distributions only
after the occurrence of events specified in the
related Prospectus Supplement; (v) may be entitled
to receive distributions in accordance with a
schedule or formula or on the basis of collections
from designated portions of the related Trust Fund
Assets; (vi) as to Securities entitled to
distributions allocable to interest, may be
entitled to receive interest at a rate per annum
specified, or calculated in the method described,
in the related Prospectus Supplement; and (vii) as
to Securities entitled to distributions allocable
to interest, may be entitled to distributions
allocable to interest only after the occurrence of
events specified in the related Prospectus
Supplement and may accrue interest until such
events occur, in each case as specified in the
related Prospectus Supplement. The timing and
amounts of such distributions may vary among
classes or over time, as specified in the related
Prospectus Supplement.
Distributions on the
Securities................. Distributions on the Securities entitled thereto
will be made monthly, quarterly, semi-annually or
at such other intervals and on the dates specified
in the related Prospectus Supplement (each, a
"Distribution Date") out of the payments received
in respect of the assets of the related Trust Fund
or Funds or other assets pledged for the benefit of
the Securities as described under "Credit
Enhancement" herein to the extent specified in the
related Prospectus Supplement. The amount allocable
to payments of principal and interest on any
Distribution Date will be determined as specified
in the related Prospectus Supplement. The
Prospectus Supplement for a Series of Securities
will describe the method of allocating
distributions among Securities of different classes
as well as the method for allocating distributions
among Securities for any particular class.
Unless otherwise specified in the related
Prospectus Supplement, the aggregate original
principal balance of the Securities will not exceed
the aggregate distributions allocable to principal
that such Securities will be entitled to receive.
If specified in the related Prospectus Supplement,
the Securities will have an aggregate original
principal balance equal to the aggregate unpaid
principal balance of the Trust Fund Assets as of
the
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related Cut-off Date and will bear interest in the
aggregate at a rate equal to the interest rate
borne by the underlying Loans (the "Loan Rate") net
of the aggregate servicing fees and any other
amounts specified in the related Prospectus
Supplement (the "Pass-Through Rate") or at such
other interest rate as may be specified in such
Prospectus Supplement. If specified in the related
Prospectus Supplement, the aggregate original
principal balance of the Securities and interest
rates on the classes of Securities will be
determined based on the cash flow on the Trust Fund
Assets.
The rate at which interest will be passed through
or paid to holders of each class of Securities
entitled thereto may be a fixed rate or a rate that
is subject to change from time to time from the
time and for the periods, in each case, as
specified in the related Prospectus Supplement. Any
such rate may be calculated on a loan-by-loan,
weighted average or notional amount, as applicable,
in each case as described in the related Prospectus
Supplement.
Credit Enhancement......... The assets in a Trust Fund or the Securities of one
or more classes in the related Series may have the
benefit of one or more types of credit enhancement
as described in the related Prospectus Supplement.
The protection against losses afforded by any such
credit support may be limited. The type,
characteristics and amount of credit enhancement
will be determined based on the characteristics of
the Trust Fund Assets and other factors and will be
established on the basis of requirements of each
Rating Agency rating the Securities of such Series.
See "Credit Enhancement."
A. Subordination........... A Series of Securities may consist of one or more
classes of Senior Securities and one or more
classes of Subordinated Securities. The rights of
the holders of the Subordinated Securities of a
Series to receive distributions with respect to the
assets in the related Trust Fund will be
subordinated to such rights of the holders of the
Senior Securities of the same Series to the extent
described in the related Prospectus Supplement.
This subordination is intended to enhance the
likelihood of regular receipt by holders of Senior
Securities of the full amount of monthly payments
of principal and interest due them. The protection
afforded to the holders of Senior Securities of a
Series by means of the subordination feature will
be accomplished by (i) the preferential right of
such holders to receive, prior to any distribution
being made in respect of the related Subordinated
Securities, the amounts of interest and/or
principal due them on each Distribution Date out of
the funds available for distribution on such date
in the related Security Account and, to the extent
described in the related Prospectus Supplement, by
the right of such holders to receive future
distributions on the assets in the related Trust
Fund that would otherwise have been payable to the
holders of Subordinated Securities; (ii) reducing
the ownership interest (if applicable) of the
related Subordinated Securities; (iii) a
combination of clauses (i) and (ii) above; or (iv)
as otherwise described in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, subordination may apply only
in the event of certain types of losses not covered
by other forms of credit support, such as hazard
losses not covered by standard hazard insurance
policies or losses due to the bankruptcy or fraud
of the borrower. The related Prospectus Supplement
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will set forth information concerning, among other
things, the amount of subordination of a class or
classes of Subordinated Securities in a Series, the
circumstances in which such subordination will be
applicable, and the manner, if any, in which the
amount of subordination will decrease over time.
B. Reserve Account......... One or more reserve accounts or other cash accounts
(each, a "Reserve Account") may be established and
maintained for each Series of Securities. The
related Prospectus Supplement will specify whether
or not such Reserve Accounts will be included in
the corpus of the Trust Fund for such Series and
will also specify the manner of funding such
Reserve Accounts and the conditions under which the
amounts in any such Reserve Accounts will be used
to make distributions to holders of Securities of a
particular class or released from such Reserve
Accounts.
C. Letter of Credit........ If so specified in the related Prospectus
Supplement, credit support may be provided by one
or more letters of credit. A letter of credit may
provide limited protection against certain losses
in addition to or in lieu of other credit support,
such as, in the case of Loans, losses resulting
from delinquent payments, losses from risks not
covered by standard hazard insurance policies,
losses due to bankruptcy of a borrower and
application of certain provisions of the federal
Bankruptcy Code, and losses due to denial of
insurance coverage due to misrepresentations made
in connection with the origination or sale of a
Loan. The issuer of the letter of credit (the "L/C
Bank") will be obligated to honor demands with
respect to such letter of credit, to the extent of
the amount available thereunder to provide funds
under the circumstances and subject to such
conditions as are specified in the related
Prospectus Supplement. The liability of the L/C
Bank under its letter of credit will be reduced by
the amount of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its
letter of credit will be an amount equal to a
percentage specified in the related Prospectus
Supplement of the initial aggregate outstanding
principal balance of the Loans in the related Trust
Fund or one or more Classes of Securities of the
related Series (the "L/C Percentage"). The maximum
amount available at any time to be paid under a
letter of credit will be determined in the manner
specified therein and in the related Prospectus
Supplement.
D. Insurance Policies;
Surety Bonds and
Guarantees............ If so specified in the related Prospectus
Supplement, credit support for a Series may be
provided by an insurance policy and/or a surety
bond issued by one or more insurance companies or
sureties. Such certificate guarantee insurance or
surety bond will guarantee timely distributions of
interest and/or full distributions of principal on
the basis of a schedule of principal distributions
set forth in or determined in the manner specified
in the related Prospectus Supplement. If specified
in the related Prospectus Supplement, one or more
bankruptcy bonds, special hazard insurance
policies, other insurance or third-party guarantees
may be used to provide coverage for the risks of
default or types of losses set forth in such
Prospectus Supplement.
E. Over-Collateralization... If so provided in the Prospectus Supplement for a
Series of Securities, a portion of the interest
payment on each Loan may be applied as an
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additional distribution in respect of principal to
reduce the principal balance of a certain class or
classes of Securities and, thus, accelerate the
rate of payment of principal on such class or
classes of Securities.
F. Loan Pool
Insurance Policy...... A mortgage pool insurance policy or policies may be
obtained and maintained for Loans relating to any
Series of Securities, which shall be limited in
scope, covering defaults on the related Loans in an
initial amount equal to a specified percentage of
the aggregate principal balance of all Loans
included in the Pool as of the related Cut-off
Date.
G. FHA Insurance........... If specified in the related Prospectus Supplement,
all or a portion of the Loans relating to any
Series of Securities may be (i) insured by the
Federal Housing Administration (the "FHA") and/or
(ii) partially guaranteed by the Department of
Veterans' Affairs (the "VA"). See "Certain Legal
Aspects of the Loans -- The Title I Program."
H. Cross-Collateralization...If specified in the related Prospectus Supplement,
separate classes of a Series of Securities may
evidence the beneficial ownership of, or be secured
by, separate groups of assets included in a Trust
Fund. In such case, credit support may be provided
by a cross- collateralization feature which
requires that distributions be made with respect to
Securities evidencing a beneficial ownership
interest in, or secured by, one or more asset
groups prior to distributions to Subordinated
Securities evidencing a beneficial ownership
interest in, or secured by, other asset groups
within the same Trust Fund. See "Credit
Enhancement -- Cross-Collateralization."
If specified in the related Prospectus Supplement,
the coverage provided by one or more forms of
credit support may apply concurrently to two or
more separate Trust Funds. If applicable, the
related Prospectus Supplement will identify the
Trust Funds to which such credit support relates
and the manner of determining the amount of the
coverage provided to such Trust Funds thereby and
of the application of such coverage to the
identified Trust Funds. See "Credit
Enhancement -- Cross-Collateralization."
I. Other Arrangements...... Other arrangements as described in the related
Prospectus Supplement including, but not limited
to, one or more bankruptcy bonds, special hazard
insurance policies, other insurance or third-party
guarantees, interest rate swap agreements, interest
rate cap agreements or other similar arrangements
will be described in the related Prospectus
Supplement. An interest rate swap agreement
involves an agreement between two parties under
which one party makes to the other party periodic
payments based on a fixed rate of interest and
receives in return periodic payments based on a
variable rate of interest, which rates of interest
are calculated on the basis of a specified notional
amount of principal for a specified period of time
as will be described in the related Prospectus
Supplement. An interest rate cap agreement involves
an agreement between two parties in which one party
agrees to make payments to the other party when a
designated market interest rate goes above a
designated level on predetermined dates or during a
specified time period as will be described in the
related Prospectus Supplement.
Advances................... The Master Servicer and, if applicable, each
mortgage servicing institution that services a Loan
in a Pool on behalf of the Master Servicer
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(each, a "Sub-Servicer") may be obligated to
advance amounts (each, an "Advance") corresponding
to delinquent interest and/or principal payments on
such Loan (including, in the case of Cooperative
Loans, unpaid maintenance fees or other charges
under the related proprietary lease), net of the
Servicing Fee if so specified in the related
Prospectus Supplement, until the date, as specified
in the related Prospectus Supplement, following the
date on which the related Property is sold at a
foreclosure sale or the related Loan is otherwise
liquidated. Any obligation to make Advances may be
subject to limitations as specified in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, Advances may be
drawn from a cash account available for such
purpose as described in such Prospectus Supplement.
Advances will be reimbursable to the extent
described under "Description of the
Securities -- Advances" herein and in the related
Prospectus Supplement.
In the event the Master Servicer or Sub-Servicer
fails to make a required Advance, the Trustee may
be obligated to advance such amounts otherwise
required to be advanced by the Master Servicer or
Sub-Servicer. See "Description of the
Securities -- Advances."
Optional Termination....... The Master Servicer or the party specified in the
related Prospectus Supplement, including the holder
of the residual interest in a REMIC, may have the
option to effect early retirement of a Series of
Securities through the purchase of the Trust Fund
Assets. The Master Servicer will deposit the
proceeds of any such purchase in the Security
Account for each Trust Fund as described under "The
Agreements -- Payments on Loans; Deposits to
Security Account." Any such purchase of Trust Fund
Assets and property acquired in respect of Trust
Fund Assets evidenced by a Series of Securities
will be made at the option of the Master Servicer,
such other person or, if applicable, such holder of
the REMIC residual interest, at a price specified
in the related Prospectus Supplement. The exercise
of such right will effect early retirement of the
Securities of that Series, but the right of the
Master Servicer, such other person, or, if
applicable, such holder of the REMIC residual
interest, to so purchase is subject to the
principal balance of the related Trust Fund Assets
being less than the percentage specified in the
related Prospectus Supplement of the aggregate
principal balance of the Trust Fund Assets at the
Cut-off Date for the Series. Upon such requirement
being satisfied, the parties specified in the
related Prospectus Supplement may purchase all
Trust Fund Assets and thereby effect retirement of
such Series of Securities. In such event, the
applicable purchase price will be sufficient to pay
the aggregate outstanding principal balance of such
Series of Securities and any undistributed
shortfall in interest of such Series of Securities
as will be described in the related Prospectus
Supplement. The foregoing is subject to the
provision that if a REMIC election is made with
respect to a Trust Fund, any repurchase pursuant to
clause (ii) above will be made only in connection
with a "qualified liquidation" within the meaning
of Section 860F(g)(4) of the Code.
Legal Investment........... The Prospectus Supplement for each series of
Securities will specify which, if any, of the
classes of Securities offered thereby constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Classes of Securities
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that qualify as "mortgage related securities" will
be legal investments for certain types of
institutional investors to the extent provided in
SMMEA, subject, in any case, to any other
regulations which may govern investments by such
institutional investors. Institutions whose
investment activities are subject to review by
federal or state authorities should consult with
their counsel or the applicable authorities to
determine whether an investment in a particular
class of Securities (whether or not such class
constitutes a "mortgage related security") complies
with applicable guidelines, policy statements or
restrictions. See "Legal Investment."
Federal Income Tax
Consequences............. The federal income tax consequences to
Securityholders will vary depending on whether one
or more elections are made to treat the Trust Fund
or specified portions thereof as a REMIC under the
provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). The Prospectus Supplement for
each Series of Securities will specify whether such
an election will be made. If a REMIC election is
made, Securities representing regular interests in
a REMIC will generally be taxable to holders in the
same manner as evidences of indebtedness issued by
the REMIC. Stated interest on such regular
interests will be taxable as ordinary income and
taken into account using the accrual method of
accounting, regardless of the holder's normal
accounting method. If no REMIC election is made,
interest (other than original issue discount
("OID")) on Securities that are characterized as
indebtedness for federal income tax purposes will
be includible in income by holders thereof in
accordance with their usual method of accounting.
Certain classes of Securities may be issued with
OID. A holder should be aware that the Code and the
Treasury regulations promulgated thereunder do not
adequately address certain issues relevant to
prepayable securities, such as the Securities.
Holders that will be required to report income with
respect to the related Securities under the accrual
method of accounting will do so without giving
effect to delays and reductions in distributions
attributable to a default or delinquency on the
Trust Fund Asset, except possibly to the extent
that it can be established that such amounts are
uncollectible. As a result, the amount of income
(including OID) reported by a holder of a Security
in any period could significantly exceed the amount
of cash distributed to such holder in that period.
If a REMIC election is made with respect to a
Series of Securities, then, upon the issuance of
those Securities, special counsel to the Depositor
will issue an opinion generally to the effect that
the arrangement by which such Securities are issued
will be treated as a REMIC as long as all of the
provisions of the applicable Agreement are complied
with and the statutory and regulatory requirements
are satisfied. Such Securities will be designated
as "regular interests" or "residual interests" in a
REMIC. A REMIC will not be subject to entity-level
tax. Rather, the taxable income or net loss of a
REMIC will be taken into account by the holders of
residual interests. Such holders will report their
proportionate share of the taxable income of the
REMIC whether or not they receive cash
distributions from the REMIC attributable to such
income. A portion (or, in some cases, all) of the
income from a residual interest (i) may not be
subject to offset by losses from other activities,
(ii) for a holder that is subject to tax under the
Code on unrelated business taxable
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income, may be treated as unrelated business
taxable income and (iii) for a foreign holder, may
not qualify for exemption from or reduction of
withholding. In addition, (i) residual interests
are subject to transfer restrictions and (ii)
certain transfers of residual interests will not be
recognized for federal income tax purposes.
Further, individual holders are subject to
limitations on the deductibility of expenses of the
REMIC.
If so specified in the Prospectus Supplement for a
Series of Securities, then, upon the issuance of
those Securities, special counsel to the Depositor
will issue an opinion generally to the effect that
the arrangement by which such Securities are issued
will be classified as a grantor trust under Subpart
E, Part I of Subchapter J of the Code and not as an
association taxable as a corporation. If so
provided in the Prospectus Supplement for a Series
of Securities representing interests in Trust Fund
Assets, holders of Securities of such Series will
be treated as owning directly rights to receive
certain payments of interest or principal, or both,
on the assets held in the Trust Fund for such
Series. All income with respect to a Stripped
Security will be accounted for as OID and, unless
otherwise specified in the related Prospectus
Supplement, will be reported by the Trustee on an
accrual basis, which may be prior to the receipt of
cash associated with such income.
If so specified in the Prospectus Supplement for a
Series of Securities, special counsel to the
Depositor will issue an opinion generally to the
effect that the Trust Fund will not be treated as
an association or a publicly traded partnership
taxable as a corporation as long as all of the
provisions of the applicable Agreement are complied
with and the statutory and regulatory requirements
are satisfied. If Notes are issued by such Trust
Fund, such Notes will be treated as indebtedness
for federal income tax purposes. The holders of the
Certificates issued by such Trust Fund, if any,
will agree to treat the Certificates as equity
interests in a partnership.
Generally, gain or loss will be recognized on a
sale of Securities in the amount equal to the
difference between the amount realized and the
seller's tax basis in the Securities sold. The
material federal income tax consequences for
investors associated with the purchase, ownership
and disposition of the Securities are set forth
herein under "Federal Income Tax Consequences." The
material federal income tax consequences for
investors associated with the purchase, ownership
and disposition of Securities of any particular
Series will be set forth under the heading "Federal
Income Tax Consequences" in the related Prospectus
Supplement. See "Federal Income Tax Consequences."
Erisa Considerations....... A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should carefully
review with its legal advisors whether the purchase
or holding of Securities could give rise to a
transaction prohibited or not otherwise permissible
under ERISA or the Code. Certain exemptions from
the prohibited transaction rules could be
applicable to the acquisition of the Securities.
See "ERISA Considerations." The U.S. Department of
Labor has issued an individual exemption,
Prohibited Transaction Exemption 90-24, to Morgan
Stanley & Co. Incorporated that generally exempts
from the
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application of certain of the prohibited
transaction provisions of ERISA and the Code,
transactions relating to the purchase, sale and
holding of pass-through certificates underwritten
by such underwriter such as certain classes of the
Securities and the servicing and operation of asset
pools, provided that certain conditions are
satisfied as will be described in the related
Prospectus Supplement. Certain classes of
Securities may not be transferred unless the
Trustee and the Depositor are furnished with a
letter of representation or an opinion of counsel
to the effect that such transfer will not result in
a violation of the prohibited transaction
provisions and will not subject the Trustee, the
Depositor or the Master Servicer to additional
obligations. See "Description of the Securities --
General" and "ERISA Considerations."
Rating..................... It will be a requirement for issuance of any Series
that the Securities offered by this Prospectus and
the related Prospectus Supplement be rated by at
least one Rating Agency in one of its four highest
applicable rating categories. The rating or ratings
applicable to Securities of each Series offered
hereby and by the related Prospectus Supplement
will be as set forth in the related Prospectus
Supplement. A securities rating should be evaluated
independently of similar ratings on different types
of securities. A securities rating does not address
the effect that the rate of prepayments on Loans
for a Series may have on the yield to investors in
the Securities of such Series. See "Risk
Factors -- Ratings are not Recommendations."
Risk Factors............... For a discussion of certain risks associated with
an investment in the Securities, see "Risk Factors"
on page 17 herein and in the related Prospectus
Supplement.
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RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Securities.
LACK OF SECONDARY MARKET LIMITS LIQUIDITY
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Securityholders with
liquidity of investment or will continue for the life of the Securities of such
Series. Morgan Stanley & Co. Incorporated, through one or more of its
affiliates, and the other underwriters, if any, specified in the related
Prospectus Supplement, presently expect to make a secondary market in
securities, but have no obligation to do so.
LIMITED SOURCES OF PAYMENTS -- NO RECOURSE TO SELLERS, DEPOSITOR OR MASTER
SERVICER
The Depositor does not have, nor is it expected to have, any significant
assets. Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund for such
Securities and will not have any claim against or security interest in the Trust
Fund for any other Series. There will be no recourse to the Depositor or any
other person for any failure to receive distributions on the Securities.
Further, at the times set forth in the related Prospectus Supplement, certain
Trust Fund Assets and/or any balance remaining in the Security Account
immediately after making all payments due on the Securities of such Series,
after making adequate provision for future payments on certain classes of
Securities and after making any other payments specified in the related
Prospectus Supplement, may be promptly released or remitted to the Depositor,
the Master Servicer, any credit enhancement provider or any other person
entitled thereto and will no longer be available for making payments to
Securityholders. Consequently, holders of Securities of each Series must rely
solely upon payments with respect to the Trust Fund Assets and the other assets
constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
The Securities will not represent an interest in or obligation of the
Depositor, the Master Servicer, any Seller or any of their respective
affiliates. The only obligations, if any, of the Depositor with respect to the
Trust Fund Assets or the Securities of any Series will be to obtain certain
representations and warranties from each Seller or each originator (the
"Originator") of the Trust Fund Assets and to assign to the Trustee for the
related Series of Securities the Depositor's rights with respect to such
representations and warranties. The Depositor does not have, and is not expected
in the future to have, any significant assets with which to meet any obligation
to repurchase Trust Fund Assets with respect to which there has been a breach of
any representation or warranty. If, for example, the Depositor were required to
repurchase a Trust Fund Asset, its only sources of funds to make such repurchase
would be from funds obtained (i) from the enforcement of a corresponding
obligation, if any, on the part of the related Seller or Originator of such
Trust Fund Asset, or (ii) to the extent provided in the related Prospectus
Supplement, from a Reserve Account or similar credit enhancement established to
provide funds for such repurchases. The only obligations of the Master Servicer,
other than its master servicing obligations, with respect to the Trust Fund
Assets or the Securities of any Series will be pursuant to certain
representations and warranties. The Master Servicer may be required to
repurchase or substitute for any Trust Fund Asset with respect to which such
representations and warranties are breached. There is no assurance, however,
that the Master Servicer will have the financial ability to effect any such
repurchase or substitution.
The only obligations of any Seller or Originator with respect to Trust Fund
Assets or the Securities of any Series will be pursuant to certain
representations and warranties and certain document delivery requirements. A
Seller or Originator may be required to repurchase or substitute for any Trust
Fund Asset with respect to which such representations and warranties or document
delivery requirements are breached. There is no assurance, however, that such
Seller or Originator will have the financial ability to effect such repurchase
or substitution.
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LIMITATIONS ON CREDIT ENHANCEMENT FOR PROTECTION AGAINST LOSSES
Limitation Regarding Types of Losses Covered. Although credit enhancement
is intended to reduce the risk of delinquent payments or losses to holders of
Securities entitled to the benefit thereof, the amount of such credit
enhancement will be limited, as set forth in the related Prospectus Supplement,
and may be subject to periodic reduction in accordance with a schedule or
formula or otherwise decline, and could be depleted under certain circumstances
prior to the payment in full of the related Series of Securities, and as a
result Securityholders of the related Series may suffer losses. Moreover, such
credit enhancement may not cover all potential losses or risks. For example,
credit enhancement may or may not cover fraud or negligence by a loan originator
or other parties. In addition, the Trustee will generally be permitted to
reduce, terminate or substitute all or a portion of the credit enhancement for
any Series of Securities, provided the applicable Rating Agency indicates that
the then-current rating of the Securities of such Series will not be adversely
affected. See "Credit Enhancement."
Disproportionate Benefits to Certain Classes and Series. A Series of
Securities may include one or more classes of Subordinated Securities, if
provided in the related Prospectus Supplement. Although subordination is
intended to reduce the likelihood of temporary shortfalls and ultimate losses to
holders of the related Senior Securities, the amount of subordination will be
limited and may decline under certain circumstances. In addition, if principal
payments on one or more classes of Securities of a Series are made in a
specified order of priority, any related credit enhancement may be exhausted
before the principal of the later paid classes of Securities of such Series has
been repaid in full. As a result, the impact of losses and shortfalls
experienced with respect to the Trust Fund Assets may fall primarily upon those
classes of Securities having a latter right of payments. Moreover, if a form of
credit enhancement covers the Securities of more than one Series and losses on
the related Trust Fund Assets exceed the amount of such credit enhancement, it
is possible that the holders of Securities of one (or more) such Series will be
disproportionately benefited by such credit enhancement to the detriment of the
holders of Securities of one (or more) other such Series. The amount of any
applicable credit enhancement supporting one or more other classes of Securities
will be determined on the basis of criteria established by each Rating Agency
rating such classes of Securities as described below under "-- Ratings are not
Recommendations."
Limitations on FHA Insurance for Title I Loans. The related Prospectus
Supplement will specify the number and percentage of Title I Loans, if any,
included in the related Trust Fund that are partially insured by the FHA
pursuant to the Title I Program. Since the FHA insurance amount for the Title I
Loans is limited as described herein under "Certain Legal Aspects of the
Loans -- The Title I Program" and in the related Prospectus Supplement, and
since the adequacy of such FHA insurance is dependent upon future events,
including reductions for the payment of FHA claims, no assurance can be given
that the FHA insurance is or will be adequate to cover 90% of all potential
losses on the Title I Loans included in the related Trust Fund. If the FHA
insurance for the Title I Loans is reduced to zero, such Loans will be
effectively uninsured from and after the date of such reduction. Under the Title
I Program, until a claim for insurance reimbursement is submitted to the FHA,
the FHA does not review or approve for qualification for insurance the
individual Title I Loan insured thereunder (as is typically the case with other
federal loan insurance programs). Consequently, the FHA has not acknowledged
that any of the Title I Loans are eligible for FHA insurance, nor has the FHA
reviewed or approved the underwriting and qualification by the originating
lenders of any individual Title I Loan. See "Certain Legal Aspects of the
Loans -- The Title I Program."
The availability of FHA reimbursement following a default on a Title I Loan
is subject to a number of conditions, including strict compliance by the
originating lender of such loan, the Seller, the FHA claims administrator, the
Master Servicer and any subservicer with the FHA regulations in originating and
servicing such Title I Loan, and limits on the aggregate insurance coverage
available in the lender's insurance company reserve account. For example, the
FHA Regulations provide that, prior to originating a Title I Loan, a Title I
lender must exercise prudence and diligence in determining whether the borrower
and any co-maker or co-signer is solvent and an acceptable credit risk with a
reasonable ability to make payments on the loan. Although the related Seller
will represent and warrant that the Title I Loans have been originated and
serviced in compliance with all FHA regulations, these regulations are
susceptible to substantial interpretation. Failure to comply with all FHA
regulations may result in a denial of FHA claims, and there can be no assurance
that
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the FHA's enforcement of the FHA regulations will not become more strict in the
future. See "Certain Legal Aspects of the Loans -- The Title I Program."
BASIS RISK AND POSSIBLE INTEREST SHORTFALLS
The Trust Fund Assets may accrue interest at variable rates based on
changes in specified indexes (as set forth in the related Prospectus Supplement)
which may adjust monthly, quarterly, annually or otherwise. The Securities,
however, may accrue interest at interest rates based on different indexes and
may adjust on different periods. As a result, there may be periods during which
the weighted average rate of interest at which the Trust Fund Assets are
accruing interest is less than the rate of interest on the Securities. The
resulting shortfall in interest collections on the Trust Fund Assets vis-a-vis
the amount of interest owed on the Securities will, unless otherwise specified
in the related Prospectus Supplement, be borne by the holders of such
Securities.
PREPAYMENT AND YIELD CONSIDERATIONS AND REINVESTMENT RISK
Prepayment and Yield considerations; Yield May Vary. The timing of
principal payments of the Securities of a Series will be affected by a number of
factors, including the following: (i) the rate, timing and extent of prepayments
(including for this purpose prepayments resulting from refinancing or
liquidations of the Loans due to defaults, casualties, condemnations and
repurchases by the Depositor or the Master Servicer) of the Loans comprising the
Trust Fund, which prepayments may be influenced by a variety of factors,
including general economic conditions, prevailing interest rate levels, the
availability of alternative financing and homeowner mobility, (ii) the manner of
allocating principal and/or payments among the classes of Securities of a Series
as specified in the related Prospectus Supplement, (iii) the exercise by the
party entitled thereto of any right of optional termination and (iv) the rate
and timing of payment defaults and losses incurred with respect to the Trust
Fund Assets. The repurchase of Loans by a Seller, an Originator or the Master
Servicer may result from repurchases of Trust Fund Assets due to material
breaches of such Seller's, such Originator's or the Master Servicer's
representations and warranties, as applicable. The yields to maturity and
weighted average lives of the Securities will be affected primarily by the rate
and timing of prepayment of the Loans comprising the Trust Fund Assets. The
"yield to maturity" is the rate of return an investor in a Security will receive
if such Security is held to its maturity date taking into account the purchase
price, redemption value, time to maturity, interest rate borne by such Security
and the time between interest payments. The "weighted average life" of a
Security refers to the amount of time that would elapse from the date of its
issuance until each dollar applicable to principal of such Security is
distributed to the investor. The yields to maturity and weighted average lives
of the Securities will also be affected by the distribution of amounts remaining
in any Pre-Funding Account following the end of the related Funding Period. A
delay in distributions of principal resulting in an extension of the weighted
average life of a Security or an acceleration in distributions of principal
resulting in a reduction of the weighted average life of a Security may
adversely impact the yield to maturity anticipated by an investor in such
Security. See "Yield and Prepayment Considerations" and "The
Agreements -- Pre-Funding Account."
Reinvestment Risk Due to Prepayment of Loans. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Loans held by a
Trust Fund will be borne entirely by the holders of one or more classes of the
related Series of Securities. Amounts received by an investor from distributions
on a Security may be reinvested at prevailing interest rates which may be higher
or lower than the interest rate payable on the Securities. In general, if
prevailing interest rates fall significantly below the Loan Rates borne by the
Loans, such Loans are more likely to be subject to higher prepayment rates than
if prevailing interest rates remain at or above such Loan Rates. If, however,
prevailing interest rates rise appreciably above the Loan Rates borne by the
Loans, such Loans are more likely to experience a lower prepayment rate than if
prevailing rates remain at or below such Loan Rates. Thus, an investor may
receive accelerated principal payments on the Securities held by the investor
for reinvestment at a time when prevailing interest rates are lower than the
interest rate payable on such Securities. Conversely, an investor may not
receive any prepayments on such Securities at a time when any such prepayments
could be reinvested at interest rates
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higher than those payable on the Securities. See "Yield and Prepayment
Considerations" and "The Agreements -- Pre-Funding Account."
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Securities were to accrue through the day immediately preceding
each Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate. See "Description of the
Securities -- Distributions on Securities -- Distributions of Interest."
GREATER RISK CONSIDERATIONS DUE TO GEOGRAPHIC CONCENTRATION
Certain geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets, and,
consequently, will experience higher rates of loss and delinquency on loans
generally. Any concentration of the Loans relating to any Series of Securities
in any such region may present risk considerations in addition to those
generally present for similar loan-backed securities without such concentration.
See "The Mortgage Pool" in the related Prospectus Supplement for further
information regarding the geographic concentration of the Loans underlying the
Securities of any Series.
NATURE OF SECURITY MAY AFFECT PAYMENTS ON LOANS
Low Credit Quality Borrowers May Affect Payments. Certain of the Loans
underlying a Series of Securities may have been made to lower credit quality
borrowers who have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income characteristics
which cause difficulty in borrowing from banks and other traditional lending
sources, and customers with a derogatory credit report, including a history of
irregular employment, previous bankruptcy filings, repossession of property,
charged-off loans and garnishment of wages. The average Loan Rate on those Loans
made to these types of borrowers is generally higher than that charged by
lenders that typically impose more stringent credit requirements. The payment
experience on loans made to these types of borrowers is likely to be different
from that on loans made to borrowers with higher credit quality, and is likely
to be more sensitive to changes in the economic climate in the areas in which
such borrowers reside.
Balloon Payments May Affect Payments. Certain of the Loans as of the
related Cut-off Date may not be fully amortizing over their terms to maturity
and, thus, will require substantial principal payments (i.e., balloon payments)
at their stated maturity. Loans with balloon payments involve a greater degree
of risk because the ability of a borrower to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Property. The ability of a borrower to accomplish either of
these goals will be affected by a number of factors, including the level of
available mortgage rates at the time of sale or refinancing, the borrower's
equity in the related Property, the financial condition of the borrower and tax
laws. Losses on such Loans that are not otherwise covered by the credit
enhancement described in the applicable Prospectus Supplement will be borne by
the holders of one or more classes of Securities of the related Series.
Property Values May be Insufficient. There are several factors that could
adversely affect the value of Properties such that the outstanding balance of
the related Loans, together with any senior financing on the Properties, if
applicable, would equal or exceed the value of the Properties. Among the factors
that could adversely affect the value of the Properties are an overall decline
in the residential real estate market in the areas in which the Properties are
located or a decline in the general condition of the Properties as a result of
failure of borrowers to maintain adequately the Properties or of natural
disasters that are not necessarily covered by insurance, such as earthquakes and
floods. In the case of Home Equity Loans, such decline could extinguish the
value of the interest of a junior mortgagee in the Property before having any
effect on the interest of the related senior mortgagee. If such a decline
occurs, the actual rates of delinquencies, foreclosures and losses on all Loans
could be higher than those currently experienced in the mortgage lending
industry in general. Losses on such Loans that are not otherwise covered by the
credit enhancement described in the
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applicable Prospectus Supplement will be borne by the holders of one or more
classes of Securities of the related Series.
Delays in Liquidation and Receipt of Proceeds Due to Litigation. Even
assuming that the Properties provide adequate security for the Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Loans and corresponding delays in the receipt of related proceeds by
Securityholders could occur. An action to foreclose on a Property securing a
Loan is regulated by state statutes and rules and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a Property. In the event of a default by a borrower, these
restrictions, among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Loan. In addition, the Master
Servicer will be entitled to deduct from related liquidation proceeds all
expenses reasonably incurred in attempting to recover amounts due on defaulted
Loans and not yet repaid, including payments to senior lienholders, legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses.
Disproportionate Effect of Liquidation Expenses May Affect
Proceeds. Liquidation expenses with respect to defaulted loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted loan having a small remaining principal balance as it would in
the case of a defaulted loan having a large remaining principal balance, the
amount realized after expenses of liquidation would be smaller as a percentage
of the outstanding principal balance of the small loan than would be the case
with the defaulted loan having a large remaining principal balance.
Home Equity Loans; Junior Loans Create Additional Risk of Loss. Since the
mortgages and deeds of trust securing the Home Equity Loans will be primarily
junior liens subordinate to the rights of the mortgagee under the related senior
mortgage(s) or deed(s) of trust, the proceeds from any liquidation, insurance or
condemnation proceeds will be available to satisfy the outstanding balance of
such junior lien only to the extent that the claims of such senior mortgagees
have been satisfied in full, including any related foreclosure costs. In
addition, a junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to any senior mortgage, in which case it
must either pay the entire amount due on any senior mortgage to the related
senior mortgagee at or prior to the foreclosure sale or undertake the obligation
to make payments on any such senior mortgage in the event the mortgagor is in
default thereunder. The Trust Fund will not have any source of funds to satisfy
any senior mortgages or make payments due to any senior mortgagees and may
therefore be prevented from foreclosing on the related property.
Consumer Protection Laws May Affect Loans. Applicable state laws generally
regulate interest rates and other charges, require certain disclosures, and
require licensing of certain originators and servicers of Loans. In addition,
most states have other laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and
practices which may apply to the origination, servicing and collection of the
Loans. Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these laws, policies and principles
may limit the ability of the Master Servicer to collect all or part of the
principal of or interest on the Loans, may entitle the borrower to a refund of
amounts previously paid and, in addition, could subject the Master Servicer to
damages and administrative sanctions. See "Certain Legal Aspects of the Loans."
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONDITIONS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition under the laws of some states and
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a
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property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether the environmental
damage or threat was caused by a prior owner. A lender also risks such liability
on foreclosure of the related property. See "Certain Legal Aspects of the
Loans -- Environmental Risks."
SECURITY INTEREST RISKS ASSOCIATED WITH CERTAIN LOAN ASSETS
Security Interests relating to Contracts Secured by Home Improvements or
Manufactured Homes. Certain Contracts may be secured by security interests in
Home Improvements or Manufactured Homes that are not considered to be real
property because they are not permanently affixed to real estate. Perfection of
security interests in such Home Improvements or Manufactured Homes and
enforcement of rights to realize upon the value of such Home Improvements or
Manufactured Homes as collateral for the Contracts are subject to a number of
Federal and state laws, including the Uniform Commercial Code as adopted in each
state and each state's certificate of title statutes. The steps necessary to
perfect the security interest in Home Improvements or a Manufactured Home will
vary from state to state. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer of a Contract will not amend any certificate of
title to change the lienholder specified therein from such Master Servicer to
the applicable Trustee and will not deliver any certificate of title to such
Trustee or note thereon such Trustee's interest. Consequently, in some states,
in the absence of such an amendment, the assignment to such Trustee of the
security interest in the Home Improvements or a Manufactured Home may not be
effective or such security interest may not be perfected and, in the absence of
such notation or delivery to such Trustee, the assignment of the security
interest in the Home Improvements or Manufactured Home may not be effective
against creditors of the Master Servicer or a trustee in bankruptcy of the
Master Servicer. While the Depositor cannot quantify the expense and
administrative burden involved by the Master Servicer taking such actions, in a
transaction with a diversified pool of Contracts consisting of a large number of
Contracts with relatively small principal balances, the expense and
administrative burden of such actions may be prohibitive. If any related credit
enhancement is exhausted and a Contract is in default, then recovery of amounts
due on such Contracts is dependent on repossession and resale of the Home
Improvements or Manufactured Home securing such Contract. Certain other factors
may limit the ability of the Master Servicer to realize upon the Home
Improvements or Manufactured Homes or may limit the amount realized to less than
the amount due.
Manufactured Homes, unlike Mortgaged Properties, and Home Improvement,
generally depreciate in value. Consequently, at any time after origination it is
possible, especially in the case of Contracts with high Loan-to-Value Ratios at
origination, that the market value of a Manufactured Home or Home Improvement
may be lower than the principal amount outstanding under the related Contract.
For more information concerning Home Improvement Contracts and Manufactured
Housing Contracts, see "The Trust Fund -- The Loans -- Home Improvement
Contracts" and "-- Manufactured Housing Contracts."
Unsecured Contracts. The obligations of the borrower under certain
Contracts included as part of the related Trust Fund Assets may not be secured
by an interest in the related real estate or otherwise, and the related Trust
Fund, as the owner of such Loan, will be a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under an unsecured
Contract, the related Trust Fund will have recourse only against the borrower's
assets generally, along with all other general unsecured creditors of the
borrower. In a bankruptcy or insolvency proceeding relating to a borrower on an
unsecured Contract, the obligations of the borrower under such Contract may be
discharged in their entirety, notwithstanding the fact that the portion of such
borrower's assets made available to the related Trust Fund as a general
unsecured creditor to pay amounts due and owing thereunder are insufficient to
pay all such amounts. A borrower on an unsecured Contract may not demonstrate
the same degree of concern over performance of its obligations under such
Contract as if such obligations were secured by a family residence owned by such
borrower.
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CERTAIN FEDERAL LAWS MAY AFFECT THE LOANS
Consumer Protection Laws May Affect Collections. The Loans may also be
subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding
the terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the Consumer Credit
Protection Act, in the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; and
(iv) for Loans that were originated or closed after November 7, 1989,
the Home Equity Loan Consumer Protection Act of 1988, which requires
additional application disclosures, limits changes that may be made to the
loan documents without the borrower's consent and restricts a lender's
ability to declare a default or to suspend or reduce a borrower's credit
limit to certain enumerated events.
These laws impose specific statutory liabilities upon lenders who fail to
comply with the provisions of such laws. In addition, violation of such laws may
limit the ability to collect all or a part of the principal of or interest on
the Loans and could subject assignees to damages and administrative enforcement.
See "Certain Legal Aspects of the Loans -- Consumer Protection Laws."
The Riegle Act May Affect Enforceability of Loans. Certain mortgage loans
may be subject to the Riegle Community Development and Regulatory Improvement
Act of 1994 (the "Riegle Act") which incorporates the Home Ownership and Equity
Protection Act of 1994. These provisions impose additional disclosure and other
requirements on creditors with respect to non-purchase money mortgage loans with
high interest rates or high up-front fees and charges. The provisions of the
Riegle Act apply on a mandatory basis to all mortgage loans originated on or
after October 1, 1995. These provisions can impose specific statutory
liabilities upon creditors who fail to comply with their provisions and may
affect the enforceability of the related loans. In addition, any assignee of the
creditor would generally be subject to all claims and defenses that the consumer
could assert against the creditor, including, without limitation, the right to
rescind the mortgage loan.
Holder in Due Course Rules May Affect Collections. The Contracts are also
subject to the Preservation of Consumers' Claims and Defenses regulations of the
Federal Trade Commission and other similar federal and state statutes and
regulations (collectively, the "Holder in Due Course Rules"), which protect the
homeowner from defective craftsmanship or incomplete work by a contractor. These
laws permit the obligor to withhold payment if the work does not meet the
quality and durability standards agreed to by the homeowner and the contractor.
The Holder in Due Course Rules have the effect of subjecting any assignee of the
seller in a consumer credit transaction to all claims and defenses which the
obligor in the credit sale transaction could assert against the seller of the
goods.
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Loans and in addition could subject the Trust Fund to damages
and administrative enforcement. Losses on such Loans that are not otherwise
covered by the credit enhancement described in the related Prospectus Supplement
will be borne by the holders of one or more classes of Securities of the related
Series. See "Certain Legal Aspects of the Loans."
RATINGS ARE NOT RECOMMENDATIONS
It will be a condition to the issuance of a class of Securities offered
hereby that they be rated in one of the four highest rating categories by the
Rating Agency identified in the related Prospectus Supplement. Any such rating
would be based on, among other things, the adequacy of the value of the related
Trust Fund Assets and any credit enhancement with respect to such class and will
represent such Rating Agency's assessment solely
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of the likelihood that holders of such class of Securities will receive payments
to which such Securityholders are entitled under the related Agreement. Such
rating will not constitute an assessment of the likelihood that principal
prepayments on the related Loans will be made, the degree to which the rate of
such prepayments might differ from that originally anticipated or the likelihood
of early optional termination of the Series of Securities. Such rating shall not
be deemed a recommendation to purchase, hold or sell Securities, inasmuch as it
does not address market price or suitability for a particular investor. Such
rating will not address the possibility that prepayment at higher or lower rates
than anticipated by an investor may cause such investor to experience a lower
than anticipated yield or that an investor purchasing a Security at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series of Securities, such rating might also be lowered or
withdrawn because of, among other reasons, an adverse change in the financial or
other condition of a credit enhancement provider or a change in the rating of
such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a class of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of similar loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of similar loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that the values of any Properties have
remained or will remain at their levels on the respective dates of origination
of the related Loans. If the residential real estate markets should experience
an overall decline in property values such that the outstanding principal
balances of the Loans in a particular Trust Fund and any secondary financing on
the related Properties become equal to or greater than the value of the
Properties, the rates of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by credit enhancement, such losses will
be borne, at least in part, by the holders of one or more classes of Securities
of the related Series. See "Rating."
BOOK-ENTRY REGISTRATION MAY REDUCE LIQUIDITY
If issued in book-entry form, such registration may reduce the liquidity of
the Securities in the secondary trading market since investors may be unwilling
to purchase Securities for which they cannot obtain physical certificates. Since
transactions in book-entry Securities can be effected only through the
Depository Trust Company ("DTC"), participating organizations, Financial
Intermediaries and certain banks, the ability of a Securityholder to pledge a
book-entry Security to persons or entities that do not participate in the DTC
system may be limited due to lack of a physical certificate representing such
Securities. Security Owners will not be recognized as Securityholders, as such
term is used in the related Agreement, and Security Owners will be permitted to
exercise the rights of Securityholders only indirectly through DTC and its
Participants.
In addition, Securityholders may experience some delay in their receipt of
distributions of interest and principal on book-entry Securities since
distributions are required to be forwarded by the Trustee to DTC and DTC will
then be required to credit such distributions to the accounts of Depository
participants which thereafter will be required to credit them to the accounts of
Securityholders either directly or indirectly through Financial Intermediaries.
See "Description of the Securities--Book-Entry Registration of Securities."
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REINVESTMENT RISK RELATED TO PRE-FUNDING ACCOUNTS
If so provided in the related Prospectus Supplement, on the related Closing
Date the Depositor will deposit cash from the proceeds of the issuance of the
related Series of Securities in an amount (the "Pre-Funded Amount") specified in
such Prospectus Supplement into an account (the "Pre-Funding Account"). In no
event shall the Pre-Funded Amount exceed 25% of the initial aggregate principal
amount of the Certificates and/or Notes of the related Series of Securities. The
Pre-Funded Amount will be used to purchase Loans ("Subsequent Loans") in a
period from the related Closing Date to a date not more than three months after
such Closing Date (such period, the "Funding Period") from the Depositor (which,
in turn, will acquire such Subsequent Loans from the Seller or Sellers specified
in the related Prospectus Supplement). The Pre-Funding Account will be
maintained with the Trustee for the related Series of Securities and is designed
solely to hold funds to be applied by such Trustee during the Funding Period to
pay to the Depositor the purchase price for Subsequent Loans. Monies on deposit
in the Pre-Funding Account will not be available to cover losses on or in
respect of the related Loans. To the extent that the entire Pre-Funded Amount
has not been applied to the purchase of Subsequent Loans by the end of the
related Funding Period, any amounts remaining in the Pre-Funding Account will be
distributed as a prepayment of principal to Certificateholders and/or
Noteholders on the Distribution Date immediately following the end of the
Funding Period, in the amounts and pursuant to the priorities set forth in the
related Prospectus Supplement. Any reinvestment risk resulting from such
prepayment will be borne entirely by the holders of one or more classes of the
related Series of Certificates.
BANKRUPTCY AND INSOLVENCY RISKS
Insolvency of Depositor May Cause Losses and Delays. The Seller and the
Depositor will treat the transfer of the Loans by the Seller to the Depositor as
a sale for accounting purposes. The Depositor and the Trust Fund will treat the
transfer of Loans from the Depositor to the Trust Fund as a sale for accounting
purposes. As a sale of the Loans by the Seller to the Depositor, the Loans would
not be part of the Seller's bankruptcy estate and would not be available to the
Seller's creditors. However, in the event of the insolvency of the Depositor, it
is possible that the bankruptcy trustee or a creditor of the Depositor may
attempt to recharacterize the sale of the Loans by the Depositor to the Trust
Fund as a borrowing by the Depositor, secured by a pledge of the Loans. In such
a case, this position, if argued before or accepted by a court, could prevent
timely payments of amounts due on the Securities and result in a reduction of
payments due on the Securities. If the sale of the Loans by the Depositor to the
Trust Fund is recharacterized as a borrowing by the Depositor, the Loans will be
part of the Depositor's bankruptcy estate and may be available to repay other
creditors of the Depositor as well as the Trust Fund. Depending on the priority
of the Trustee's security interest in the Loans, the successful
recharacterization of such sale as a borrowing may result in an insufficient
amount remaining to pay the Trust Fund after the claims of other secured
creditors of the Depositor have been reimbursed from any cash flow relating to
the Loans or proceeds from the disposition of the Loans and/or other creditors
have shared in the distribution of such cash flow or proceeds. Even if the sale
of the Loans is not so recharacterized, any litigation due to the bankruptcy of
the Depositor could result in a delay in payments from the cash flow of the
Loans to the Trustee.
Insolvency of Master Servicer May Prevent Replacing Master Servicer. In
the event of a bankruptcy or insolvency of the Master Servicer, the bankruptcy
trustee or receiver may have the power to prevent the Trustee or the
Securityholders from appointing a successor Master Servicer.
Each Agreement will specify the time period during which cash collections
may be commingled with the Master Servicer's own funds prior to each
Distribution Date and such time period will also be specified in the related
Prospectus Supplement. In the event of the insolvency of the Master Servicer and
if such cash collections are commingled with the Master Servicer's own funds for
at least ten days, the Trust Fund will likely not have a perfected interest in
such collections since such collections would not have been deposited in a
segregated account within ten days after the collection thereof, and the
inclusion thereof in the bankruptcy estate of the Master Servicer may result in
delays in payment and failure to pay amounts due on the Securities of the
related Series.
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Insolvency of Loan Debtor May Cause Losses and Delays. In addition,
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the
mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance for the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the federal Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the Loans underlying a Series of Securities and possible
reductions in the aggregate amount of such payments.
TAX CONSEQUENCES OF OWNING ORIGINAL ISSUE DISCOUNT SECURITIES
Debt Securities that are Compound Interest Securities will be, and certain
of the other Debt Securities may be, issued with original discount for federal
income tax purposes. A holder of Debt Securities issued with original issue
discount will be required to include original issue discount in ordinary gross
income for federal income tax purposes as it accrues, in advance of receipt of
the cash attributable to such income. Accrued but unpaid interest on the Debt
Securities that are Compound Interest Securities generally will be treated as
original issue discount for this purpose. See "Federal Income Tax
Consequences -- General -- Interest and Acquisition Discount" and "-- Market
Discount" herein.
VALUE OF TRUST FUND ASSETS MAY BE INSUFFICIENT
There is no assurance that the market value of the Trust Fund Assets or any
other assets relating to a Series of Securities described under "Credit
Enhancement" herein will at any time be equal to or greater than the principal
amount of the Securities of such Series then outstanding, plus accrued interest
thereon. Moreover, upon an event of default under the Agreement for a Series of
Securities and a sale of the related Trust Fund Assets or upon a sale of the
assets of a Trust Fund for a Series of Securities, the Trustee, the Master
Servicer, the credit enhancer, if any, and any other service provider specified
in the related Prospectus Supplement generally will be entitled to receive the
proceeds of any such sale to the extent of unpaid fees and other amounts owing
to such persons under the related Agreement prior to distributions to
Securityholders. Upon any such sale, the proceeds thereof may be insufficient to
pay in full the principal of and interest on the Securities of such Series.
VALUE OF INDEXED SECURITIES MAY BE AFFECTED
An investment in Securities indexed, as to principal, premium and/or
interest, to one or more values of currencies (including exchange rates and swap
indices between currencies), commodities, interest rates or other indices
entails significant risks that are not associated with similar investments in a
conventional fixed-rate debt security. If the interest rate of such a Security
is so indexed, it may result in an interest rate that is less than that payable
on a conventional fixed-rate debt security issued at the same time, including
the possibility that no interest will be paid, and, if the principal amount of
such a Security is so indexed, the principal amount payable) on the related
final Distribution Date may be less than the original purchase price of such
Security if allowed pursuant to the terms of such Security, including the
possibility that no principal will be paid. The secondary market for such
Securities will be affected by a number of factors, independent of the
characteristics of the Trust Fund Assets, structure of the cash flows and the
value of the applicable currency commodity, interest rate or other index,
including the volatility of the applicable currency, commodity, interest rate or
other index, the time remaining to the maturity of such Securities, the amount
outstanding of such Securities and market interest rates. The value of the
applicable currency, commodity, interest rate or other index depends on a number
of interrelated factors, including economic, financial and political events.
Additionally, if the formula used to determine the principal amount, premium, if
any, or interest payable with respect to such Securities contains a multiple or
leverage factor, the effect of any change
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in the applicable currency, commodity, interest rate or other index may be
increased. The historical experience of the relevant currencies, commodities,
interest rates or other indices should not be taken as an indication of future
performance of such currencies, commodities, interest rates or other indices
during the term of any Security. The credit ratings assigned to any Series or
class of Securities, in no way, are reflective of the potential impact of the
factors discussed above, or any other factors, on the market value of the
Securities. Accordingly, prospective investors should consult their own
financial and legal advisors as to the risks entailed by an investment in such
Securities and the suitability of such Securities in light of their particular
circumstances.
THE TRUST FUND
GENERAL
The Securities of each Series will represent interests in the assets of the
related Trust Fund, and the Notes of each Series will be secured by the pledge
of the assets of the related Trust Fund. The Trust Fund for each Series will be
held by the Trustee for the benefit of the related Securityholders. Each Trust
Fund will consist of assets (the "Trust Fund Assets") consisting of a pool
(each, a "Pool") comprised of Loans, Agency Securities and/or Private
Mortgage-Backed Securities as specified in the related Prospectus Supplement,
together with payments in respect of such Loans, and certain other accounts,
obligations or agreements, in each case, as specified in the related Prospectus
Supplement.* The Pool will be created on the first day of the month of the
issuance of the related Series of Securities or such other date specified in the
related Prospectus Supplement (the "Cut-off Date"). The Securities will be
entitled to payment from the assets of the related Trust Fund or Funds or other
assets pledged for the benefit of the Securityholders, as specified in the
related Prospectus Supplement, and will not be entitled to payments in respect
of the assets of any other trust fund established by the Depositor.
The Trust Fund Assets will be acquired by the Depositor, either directly or
through affiliates, from sellers (the "Sellers"). The Sellers may be affiliates
of the Depositor. Loans acquired by the Depositor will have been originated in
accordance with the underwriting criteria described below under "The
Loans -- Underwriting Standards." The Depositor will cause the Trust Fund Assets
to be assigned without recourse to the Trustee named in the related Prospectus
Supplement for the benefit of the holders of the Securities of the related
Series. The Master Servicer named in the related Prospectus Supplement will
service the Trust Fund Assets, either directly or through other servicing
institutions ("Sub-Servicers"), pursuant to a Pooling and Servicing Agreement
among the Depositor, the Master Servicer and the Trustee with respect to a
Series consisting of Certificates, or a master servicing agreement (each, a
"Master Servicing Agreement") between the Trustee and the Master Servicer with
respect to a Series consisting of Certificates and Notes, and will receive a fee
for such services. See "The Agreements." With respect to Loans serviced by the
Master Servicer through a Sub-Servicer, the Master Servicer will remain liable
for its servicing obligations under the related Agreement as if the Master
Servicer alone were servicing such Loans.
As used herein, "Agreement" means, with respect to a Series consisting of
Certificates, the Pooling and Servicing Agreement, and with respect to a Series
consisting of Certificates and Notes, the Trust Agreement, the Indenture and the
Master Servicing Agreement, as the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund relating
to a Series of Securities may be a business trust formed under the laws of the
state specified in the related Prospectus Supplement pursuant to a trust
agreement (each, a "Trust Agreement") between the Depositor and the trustee of
such Trust Fund.
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*Whenever the terms "Pool," "Certificates," "Notes" and "Securities" are used in
this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool and the Securities of one Series
including the Certificates representing certain undivided interests in, and/or
Notes secured by the assets of, a single Trust Fund consisting primarily of the
Loans, Agency Securities or Private Mortgage-Backed Securities in such Pool.
Similarly, the term "Pass-Through Rate" will refer to the Pass-Through Rate
borne by the Certificates and the term "interest rate" will refer to the
interest rate borne by the Notes of one specific Series, as applicable, and the
term "Trust Fund" will refer to one specific Trust Fund.
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With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or liabilities.
No Trust Fund is expected to engage in any activities other than acquiring,
managing and holding of the related Trust Fund Assets and other assets
contemplated herein specified and in the related Prospectus Supplement and the
proceeds thereof, issuing Securities and making payments and distributions
thereon and certain related activities. No Trust Fund is expected to have any
source of capital other than its assets and any related credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the only
obligations of the Depositor with respect to a Series of Securities will be to
obtain certain representations and warranties from the Sellers or the
Originators and to assign to the Trustee for such Series the Depositor's rights
with respect to such representations and warranties. See "The
Agreements -- Assignment of the Trust Fund Assets." The obligations of the
Master Servicer with respect to the Loans will consist principally of its
contractual servicing obligations under the related Agreement (including its
obligation to enforce the obligations of the Sub-Servicers or Sellers, or both,
as more fully described herein under "The Trust Fund -- Representations by
Sellers or Originators; Repurchases" and "The Agreements -- Sub-Servicing By
Sellers" and "-- Assignment of the Trust Fund Assets") and its obligation, if
any, to make certain cash advances in the event of delinquencies in payments on
or with respect to the Loans in the amounts described herein under "Description
of the Securities -- Advances." The obligations of the Master Servicer to make
advances may be subject to limitations, to the extent provided herein and in the
related Prospectus Supplement.
The following is a brief description of the assets expected to be included
in the Trust Funds. If specific information respecting the Trust Fund Assets is
not known at the time the related Series of Securities initially is offered,
more general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Securities (the "Detailed
Description"). A copy of the Agreement with respect to each Series of Securities
will be attached to the Form 8-K and will be available for inspection at the
corporate trust office of the Trustee specified in the related Prospectus
Supplement. A schedule of the Loans, Agency Securities and/or Private
Mortgage-Backed Securities relating to such Series will be attached to the
Agreement delivered to the Trustee upon delivery of the Securities.
THE LOANS
General. Unless otherwise specified in the related Prospectus Supplement,
Loans will consist of mortgage loans or deeds of trust secured by first or
subordinated liens on one- to four-family residential properties, Home Equity
Loans, Home Improvement Contracts or Manufactured Housing Contracts. For
purposes hereof, "Home Equity Loans" includes "Closed-End Loans" and "Revolving
Credit Line Loans." If so specified, the Loans may include cooperative apartment
loans ("Cooperative Loans") secured by security interests in shares issued by
private, non-profit, cooperative housing corporations ("Cooperatives") and in
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in such Cooperatives' buildings. As more fully
described in the related Prospectus Supplement, the Loans may be "conventional"
loans or loans that are insured or guaranteed by a governmental agency such as
the FHA or VA. The Loans will have been originated in accordance with the
underwriting criteria specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all of the
Loans in a Pool will have monthly payments due on the first day of each month.
The payment terms of the Loans to be included in a Trust Fund will be described
in the related Prospectus Supplement and may include any of the following
features (or combination thereof), all as described below or in the related
Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a period of time
or under certain circumstances and is followed by an adjustable rate, a
rate that otherwise varies from time to time, or a rate that is convertible
from an adjustable rate to a fixed rate. Changes to an adjustable rate may
be subject to periodic limitations, maximum rates, minimum rates or a
combination
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of such limitations. As specified in the related Prospectus Supplement, the
Loans will provide either for payments in level monthly installments
(except in the case of Loans with balloon payments) consisting of interest
equal to one-twelfth of the specified interest rate borne by such Loan (the
"Loan Rate") times the unpaid principal balance, with the remainder of such
payment applied to principal, for payments that are allocated to principal
and interest according to the daily simple interest method, or for payments
that are allocated to principal and interest according to the "sum of the
digits" or "Rule of 78s" methods. Accrued interest may be deferred and
added to the principal of a Loan for such periods and under such
circumstances as may be specified in the related Prospectus Supplement.
Loans may provide for the payment of interest at a rate lower than the Loan
Rate for a period of time or for the life of the Loan, and the amount of
any difference may be contributed from funds supplied by the seller of the
Property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the Loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
Loan Rate or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be due
on maturity ("balloon payment"). Principal may include interest that has
been deferred and added to the principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Loan, may increase over a specified period of time or may
change from period to period. Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the Loan or may decline over time, and may be
prohibited for the life of the Loan or for certain periods ("lockout
periods"). Certain Loans may permit prepayments after expiration of the
applicable lockout period and may require the payment of a prepayment fee
in connection with any such subsequent prepayment. Other Loans may permit
prepayments without payment of a fee unless the prepayment occurs during
specified time periods. The Loans may include "due on sale" clauses which
permit the mortgagee to demand payment of the entire Loan in connection
with the sale or certain transfers of the related Property. Other Loans may
be assumable by persons meeting the then applicable underwriting standards
of the related Seller.
A Trust Fund may contain certain Loans ("Buydown Loans") that include
provisions whereby a third party partially subsidizes the monthly payments of
the borrowers on such Loans during the early years of such Loans, the difference
to be made up from a fund (a "Buydown Fund") contributed by such third party at
the time of origination of the Loan. A Buydown Fund will be in an amount equal
either to the discounted value or full aggregate amount of future payment
subsidies. The underlying assumption of buydown plans is that the income of the
borrower will increase during the buydown period as a result of normal increases
in compensation and inflation, so that the borrower will be able to meet the
full loan payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the borrower initially, on annual increases in the
interest rate and on the length of the buydown period.
The real property which secures repayment of the Loans is referred to as
the "Mortgaged Properties." Home Improvement Contracts and Manufactured Housing
Contracts may, and the other Loans will, be secured by mortgages or deeds of
trust or other similar security instruments creating a lien on a Mortgaged
Property. In the case of Home Equity Loans, such liens generally will be
subordinated to one or more senior liens on the related Mortgaged Properties as
described in the related Prospectus Supplement. As specified in the related
Prospectus Supplement, Home Improvement Contracts and Manufactured Housing
Contracts may be unsecured or secured by purchase money security interests in
the Home Improvements and Manufactured Homes financed thereby. The Mortgaged
Properties, and the Home Improvements and the Manufactured Homes are
collectively referred to herein as the "Properties." The Properties relating to
Loans
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will consist primarily of detached or semi-detached one- to four-family dwelling
units, townhouses, rowhouses, individual condominium units, individual units in
planned unit developments, and certain other dwelling units ("Single Family
Properties") or "mixed used properties" which consist of structures of not more
than three stories which include one- to four-family residential dwelling units
and space used for retail, professional or other commercial uses. Such
Properties may include vacation and second homes, investment properties and
leasehold interests. In the case of leasehold interests, the term of the
leasehold will exceed the scheduled maturity of the Loan by at least five years,
unless otherwise specified in the related Prospectus Supplement. The Properties
may be located in any one of the fifty states, the District of Columbia, Guam,
Puerto Rico or any other territory of the United States.
Loans with certain Loan-to-Value Ratios and/or certain principal balances
may be covered wholly or partially by primary mortgage guaranty insurance
policies (each, a "Primary Mortgage Insurance Policy"). The existence, extent
and duration of any such coverage will be described in the applicable Prospectus
Supplement.
The aggregate principal balance of Loans secured by Properties that are
owner-occupied will be disclosed in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the sole basis for a
representation that a given percentage of the Loans is secured by Single Family
Properties that are owner-occupied will be either (i) the making of a
representation by the borrower at origination of the Loan either that the
underlying Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Property as a primary
residence or (ii) a finding that the address of the underlying Property is the
borrower's mailing address.
Home Equity Loans. As more fully described in the related Prospectus
Supplement, interest on each Revolving Credit Line Loan, excluding introduction
rates offered from time to time during promotional periods, is computed and
payable monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. Except to the extent provided in the related
Prospectus Supplement, the Trust Fund will not include any amounts borrowed
under a Revolving Credit Line Loan after the Cut-off Date. The full amount of a
Closed-End Loan is advanced at the inception of the Loan and generally is
repayable in equal (or substantially equal) installments of an amount to fully
amortize such Loan at its stated maturity. Except to the extent provided in the
related Prospectus Supplement, the original terms to stated maturity of
Closed-End Loans will not exceed 360 months. Under certain circumstances, under
either a Revolving Credit Line Loan or a Closed-End Loan, a borrower may choose
an interest only payment option and is obligated to pay only the amount of
interest which accrues on the Loan during the billing cycle. An interest only
payment option may be available for a specified period before the borrower must
begin paying at least the minimum monthly payment of a specified percentage of
the average outstanding balance of the Loan.
Home Improvement Contracts. The Trust Fund Assets for a Series of
Securities may consist, in whole or in part, of Home Improvement Contracts
originated by a home improvement contractor, a thrift or a commercial mortgage
banker in the ordinary course of business. The Home Improvements securing the
Home Improvement Contracts may include, but are not limited to, replacement
windows, house siding, new roofs, swimming pools, satellite dishes, kitchen and
bathroom remodeling goods and solar heating panels. As specified in the related
Prospectus Supplement, the Home Improvement Contracts will either be unsecured
or secured by mortgages on Single Family Properties which are generally
subordinate to other mortgages on the same Property, or secured by purchase
money security interests in the Home Improvements financed thereby. Except as
otherwise specified in the related Prospectus Supplement, the Home Improvement
Contracts will be fully amortizing and may have fixed interest rates or
adjustable interest rates and may provide for other payment characteristics as
described below and in the related Prospectus Supplement. The initial Loan-to-
Value Ratio of a Home Improvement Contract is computed in the manner described
in the related Prospectus Supplement.
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Manufactured Housing Contracts. The Trust Fund Assets for a Series may
consist, in whole or part, of conventional manufactured housing installment
sales contracts and installment loan agreements (the "Manufactured Housing
Contracts" and together with the Home Improvement Contracts, the "Contracts"),
originated by a manufactured housing dealer in the ordinary course of business.
As specified in the related Prospectus Supplement, the Manufactured Housing
Contracts will be secured by either Manufactured Homes (as defined below),
located in any of the fifty states or the District of Columbia or by Mortgages
on the real estate on which the Manufactured Homes are located.
Unless otherwise specified in the related Prospectus Supplement, the
manufactured homes (the "Manufactured Homes") securing the Manufactured Housing
Contracts will consist of manufactured homes within the meaning of 42 United
States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which, in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning and electrical systems
contained therein; except that such term shall include any structure which meets
all the requirements of [this] paragraph except the size requirements and with
respect to which the manufacturer voluntarily files a certification required by
the Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter."
Manufactured Homes, unlike Mortgaged Properties, and Home Improvements,
generally depreciate in value. Consequently, at any time after origination it is
possible, especially in the case of Contracts with high Loan-to-Value Ratios at
origination, that the market value of a Manufactured Home or Home Improvement
may be lower than the principal amount outstanding under the related Contract.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the extent then
specifically known to the Depositor, with respect to the Loans contained in the
related Pool, including (i) the aggregate outstanding principal balance and the
average outstanding principal balance of the Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Loan (e.g., single family
residences, individual units in condominium apartment buildings, two- to four-
family dwelling units, other real property, Home Improvements or Manufactured
Homes), (iii) the original terms to maturity of the Loans, (iv) the largest
principal balance and the smallest principal balance of any of the Loans, (v)
the earliest origination date and latest maturity date of any of the Loans, (vi)
the Loan-to-Value Ratios or Combined Loan-to-Value Ratios, as applicable, of the
Loans, (vii) the Loan Rates or annual percentage rates ("APR") or range of Loan
Rates or APR's borne by the Loans, (viii) the maximum and minimum per annum Loan
Rates, and (ix) the geographical location of the Loans. If specific information
respecting the Loans is not known to the Depositor at the time the related
Securities are initially offered, more general information of the nature
described above will be provided in the related Prospectus Supplement, and
specific information will be set forth in the Detailed Description.
The "Loan-to-Value Ratio" of a Loan at any given time is the fraction,
expressed as a percentage, the numerator of which is the original principal
balance of the related Loan and the denominator of which is the Collateral Value
of the related Property. Except as otherwise specified in the related Prospectus
Supplement, the "Combined Loan-to-Value Ratio" of a Loan at any given time is
the ratio, expressed as a percentage, of (i) the sum of (a) the original
principal balance of the Loan (or, in the case of a Revolving Credit Line Loan,
the maximum amount thereof available) and (b) the outstanding principal balance
at the date of origination of the Loan of any senior mortgage loan(s) or, in the
case of any open-ended senior mortgage loan, the maximum available line of
credit with respect to such mortgage loan, regardless of any lesser amount
actually outstanding at the date of origination of the Loan, to (ii) the
Collateral Value of the related Property. Except as otherwise specified in the
related Prospectus Supplement, the "Collateral Value" of the Property, other
than with respect to certain Loans the proceeds of which were used to refinance
an existing mortgage loan (each, a "Refinance Loan"), is the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of such Loan and (b) the sales price for such Property. In the case
of Refinance Loans, the "Collateral Value" of the related Property is the
appraised value thereof determined in an appraisal obtained at the time of
refinancing.
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No assurance can be given that values of the Properties have remained or
will remain at their levels on the dates of origination of the related Loans. If
the residential real estate market should experience an overall decline in
property values such that the sum of the outstanding principal balances of the
Loans and any primary or secondary financing on the Properties, as applicable,
in a particular Pool become equal to or greater than the value of the
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any Pool.
To the extent that such losses are not covered by subordination provisions or
alternative arrangements, such losses will be borne, at least in part, by the
holders of the Securities of the related Series.
Underwriting Standards. The Loans will be acquired by the Depositor,
either directly or through affiliates, from the Sellers. Unless otherwise
specified in the related Prospectus Supplement, the Loans will be originated in
accordance with the following underwriting criteria. Each Seller or Originator
will represent and warrant that all Loans originated and/or sold by it to the
Depositor or one of its affiliates will have been underwritten in accordance
with standards consistent with those utilized by lenders generally during the
period of origination for similar types of loans. As to any Loan insured by the
FHA or partially guaranteed by the VA, the Seller or Originator will represent
that it has complied with underwriting policies of the FHA or the VA, as the
case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Mortgaged Property, Home Improvements or Manufactured Home, as
applicable, as collateral. In general, a prospective borrower applying for a
Loan is required to fill out a detailed application designed to provide to the
underwriting officer pertinent credit information, including, among other
things, the principal balance and payment history with respect to any senior
mortgage, if any, which, unless otherwise specified in the related Prospectus
Supplement, will be verified by the related Seller or Originator. As part of the
description of the borrower's financial condition, the borrower generally is
required to provide a current list of assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
which summarizes the borrower's credit history with local merchants and lenders
and any record of bankruptcy. In most cases, an employment verification is
obtained from an independent source (typically the borrower's employer) which
verification reports, among other things, the length of employment with that
organization and the borrower's current salary. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
In determining the adequacy of the property to be used as collateral, an
appraisal, if applicable, will generally be made of each property considered for
financing. The appraiser is generally required to inspect the property, issue a
report on its condition and, if applicable, verify construction, if new, has
been completed. The appraisal is based on the market value of comparable
properties, the estimated rental income (if considered applicable by the
appraiser) and the cost of replacing the collateral. The value of the property
being financed, as indicated by the appraisal, must be such that it currently
supports, and is anticipated to support in the future, the outstanding loan
balance.
The maximum loan amount will vary depending upon a borrower's credit grade
and loan program but will not generally exceed an amount specified in the
related Prospectus Supplement. Variations in maximum loan amount limits will be
permitted based on compensating factors. Compensating factors may generally
include, to the extent specified in the related Prospectus Supplement, low
loan-to-value ratio, low debt-to-income ratio, stable employment, favorable
credit history and the nature of the underlying first mortgage loan, if
applicable.
Each Seller's or Originator's underwriting standards will generally permit
loans with loan-to-value ratios at origination of up to 100% depending on the
loan program, type and use of the property, creditworthiness of the borrower and
debt-to-income ratio.
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After obtaining all applicable employment, credit and property information,
the related Seller or Originator will use a debt-to-income ratio to assist in
determining whether the prospective borrower has sufficient monthly income
available to support the payments of principal and interest on the loan in
addition to other monthly credit obligations. The "debt-to-income ratio" is the
ratio of the borrower's total monthly payments to the borrower's gross monthly
income. The maximum monthly debt-to-income ratio will vary depending upon a
borrower's credit grade and loan program but will not generally exceed an amount
specified in the related Prospectus Supplement. Variations in the monthly
debt-to-income ratio limit will be permitted based on compensating factors to
the extent specified in the related Prospectus Supplement.
Certain of the types of Loans that may be included in a Trust Fund are
recently developed and may involve additional uncertainties not present in
traditional types of loans. For example, certain of such Loans are underwritten
on the basis of a judgment that the borrowers have the ability to make the
monthly payments required initially. In some instances, a borrower's income may
not be sufficient to permit continued loan payments as such payments increase.
These types of Loans may also be underwritten primarily upon the basis of
loan-to-value ratios or other favorable credit factors.
MODIFICATION OF LOANS
The Master Servicer may agree, subject to the terms and conditions set
forth in the related Agreement, to modify, waive or amend any term of a Loan in
a manner that is consistent with the servicing standard set forth in the related
Agreement and related Prospectus Supplement; provided however, that such
modification, waiver or amendment may not affect the tax status of the Trust
Fund or cause any tax to be imposed on the Trust Fund or materially impair the
security for the related Loan.
AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned corporate
instrumentality of the United States within the United Stated Department of
Housing and Urban Development ("HUD"). Section 306(g) of Title II of the
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA
to, among other things, guarantee the timely payment of the principal of and
interest on certificates which represent an interest in a pool of mortgage loans
insured by the FHA under the Housing Act or Title V of the Housing Act of 1949
("FHA Loans"), or partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or chapter 37 of Title 38, United States
Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to meet
its obligations under any such guarantee, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an amount which is at any
time sufficient to enable GNMA, with no limitations as to amount, to perform its
obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (which may
be a GNMA I Certificate or a GNMA II Certificate) will be a "fully modified
pass-through" mortgaged-backed certificate issued and serviced by a mortgage
banking company or other financial concern ("GNMA Issuer") approved by GNMA or
approved by FNMA as a seller-servicer of FHA Loans and/or VA Loans. The mortgage
loans underlying the GNMA Certificates held in a Trust Fund will consist of FHA
Loans and/or VA Loans. Each such mortgage loan is secured by a one- to
four-family residential property or a manufactured home. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate,
even if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 40 years (but may have original maturities of
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substantially less than 40 years). Each such GNMA Certificate will provide for
the payment by or on behalf of the GNMA Issuer to the registered holder of such
GNMA Certificate of scheduled monthly payments of principal and interest equal
to the registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
such GNMA Certificate, less the applicable servicing and guarantee fee which
together equal the difference between the interest on the FHA Loans or VA Loans
and the pass-through rate on the GNMA Certificate. In addition, each payment
will include proportionate pass-through payments of any prepayments of principal
on the FHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The Trustee or its nominee, as registered holder of
the GNMA Certificates held in a Trust Fund, will have the right to proceed
directly against GNMA under the terms of the Guaranty Agreements relating to
such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes) over the term of the loan. The interest rate on such GNMA I Certificate
will equal the interest rate on the mortgage loans included in the pool of
mortgage loans underlying such GNMA I Certificate, less one-half percentage
point per annum of the unpaid principal balance of the mortgage loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or by
"buydown" mortgage loans for which funds will have been provided (and deposited
into escrow accounts) for application to the payment of a portion of the
borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or "buydown" mortgage loans. No statistics
comparable to the FHA's prepayment experience on level payment, non-buydown
loans are available in respect of graduated payment or buydown mortgages. GNMA
Certificates related to a Series of Certificates may be held in book-entry form.
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GNMA also guarantees the timely payment of principal of and interest on
"fully modified pass-through" mortgage-backed securities issued and serviced by
certain mortgage banking companies and other financial concerns ("FNMA Project
Issuers") based upon and backed by pools of multi-family residential mortgage
loans coinsured by FHA and GNMA Project Issuers under the Housing Act ("GNMA
Project Certificates"). The Prospectus Supplement for a Series of Certificates
that includes GNMA Project Certificates will set forth additional information
regarding the GNMA guaranty program, servicing of the mortgage pool, the payment
of principal and interest on GNMA Project Certificates and other matters with
respect to multi-family residential mortgage loans that qualify for the GNMA
guaranty.
Federal National Mortgage Association. FNMA is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act (the "Charter Act"). FNMA was originally
established in 1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a stockholder-owned
and privately-managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are either Guaranteed Mortgage
Pass-Through Certificates ("FNMA MBS") or Stripped Mortgage-Backed Securities
("FNMA SMBS"). The following discussion of FNMA Certificates applies equally to
both FNMA MBS and FNMA SMBS, except as otherwise indicated. Each FNMA
Certificate included in the Trust Fund for a Series will represent a fractional
undivided interest in a pool of mortgage loans formed by FNMA. Each such pool
will consist of mortgage loans of one of the following types: (i) fixed-rate
level installment conventional mortgage loans; (ii) fixed-rate level installment
mortgage loans that are insured by FHA or partially guaranteed by the VA; (iii)
adjustable rate conventional mortgage loans; or (iv) adjustable rate mortgage
loans that are insured by the FHA or partially guaranteed by the VA. Each
mortgage loan must meet the applicable standards set forth under the FNMA
purchase program. Each such mortgage loan will be secured by a first lien on a
one- to four-family residential property. Each such FNMA Certificate will be
issued pursuant to a trust indenture. Original maturities of substantially all
of the conventional, level payment mortgage loans underlying a FNMA Certificate
are expected to be between either 8 to 15 years or 20 to 40 years. The original
maturities of substantially all of the fixed rate level payment FHA Loans or VA
Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA MBS (and the series pass-through rate payable with
respect to a FNMA SMBS) is equal to the lowest interest rate of any mortgage
loan in the related pool, less a specified minimum annual percentage
representing servicing compensation and FNMA's guaranty fee. Under a regular
servicing option (pursuant to which the mortgagee or other servicer assumes the
entire risk of foreclosure losses), the annual interest rates on the mortgage
loans underlying a FNMA Certificate will be between 50 basis points and 250
basis points greater than the annual pass-through rate if a FNMA MBS or the
series pass-through rate if a FNMA SMBS; and under a special servicing option
(pursuant to which FNMA assumes the entire risk for foreclosure losses), the
annual interest rates on the mortgage loans underlying a FNMA Certificate will
generally be between 55 basis points and 255 basis points greater than the
annual FNMA Certificate pass-through rate if a FNMA MBS, or the series
pass-through rate if a FNMA SMBS.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute on a timely basis amounts representing such holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by such FNMA Certificate on the
underlying mortgage loans, whether or not received, and such holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled
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to, the full faith and credit of the United States. If FNMA were unable to
satisfy its obligations, distributions to holders of FNMA Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FNMA Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
FNMA SMBS are issued in series of two or more classes, with each class
representing a specified undivided fractional interest in principal
distributions and interest distributions (adjusted to the series pass-through
rate) on the underlying pool of mortgage loans. The fractional interests of each
class in principal and interest distributions are not identical, but the classes
in the aggregate represent 100% of the principal distributions and interest
distributions (adjusted to the series pass-through rate) on the respective pool.
Because of such difference between the fractional interests in principal and
interest of each class, the effective rate of interest on the principal of each
class of FNMA SMBS may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans.
Unless otherwise specified by FNMA, FNMA Certificates evidencing interests
in pools of mortgages formed on or after May 1, 1985 will be available in
book-entry form only. Distributions of principal and interest on each FNMA
Certificate will be made by FNMA on the 25th day of each month to the persons in
whose name the FNMA Certificate is entered in the books of the Federal Reserve
Banks (or registered on the FNMA Certificate register in the case of fully
registered FNMA Certificates) as of the close of business on the last day of the
preceding month. With respect to FNMA Certificates issued in book-entry form,
distributions thereon will be made by wire, and with respect to fully registered
FNMA Certificates, distributions thereon will be made by check.
Federal Home Loan Mortgage Corporation. FHLMC is a publicly held United
States government-sponsored enterprise created pursuant to the Federal Home Loan
Mortgage Corporation Act, Title III of the Emergency Home Finance Act of 1970,
as amended (the "FHLMC Act"). The common stock of FHLMC is owned by the Federal
Home Loan Banks. FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of urgently needed
housing. It seeks to provide an enhanced degree of liquidity for residential
mortgage investments primarily by assisting in the development of secondary
markets for conventional mortgages. The principal activity of FHLMC currently
consists of the purchase of first lien conventional mortgage loans FHA Loans, VA
Loans or participation interests in such mortgage loans and the sale of the
loans or participations so purchased in the form of mortgage securities,
primarily FHLMC Certificates. FHLMC is confined to purchasing, so far as
practicable, mortgage loans that it deems to be of such quality, type and class
as to meet generally the purchase standards imposed by private institutional
mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a "FHLMC Certificate Group"). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program. Unless otherwise described in the Prospectus Supplement, Mortgage loans
underlying the FHLMC Certificates held by a Trust Fund will consist of mortgage
loans with original terms to maturity of between 10 and 40 years. Each such
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
FHLMC Certificate Group may include whole loans, participation interests in
whole loans and undivided interests in whole loans and/or participations
comprising another FHLMC Certificate Group. Under the Guarantor Program, any
such FHLMC Certificate Group may include only whole loans or participation
interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate Group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
ultimate receipt by such holder of all principal on the underlying mortgage
loans, without any offset or deduction, to the extent of such holder's pro rata
share thereof, but does not, except if and to the extent specified in the
Prospectus Supplement for a Series of Certificates, guarantee
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the timely payment of scheduled principal. Under FHLMC's Gold PC Program, FHLMC
guarantees the timely payment of principal based on the difference between the
pool factor published in the month preceding the month of distribution and the
pool factor published in such month of distribution. Pursuant to its guarantees,
FHLMC indemnifies holders of FHLMC Certificates against any diminution in
principal by reason of charges for property repairs, maintenance and
foreclosure. FHLMC may remit the amount due on account of its guarantee of
collection of principal at any time after default on an underlying mortgage
loan, but not later than (i) 30 days following foreclosure sale, (ii) 30 days
following payment of the claim by any mortgage insurer, or (iii) 30 days
following the expiration of any right of redemption, whichever occurs later, but
in any event no later than one year after demand has been made upon the
mortgagor for accelerated payment of principal. In taking actions regarding the
collection of principal after default on the mortgage loans underlying FHLMC
Certificates, including the timing of demand for acceleration, FHLMC reserves
the right to exercise its judgment with respect to the mortgage loans in the
same manner as for mortgage loans which it has purchased but not sold. The
length of time necessary for FHLMC to determine that a mortgage loan should be
accelerated varies with the particular circumstances of each mortgagor, and
FHLMC has not adopted standards which require that the demand be made within any
specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, with respect to pools formed prior to June 1,
1987, there is no limitation on the amount by which interest rates on the
mortgage loans underlying a FHLMC Certificate may exceed the pass-through rate
on the FHLMC Certificate. With respect to FHLMC Certificates issued on or after
June 1, 1987, the maximum interest rate on the mortgage loans underlying such
FHLMC Certificates may exceed the pass through rate of the FHLMC Certificates by
50 to 100 basis points. Under such program, FHLMC purchases groups of whole
mortgage loans from sellers at specified percentages of their unpaid principal
balances, adjusted for accrued or prepaid interest, which when applied to the
interest rate of the mortgage loans and participations purchased, results in the
yield (expressed as a percentage) required by FHLMC. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a FHLMC Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a FHLMC Certificate group based upon their yield to FHLMC rather than on the
interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of FHLMC's
management and guaranty income as agreed upon between the seller and FHLMC. For
FHLMC Certificate Groups formed under the Guarantor Program with certificate
numbers beginning with 18-012, the range between the lowest and the highest
annual interest rates on the mortgage loans in a FHLMC Certificate group may not
exceed two percentage points.
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FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of the FHLMC Certificates. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
FHLMC also issues mortgage participation certificates representing an
undivided interest in a group of multi-family residential mortgage loans or
participations in multi-family residential mortgage loans purchased by FHLMC
("FHLMC Project Certificates"). The Prospectus Supplement for a Series of
Securities issued by a Trust Fund that includes FHLMC Project Certificates will
set forth additional information regarding multi-family residential mortgage
loans that qualify for purchase by FHLMC.
Stripped Mortgage-Backed Securities. Agency Securities may consist of one
or more stripped mortgage-backed securities, each as described herein and in the
related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA, GNMA
or other government agency or government-sponsored agency Certificates. The
underlying securities will be held under a trust agreement by FHLMC, FNMA, GNMA
or another government agency or government-sponsored agency, each as trustee, or
by another trustee named in the related Prospectus Supplement. FHLMC, FNMA, GNMA
or another government agency or government-sponsored agency will guarantee each
stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies. The characteristics of any such mortgage pass-
through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in a pool of mortgage
loans, or (b) collateralized mortgage obligations ("CMO's") secured by mortgage
loans. Private Mortgage-Backed Securities will have been issued pursuant to a
PMBS agreement (the "PMBS Agreement"). The seller/servicer of the underlying
mortgage loans (the "PMBS Servicer") will have entered into the PMBS Agreement
with a trustee (the "PMBS Trustee") under the PMBS Agreement. The PMBS Trustee
or its agent, or a custodian, will possess the mortgage loans underlying such
Private Mortgage-Backed Security. Mortgage loans underlying a Private
Mortgage-Backed Security will be serviced by the PMBS Servicer directly or by
one or more sub-servicers who may be subject to the supervision of the PMBS
Servicer. The PMBS Servicer will be approved as a servicer by FNMA or FHLMC and,
if FHA Loans underlie the Private Mortgage-Backed Securities, approved by the
Department of Housing and Urban Development ("HUD") as an FHA mortgagee.
The Issuer of the PMBS (the "PMBS Issuer") will be a financial institution
or other entity engaged generally in the business of mortgage lending or the
acquisition of mortgage loans, a public agency or instrumentality of a state,
local or federal government, or a limited purpose or other corporation organized
for the purpose of, among other things, establishing trusts and acquiring and
selling housing loans to such trusts and selling beneficial interests in such
trusts. If so specified in the Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Depositor. If the PMBS Issuer is not an affiliate of the
Depositor, the related PMBS
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(i) will be acquired in the secondary market and not pursuant to an initial
offering of such PMBS, (ii) such PMBS Issuer will generally not be involved in
the issuance of the Securities other than as set forth in the next two
succeeding sentences and (iii) such PMBS will be freely transferable pursuant to
Rule 144(k) promulgated under the Securities Act of 1933, as amended. The
obligations of the PMBS Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. Unless otherwise specified in the related Prospectus Supplement,
the PMBS Issuer will not have guaranteed any of the assets conveyed to the
related trust or any of the Private Mortgage-Backed Securities issued under the
PMBS Agreement. Additionally, although the mortgage loans underlying the Private
Mortgage-Backed Securities may be guaranteed by an agency or instrumentality of
the United States, the Private Mortgage-Backed Securities themselves will not be
so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Loans. The mortgage loans underlying the Private Mortgage-
Backed Securities may consist of fixed rate, level payment, fully amortizing or
graduated payment mortgage loans, buydown loans, adjustable rate mortgage loans,
or loans having balloon or other special payment features. Such mortgage loans
may be Single Family Loans, Multifamily Loans, Cooperative Loans or Contracts
secured by Manufactured Homes. As specified in the related Prospectus
Supplement, (i) no mortgage loan underlying the Private Mortgage-Backed
Securities will have had a Combined Loan-to-Value Ratio at origination in excess
of the percentage set forth in the related Prospectus Supplement, (ii) each
underlying mortgage loan will have had an original term to stated maturity of
not less than 5 years and not more than 40 years, (iii) each underlying mortgage
loan (other than Cooperative Loans) will be required to be covered by a standard
hazard insurance policy (which may be a blanket policy), and (iv) each mortgage
loan (other than Cooperative Loans or Contracts secured by a Manufactured Home)
will be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the mortgage loans underlying the
Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for which
the related Trust Fund includes Private Mortgage-Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the mortgage loans underlying the Private Mortgage-Backed
Securities including (A) the payment features of such mortgage loans, (B) the
approximate aggregate principal balance, if known, of underlying mortgage loans
insured or guaranteed by a governmental entity, (C) the servicing fee or range
of servicing fees with respect to the underlying mortgage loans, and (D) the
minimum and maximum stated maturities of the underlying mortgage loans at
origination, (iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average term-to-stated maturity of
the Private Mortgage-Backed Securities, (v) the pass-through or certificate rate
of the Private Mortgage-Backed Securities, (vi) the weighted average
pass-through or certificate rate of the Private Mortgage-Backed Securities,
(vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the
PMBS Trustee for such Private Mortgage-Backed Securities, (viii) certain
characteristics of credit support, if any, such as reserve funds, insurance
policies, letters of credit or guarantees relating to the mortgage loans
underlying the Private Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves, (ix) the terms on which the underlying
mortgage loans for such Private Mortgage-Backed Securities may, or are required
to, be purchased prior to their stated maturity or the stated maturity of the
Private Mortgage-Backed Securities and
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(x) the terms on which other mortgage loans may be substituted for those
originally underlying the Private Mortgage-Backed Securities.
REPRESENTATIONS BY SELLERS OR ORIGINATORS; REPURCHASES
Each Seller or Originator will have made representations and warranties in
respect of the Loans sold by such Seller or originated by such Originator and
evidenced by all, or a part, of a Series of Securities. Except as otherwise
specified in the related Prospectus Supplement, such representations and
warranties include, among other things: (i) that title insurance (or in the case
of Properties located in areas where such policies are generally not available,
an attorney's certificate of title) and any required hazard insurance policy
were effective at origination of each Loan, other than a Cooperative Loan, and
that each policy (or certificate of title as applicable) remained in effect on
the date of purchase of the Loan from the Originator by the Seller or the
Depositor or from the Seller by or on behalf of the Depositor; (ii) that the
Seller or Originator had good title to each such Loan and such Loan was subject
to no offsets, defenses, counterclaims or rights of rescission except to the
extent that any buydown agreement may forgive certain indebtedness of a
borrower; (iii) that each Loan constituted a valid lien on, or a perfected
security interest with respect to, the Property (subject only to permissible
liens disclosed, if applicable, title insurance exceptions, if applicable, and
certain other exceptions described in the Agreement) and that the Property was
free from damage and was in acceptable condition; (iv) that there were no
delinquent tax or assessment liens against the Property; (v) that no required
payment on a Loan was delinquent more than the number of days specified in the
related Prospectus Supplement; and (vi) that each Loan was made in compliance
with, and is enforceable under, all applicable local, state and federal laws and
regulations in all material respects.
If so specified in the related Prospectus Supplement, the representations
and warranties of a Seller or Originator in respect of a Loan will be made not
as of the Cut-off Date but as of the date on which such Originator sold the Loan
to the Seller or the Depositor or such Seller sold the Loan to the Depositor or
one of its affiliates. Under such circumstances, a substantial period of time
may have elapsed between the sale date and the date of initial issuance of the
Series of Securities evidencing an interest in such Loan. Since the
representations and warranties of a Seller or Originator do not address events
that may occur following the sale of a Loan by such Seller or Originator, its
repurchase obligation described below will not arise if the relevant event that
would otherwise have given rise to such an obligation with respect to a Loan
occurs after the date of sale of such Loan by such Originator to the Seller or
the Depositor or by such Seller to the Depositor or its affiliates. However, the
Depositor will not include any Loan in the Trust Fund for any Series of
Securities if anything has come to the Depositor's attention that would cause it
to believe that the representations and warranties of a Seller or Originator
will not be accurate and complete in all material respects in respect of such
Loan as of the date of initial issuance of the related Series of Securities. If
the Master Servicer is also a Seller or Originator of Loans with respect to a
particular Series of Securities, such representations will be in addition to the
representations and warranties made by the Master Servicer in its capacity as a
Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the Seller or
Originator, will promptly notify the relevant Seller or Originator of any breach
of any representation or warranty made by it in respect of a Loan which
materially and adversely affects the interests of the Securityholders in such
Loan. Unless otherwise specified in the related Prospectus Supplement, if such
Seller or Originator cannot cure such breach within 90 days following notice
from the Master Servicer or the Trustee, as the case may be, then such Seller or
Originator will be obligated either (i) to repurchase such Loan from the Trust
Fund at a price (the "Purchase Price") equal to 100% of the unpaid principal
balance thereof as of the date of the repurchase plus accrued interest thereon
to the first day of the month following the month of repurchase at the Loan Rate
(less any Advances or amount payable as related servicing compensation if the
Seller or Originator is the Master Servicer) or (ii) substitute for such Loan a
replacement loan that satisfies the criteria specified in the related Prospectus
Supplement. If a REMIC election is to be made with respect to a Trust Fund,
unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or a holder of the related residual certificate generally will be
obligated to pay any prohibited transaction tax which may arise in connection
with any such repurchase or substitution and the Trustee must have received a
satisfactory opinion of counsel that such repurchase or substitution will not
cause the Trust Fund to lose its status as a REMIC or otherwise
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subject the Trust Fund to a prohibited transaction tax. The Master Servicer may
be entitled to reimbursement for any such payment from the assets of the related
Trust Fund or from any holder of the related residual certificate. See
"Description of the Securities -- General." Except in those cases in which the
Master Servicer is the Seller or Originator, the Master Servicer will be
required under the applicable Agreement to enforce this obligation for the
benefit of the Trustee and the holders of the Securities, following the
practices it would employ in its good faith business judgment were it the owner
of such Loan. This repurchase or substitution obligation will constitute the
sole remedy available to holders of Securities or the Trustee for a breach of
representation by a Seller or Originator.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is the Seller or Originator) will be obligated to purchase or substitute a Loan
if a Seller or Originator defaults on its obligation to do so, and no assurance
can be given that Sellers or Originators will carry out their respective
repurchase or substitution obligations with respect to Loans. However, to the
extent that a breach of a representation and warranty of a Seller or Originator
may also constitute a breach of a representation made by the Master Servicer,
the Master Servicer may have a repurchase or substitution obligation as
described below under "The Agreements -- Assignment of Trust Fund Assets."
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted in the event of
breaches of representations and warranties with respect to any original Trust
Fund Asset or in the event the documentation with respect to any Trust Fund
Asset is determined by the Trustee to be incomplete. The period during which
such substitution will be permitted generally will be indicated in the related
Prospectus Supplement. Substitution of Trust Fund Assets will be permitted if,
among other things, the credit criteria relating to the origination of the
initial Trust Fund Assets is the same as the credit criteria relating to the
origination of the substitute Trust Fund Assets. The related Prospectus
Supplement will describe any other conditions upon which Trust Fund Assets may
be substituted for Trust Fund Assets initially included in the Trust Fund.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series of Securities for one or more of the following purposes:
(i) to purchase the related Trust Fund Assets, (ii) to establish any Pre-Funding
Account, Capitalized Interest Account or Reserve Account as described in the
related Prospectus Supplement and (iii) to pay the costs of structuring and
issuing such Securities, including the costs of obtaining any credit enhancement
as described under "Credit Enhancement". The Depositor expects to sell
Securities in Series from time to time, but the timing and amount of offerings
of Securities will depend on a number of factors, including the volume of Trust
Fund Assets acquired by the Depositor, prevailing interest rates, availability
of funds and general market conditions.
THE DEPOSITOR
Morgan Stanley ABS Capital I Inc., the Depositor, is a direct, wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 7, 1997. The principal executive offices of the Depositor
are located at 1585 Broadway, 2nd Floor, New York, New York 10036. Its telephone
number is (212) 761-4000. The Depositor does not have, nor is it expected in the
future to have, any significant assets.
Neither the Depositor nor any of the Depositor's affiliates will insure or
guarantee distributions on the Securities of any Series.
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to separate agreements
(each, a "Pooling and Servicing Agreement" or a "Trust Agreement") among the
Depositor, the Master Servicer and the Trustee. A
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form of Pooling and Servicing Agreement and Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Each Series of Notes will be issued pursuant to an indenture (the "Indenture")
between the related Trust Fund and the entity named in the related Prospectus
Supplement as trustee (the "Trustee") with respect to such Series, and the
related Loans will be serviced by the Master Servicer pursuant to a Master
Servicing Agreement. A form of Indenture and Master Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. A Series of Securities may consist of both Notes and Certificates. Each
Agreement, dated as of the related Cut-off Date, will be among the Depositor,
the Master Servicer and the Trustee for the benefit of the holders of the
Securities of such Series. The provisions of each Agreement will vary depending
upon the nature of the Securities to be issued thereunder and the nature of the
related Trust Fund. The following are descriptions of the material provisions
which may appear in each Agreement. The Prospectus Supplement for a Series of
Securities will describe any provision of the Agreement relating to such Series
that mainly differs from the description thereof contained in this Prospectus.
The descriptions are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Agreement for each Series of
Securities and the applicable Prospectus Supplement.
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered form,
in the authorized denominations specified in the related Prospectus Supplement,
will, in the case of Certificates, evidence specified beneficial ownership
interests in, and in the case of Notes, be secured by, the assets of the related
Trust Fund created pursuant to each Agreement and will not be entitled to
payments in respect of the assets included in any other Trust Fund established
by the Depositor. Unless otherwise specified in the related Prospectus
Supplement, the Securities will not represent obligations of the Depositor or
any affiliate of the Depositor. Certain of the Loans may be guaranteed or
insured as set forth in the related Prospectus Supplement. Each Trust Fund will
consist of, to the extent provided in the related Agreement, (i) the Trust Fund
Assets, as from time to time are subject to the related Agreement (exclusive of
any amounts specified in the related Prospectus Supplement ("Retained
Interest")), including all payments of interest and principal received with
respect to the Loans after the Cut-off Date (to the extent not applied in
computing the principal balance of such Loans as of the Cut-off Date (the
"Cut-off Date Principal Balance")); (ii) such assets as from time to time are
required to be deposited in the related Security Account, as described below
under "The Agreements -- Payments on Loans; Deposits to Security Account"; (iii)
property which secured a Loan and which is acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income on payments received on the Trust Fund Assets, a
Reserve Account, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments or other agreements.
Each Series of Securities will be issued in one or more classes. Each class
of Certificates of a Series will evidence beneficial ownership of a specified
percentage (which may be 0%) or portion of future interest payments and a
specified percentage (which may be 0%) or portion of future principal payments
on, and each class of Notes of a Series will be secured by, the related Trust
Fund Assets. A Series of Securities may include one or more classes that are
senior in right to payment to one or more other classes of Securities of such
Series. Certain Series or classes of Securities may be covered by insurance
policies, surety bonds or other forms of credit enhancement, in each case as
described under "Credit Enhancement" herein and in the related Prospectus
Supplement. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof.
Distributions on one or more classes of a Series of Securities may be made prior
to one or more other classes, after the occurrence of specified events, in
accordance with a schedule or formula or on the basis of collections from
designated portions of the related Trust Fund Assets, in each case as specified
in the related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes or over time as specified in the related
Prospectus Supplement.
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<PAGE> 266
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the Trustee on
each Distribution Date (i.e., monthly, quarterly, semi-annually or at such other
intervals and on the dates as are specified in the related Prospectus
Supplement) in proportion to the percentages specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a "Record Date"). Distributions will be
made in the manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for holders
of Securities (the "Security Register"); provided, however, that the final
distribution in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the Trustee or other
person specified in the notice to Securityholders of such final distribution.
The Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a class of Securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of either interest or principal on the related
Loans or a class of Securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of certain specified events by or on behalf of any employee benefit
plan or other retirement arrangement (including individual retirement accounts
and annuities, Keogh plans and collective investment funds in which such plans,
accounts or arrangements are invested) subject to provisions of ERISA or the
Code, may result in prohibited transactions, within the meaning of ERISA and the
Code. See "ERISA Considerations." Unless otherwise specified in the related
Prospectus Supplement, the transfer of Securities of such a class will not be
registered unless the transferee (i) represents that it is not, and is not
purchasing on behalf of, any such plan, account or arrangement or (ii) provides
an opinion of counsel satisfactory to the Trustee and the Depositor that the
purchase of Securities of such a class by or on behalf of such plan, account or
arrangement is permissible under applicable law and will not subject the
Trustee, the Master Servicer or the Depositor to any obligation or liability in
addition to those undertaken in the Agreements.
As to each Series, an election may be made to treat the related Trust Fund
or designated portions thereof as a "real estate mortgage investment conduit" or
"REMIC" as defined in the Code. The related Prospectus Supplement will specify
whether a REMIC election is to be made. Alternatively, the Agreement for a
Series may provide that a REMIC election may be made at the discretion of the
Depositor or the Master Servicer and may only be made if certain conditions are
satisfied. As to any such Series, the terms and provisions applicable to the
making of a REMIC election will be set forth in the related Prospectus
Supplement. If such an election is made with respect to a Series, one of the
classes will be designated as evidencing the sole class of "residual interests"
in the related REMIC, as defined in the Code. All other classes of Securities in
such a Series will constitute "regular interests" in the related REMIC, as
defined in the Code. As to each Series with respect to which a REMIC election is
to be made, the Trustee, the Master Servicer or a holder of the related residual
certificate will be obligated to take all actions required in order to comply
with applicable laws and regulations and will be obligated to pay any prohibited
transaction taxes. The Trustee or the Master Servicer, unless otherwise provided
in the related Prospectus Supplement, will be entitled to reimbursement for any
such payment from the assets of the Trust Fund or from any holder of the related
residual certificate.
INDEXED SECURITIES
To the extent specified in any Prospectus Supplement, any class of
Securities of a given Series may consist of Securities ("Indexed Securities") in
which the principal amount payable at the final scheduled payment date (the
"Indexed Principal Amount") is determined by reference to a measure (the
"Index") which will be related to (i) the difference in the rate of exchange
between United States dollars and a currency or composite currency (the "Indexed
Currency") specified in the applicable Prospectus Supplement (such Indexed
Securities, "Currency Indexed Securities"); (ii) the difference in the price of
a specified commodity (the "Indexed Commodity") on specified dates (such Indexed
Securities, "Commodity Indexed
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Securities"); (iii) the difference in the level of a specified stock index (the
"Stock Index"), which may be based on U.S. or foreign stocks, on specified dates
(such Indexed Securities, "Stock Indexed Securities"); or (iv) such other
objective price or economic measures as are described in the applicable
Prospectus Supplement. The manner of determining the Indexed Currency, the
Indexed Commodity, the Stock Index or other price or economic measures used in
such determination will be set forth in the applicable Prospectus Supplement,
together with information concerning tax consequences to the holders of such
Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then such
Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such Index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
will be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent will in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Distribution Date will be the
Face Amount of the Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment, or another amount
described in such Prospectus Supplement.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See "Credit Enhancement." Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.
Distributions allocable to principal and interest on the Securities will be
made by the Trustee out of, and only to the extent of, funds in the related
Security Account, including any funds transferred from any Reserve Account (a
"Reserve Account"). As between Securities of different classes and as between
distributions of principal (and, if applicable, between distributions of
Principal Prepayments, as defined below, and scheduled payments of principal)
and interest, distributions made on any Distribution Date will be applied as
specified in the related Prospectus Supplement. The Prospectus Supplement will
also describe the method for allocating the distributions among Securities of a
particular class.
Available Funds. All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the Agreement. "Available Funds" for each Distribution Date will
generally equal the amount on deposit in the related Security Account on such
Distribution Date (net of related fees and expenses payable by the related Trust
Fund) other than amounts to be held therein for distribution on future
Distribution Dates.
Distributions of Interest. Interest will accrue on the aggregate principal
balance of the Securities (or, in the case of Securities entitled only to
distributions allocable to interest, the aggregate notional amount) of each
class of Securities (the "Class Security Balance") entitled to interest from the
date, at the Pass-Through Rate or interest rate, as applicable (which in either
case may be a rate per annum specified, or calculated in the method described,
in such Prospectus Supplement), and for the periods specified in such Prospectus
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Supplement. To the extent funds are available therefor, interest accrued during
each such specified period on each class of Securities entitled to interest
(other than a class of Securities that provides for interest that accrues, but
is not currently payable, referred to hereafter as "Accrual Securities") will be
distributable on the Distribution Dates specified in the related Prospectus
Supplement until the aggregate Class Security Balance of the Securities of such
class has been distributed in full or, in the case of Securities entitled only
to distributions allocable to interest, until the aggregate notional amount of
such Securities is reduced to zero or for the period of time designated in the
related Prospectus Supplement. The original Class Security Balance of each
Security will equal the aggregate distributions allocable to principal to which
such Security is entitled. Distributions allocable to interest on each Security
that is not entitled to distributions allocable to principal will be calculated
based on the notional amount of such Security. The notional amount of a Security
will not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in expressing the calculation
of interest and for certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Security were to accrue through the day immediately preceding
such Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date will be added to the aggregate Class Security Balance
of such class of Securities on that Distribution Date. Distributions of interest
on any class of Accrual Securities will commence only after the occurrence of
the events specified in such Prospectus Supplement. Prior to such time, the
beneficial ownership interest in the Trust Fund or the principal balance, as
applicable, of such class of Accrued Securities, as reflected in the aggregate
Class Security Balance of such class of Accrual Securities, will increase on
each Distribution Date by the amount of interest that accrued on such class of
Accrual Securities during the preceding interest accrual period but that was not
required to be distributed to such class on such Distribution Date. Any such
class of Accrual Securities will thereafter accrue interest on its outstanding
Class Security Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will specify
the method by which the amount of principal to be distributed on the Securities
on each Distribution Date will be calculated and the manner in which such amount
will be allocated among the classes of Securities entitled to distributions of
principal. The aggregate Class Security Balance of any class of Securities
entitled to distributions of principal generally will be the aggregate original
Class Security Balance of such class of Securities specified in such Prospectus
Supplement, reduced by all distributions reported to the holders of such
Securities as allocable to principal and, (i) in the case of Accrual Securities,
unless otherwise specified in the related Prospectus Supplement, increased by
all interest accrued but not then distributable on such Accrual Securities and
(ii) in the case of adjustable rate Securities, subject to the effect of
negative amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more classes of
Securities will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from borrowers, including payments
received in advance of their scheduled due dates and are not accompanied by
amounts representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or for
the periods specified in such Prospectus Supplement. Any such allocation of
principal payments to such class or classes of Securities will have the effect
of accelerating the amortization of such Securities while increasing the
interests evidenced by one or more other classes of Securities in the Trust
Fund. Increasing the interests of the other classes of Securities relative to
that of certain Securities is intended to preserve the availability of the
subordination provided by such other Securities. See "Credit
Enhancement -- Subordination."
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Securities will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to
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make such unscheduled distributions on the day and in the amount specified in
the related Prospectus Supplement if, due to substantial payments of principal
(including Principal Prepayments) on the Trust Fund Assets, the Trustee or the
Master Servicer determines that the funds available or anticipated to be
available from the Security Account and, if applicable, any Reserve Account, may
be insufficient to make required distributions on the Securities on such
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the amount of any such unscheduled distribution that is allocable to
principal will not exceed the amount that would otherwise have been required to
be distributed as principal on the Securities on the next Distribution Date.
Unless otherwise specified in the related Prospectus Supplement, the unscheduled
distributions will include interest at the applicable Pass-Through Rate (if any)
or interest rate (if any) on the amount of the unscheduled distribution
allocable to principal for the period and to the date specified in such
Prospectus Supplement.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date (from
its own funds, funds advanced by Sub-Servicers or funds held in the Security
Account for future distributions to the holders of Securities of the related
Series), an amount equal to the aggregate of payments of interest and/or
principal that were delinquent on the related Determination Date (as such term
is defined in the related Prospectus Supplement) and were not advanced by any
Sub-Servicer, net of the Servicing Fee if so specified in the related Prospectus
Supplement, subject to the Master Servicer's determination that such advances
may be recoverable out of late payments by borrowers, Liquidation Proceeds,
Insurance Proceeds or otherwise. In the case of Cooperative Loans, the Master
Servicer also may be required to advance any unpaid maintenance fees and other
charges under the related proprietary leases as specified in the related
Prospectus Supplement. In addition, to the extent provided in the related
Prospectus Supplement, a cash account may be established to provide for Advances
to be made in the event of certain Trust Fund Assets payment defaults or
collection shortfalls.
In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to holders of the Securities,
rather than to guarantee or insure against losses. If Advances are made by the
Master Servicer from cash being held for future distribution to Securityholders,
the Master Servicer will replace such funds on or before any future Distribution
Date to the extent that funds in the applicable Security Account on such
Distribution Date would be less than the amount required to be available for
distributions to Securityholders on such date. Any Master Servicer funds
advanced will be reimbursable to the Master Servicer out of recoveries on the
specific Loans with respect to which such Advances were made (e.g., late
payments made by the related borrower, any related Insurance Proceeds,
Liquidation Proceeds or proceeds of any Loan purchased by the Depositor, a
Sub-Servicer or a Seller pursuant to the related Agreement). Advances by the
Master Servicer (and any advances by a Sub-Servicer) also will be reimbursable
to the Master Servicer (or Sub-Servicer) from cash otherwise distributable to
Securityholders (including the holders of Senior Securities) to the extent that
the Master Servicer determines that any such Advances previously made are not
ultimately recoverable as described above. To the extent provided in the related
Prospectus Supplement, the Master Servicer also will be obligated to make
Advances, to the extent recoverable out of Insurance Proceeds, Liquidation
Proceeds or otherwise, in respect of certain taxes and insurance premiums not
paid by borrowers on a timely basis. Funds so advanced are reimbursable to the
Master Servicer to the extent permitted by the related Agreement. The
obligations of the Master Servicer to make advances may be supported by a cash
advance reserve fund, a surety bond or other arrangement, in each case as
described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in the
event the Master Servicer or a Sub-Servicer fails to make a required Advance,
the Trustee will be obligated to make such Advance in its capacity as successor
servicer. If the Trustee makes such an Advance, it will be entitled to be
reimbursed for such Advance to the same extent and degree as the Master Servicer
or a Sub-Servicer is entitled to be reimbursed for Advances. See
"-- Distributions on Securities" above.
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REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution Date, the
Master Servicer or the Trustee will furnish to each Securityholder of record of
the related Series a statement setting forth, to the extent applicable to such
Series of Securities, among other things:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and if so
specified in the related Prospectus Supplement, any applicable prepayment
penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the Subordinated
Securityholders on such Distribution Date, and (b) withdrawn from the
Reserve Account, if any, that is included in the amounts distributed to the
Senior Securityholders;
(v) the outstanding principal balance or notional amount of each class
of the related Series after giving effect to the distribution of principal
on such Distribution Date;
(vi) the percentage of principal payments on the Loans (excluding
prepayments), if any, which each such class will be entitled to receive on
the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans, if any,
which each such class will be entitled to receive on the following
Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Security Account by the Master Servicer, and the amount
of additional servicing compensation received by the Master Servicer
attributable to penalties, fees, excess Liquidation Proceeds and other
similar charges and items;
(ix) the number and aggregate principal balances of Loans (A)
delinquent (exclusive of Loans in foreclosure) (1) 1 to 30 days, (2) 31 to
60 days, (3) 61 to 90 days and (4) 91 or more days and (B) in foreclosure
and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61 to 90 days and
(4) 91 or more days, as of the close of business on the last day of the
calendar month preceding such Distribution Date;
(x) the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure;
(xi) the Pass-Through Rate or interest rate, as applicable, if
adjusted from the date of the last statement, of any such class expected to
be applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve Account at
the close of business on the Distribution Date;
(xiii) the Pass-Through Rate or interest rate, as applicable, as of
the day prior to the immediately preceding Distribution Date; and
(xiv) any amounts remaining under letters of credit, pool policies or
other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant class having the Percentage Interest
specified in the related Prospectus Supplement. The report to Securityholders
for any Series of Securities may include additional or other information of a
similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record during
a portion of such calendar year, for the applicable portion of such
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year and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
CATEGORIES OF CLASSES OF SECURITIES
The Securities of any Series may be comprised of one or more classes. Such
classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a series of Securities may identify the classes which
comprise such Series by reference to the following categories.
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
- ------------------------------------- ----------------------------------------------------
<S> <C>
Principal Types
- ----------------
Accretion Directed................... A class that receives principal payments from the
accreted interest from specified Accrual classes. An
Accretion Directed class also may receive principal
payments from principal paid on the underlying Trust
Fund Assets for the related Series.
Component Securities................. A class consisting of "Components." The Components
of a class of Component Securities may have
different principal and/or interest payment
characteristics but together constitute a single
class. Each Component of a class of Component
Securities may be identified as falling into one or
more of the categories in this chart.
Notional Amount Securities........... A class having no principal balance and bearing
interest on the related notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
Planned Principal Class (also
sometimes referred to as "PACs")... A class that is designed to receive principal
payments using a predetermined principal balance
schedule derived by assuming two constant prepayment
rates for the underlying Trust Fund Assets. These
two rates are the endpoints for the "structuring
range" for the Planned Principal Class. The Planned
Principal Classes in any Series of Securities may be
subdivided into different categories (e.g., Primary
Planned Principal Classes, Secondary Planned
Principal Classes and so forth) having different
effective structuring ranges and different principal
payment priorities. The structuring range for the
Secondary Planned Principal Class of a Series of
Securities will be narrower than that for the
Primary Planned Principal Class of such Series.
Scheduled Principal Class............ A class that is designed to receive principal
payments using a predetermined principal balance
schedule but is not designated as a Planned
Principal Class or Targeted Principal Class. In many
cases, the schedule is derived by assuming two
constant prepayment rates for the underlying Trust
Fund Assets. These two rates are the endpoints for
the "structuring range" for the Scheduled Principal
Class.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
- ------------------------------------- ----------------------------------------------------
<S> <C>
Sequential Pay Class................. Classes that receive principal payments in a
prescribed sequence, that do not have predetermined
principal balance schedules and that under all
circumstances receive payments of principal
continuously from the first Distribution Date on
which they receive principal until they are retired.
A single class that receives principal payments
before or after all other classes in the same Series
of Securities may be identified as a Sequential Pay
Class.
Strip................................ A class that receives a constant proportion, or
"strip," of the principal payments on the underlying
Trust Fund Assets.
Support Class (also sometimes
referred to as "companion
classes").......................... A class that receives principal payments on any
Distribution Date only if scheduled payments have
been made on specified Planned Principal Classes,
Targeted Principal Classes and/or Scheduled
Principal Classes on such Distribution Date.
Targeted Principal Class (also
sometimes referred to as "TACs")... 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 Trust Fund
Assets.
Interest Types
- ---------------
Fixed Rate........................... A class with an interest rate that is fixed
throughout the life of the class.
Floating Rate........................ A class with an interest rate that resets
periodically based upon a designated index and that
varies directly with changes in such index as
specified in the related Prospectus Supplement.
Interest payable to a Floating Rate class on a
Distribution Date may be subject to a cap based on
the amount of funds available to pay interest on
such Distribution Date.
Inverse Floating Rate................ A class with an interest rate that resets
periodically based upon a designated index as
specified in the related Prospectus Supplement and
that varies inversely with changes in such index.
Variable Rate........................ A class with an interest rate that resets
periodically and is calculated by reference to the
rate or rates of interest applicable to specified
assets or instruments (e.g., the Loan Rates borne by
the underlying Loans).
Auction Rate......................... A class with an interest rate that resets
periodically to an auction rate that is calculated
on the basis of auction procedures described in the
related Prospectus Supplement.
</TABLE>
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<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
- ------------------------------------- ----------------------------------------------------
<S> <C>
Interest Only........................ A class that receives some or all of the interest
payments made on the underlying Trust Fund Assets or
other assets of the Trust Fund 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.
Principal Only....................... A class that does not bear interest and is entitled
to receive only distributions in respect of
principal.
Partial Accrual...................... A class that accretes a portion of the amount of
accrued interest thereon, which amount will be added
to the principal balance of such class on each
applicable Distribution Date, with the remainder of
such accrued interest to be distributed currently as
interest on such class. Such accretion may continue
until a specified event has occurred or until such
Partial Accrual class is retired.
Accrual.............................. A class that accretes the amount of accrued interest
otherwise distributable on such class, which amount
will be added as principal to the principal balance
of such class on each applicable Distribution Date.
Such accretion may continue until some specified
event has occurred or until such Accrual Class is
retired.
</TABLE>
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
Unless otherwise specified in the related Prospectus Supplement, the
indices applicable to Floating Rate and Inverse Floating Rate Classes either
will be LIBOR, the Eleventh District Cost of Funds Index, the Treasury Index or
the Prime Rate, in each case calculated as described below.
LIBOR
Unless otherwise specified in the related Prospectus Supplement, on the
LIBOR Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as LIBOR, the
Person designated in the related Agreement (the "Calculation Agent") will
determine LIBOR by reference to the quotations, as set forth on the Reuters
Screen LIBO Page (as defined in the International Swap Dealers Association, Inc.
Code of Standard Wording, Assumptions and Provisions for Swaps, 1986 Edition),
offered by the principal London office of each of the designated reference banks
meeting the criteria set forth below (the "Reference Banks") for making
one-month United States dollar deposits in leading banks in the London Interbank
market, as of 11:00 a.m. (London time) on such LIBOR Determination Date. In lieu
of relying on the quotations for those Reference Banks that appear at such time
on the Reuters Screen LIBO Page, the Calculation Agent will request each of the
Reference Banks to provide such offered quotations at such time.
LIBOR will be established by the Calculation Agent on each LIBOR
Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual Period
(as such term is defined in the related
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Prospectus Supplement) shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
1/32%).
(b) If on any LIBOR Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous LIBOR Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Calculation Agent determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32%) of
the one-month United States dollar lending rates that New York City banks
selected by the Calculation Agent are quoting, on the relevant LIBOR
Determination Date, to the principal London offices of at least two of the
Reference Banks to which such quotations are, in the opinion of the
Calculation Agent, being so made, or (ii) in the event that the Calculation
Agent can determine no such arithmetic mean, the lowest one-month United
States dollar lending rate which New York City banks selected by the
Calculation Agent are quoting on such LIBOR Determination Date to leading
European banks.
(c) If on any LIBOR Determination Date for a class specified in the
related Prospectus Supplement, the Calculation Agent is required but is
unable to determine the Reserve Interest Rate in the manner provided in
paragraph (b) above, LIBOR for the next Interest Accrual Period shall be
LIBOR as determined on the preceding LIBOR Determination Date, or, in the
case of the first LIBOR Determination Date, LIBOR shall be deemed to be the
per annum rate specified as such in the related Prospectus Supplement.
Each Reference Bank (i) shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (ii) shall not
control, be controlled by, or be under common control with the Calculation
Agent; and (iii) shall have an established place of business in London. If any
such Reference Bank should be unwilling or unable to act as such or if
appointment of any such Reference Bank is terminated, another leading bank
meeting the criteria specified above will be appointed.
The establishment of LIBOR on each LIBOR Determination Date by the
Calculation Agent and its calculation of the rate of interest for the applicable
classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding.
COFI
The Eleventh District Cost of Funds Index is designed to represent the
monthly weighted average cost of funds for savings institutions in Arizona,
California and Nevada that are member institutions of the Eleventh Federal Home
Loan Bank District (the "Eleventh District"). The Eleventh District Cost of
Funds Index for a particular month reflects the interest costs paid on all types
of funds held by Eleventh District member institutions and is calculated by
dividing the cost of funds by the average of the total amount of those funds
outstanding at the end of that month and of the prior month and annualizing and
adjusting the result to reflect the actual number of days in the particular
month. If necessary, before these calculations are made, the component figures
are adjusted by the Federal Home Loan Bank of San Francisco ("FHLBSF") to
neutralize the effect of events such as member institutions leaving the Eleventh
District or acquiring institutions outside the Eleventh District. The Eleventh
District Cost of Funds Index is weighted to reflect the relative amount of each
type of funds held at the end of the relevant month. The major components of
funds of Eleventh District member institutions are: (i) savings deposits, (ii)
time deposits, (iii) FHLBSF advances, (iv) repurchase agreements and (v) all
other borrowings. Because the component funds represent a variety of maturities
whose costs may react in different ways to changing conditions, the Eleventh
District Cost of Funds Index does not necessarily reflect current market rates.
A number of factors affect the performance of the Eleventh District Cost of
Funds Index, which may cause it to move in a manner different from indices tied
to specific interest rates, such as United States Treasury bills or LIBOR.
Because the liabilities upon which the Eleventh District Cost of Funds Index is
based were issued at various times under various market conditions and with
various maturities, the Eleventh District Cost of Funds Index may not
necessarily reflect the prevailing market interest rates on new liabilities of
similar maturities. Moreover, as stated above, the Eleventh District Cost of
Funds Index is designed to
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represent the average cost of funds for Eleventh District savings institutions
for the month prior to the month in which it is due to be published.
Additionally, the Eleventh District Cost of Funds Index may not necessarily move
in the same direction as market interest rates at all times, since as longer
term deposits or borrowings mature and are renewed at prevailing market interest
rates, the Eleventh District Cost of Funds Index is influenced by the
differential between the prior and the new rates on those deposits or
borrowings. In addition, movements of the Eleventh District Cost of Funds Index,
as compared to other indices tied to specific interest rates, may be affected by
changes instituted by the FHLBSF in the method used to calculate the Eleventh
District Cost of Funds Index.
The FHLBSF publishes the Eleventh District Cost of Funds Index in its
monthly Information Bulletin. Any individual may request regular receipt by mail
of Information Bulletins by writing the Federal Home Loan Bank of San Francisco,
P.O. Box 7948, 600 California Street, San Francisco, California 94120, or by
calling (415) 616-1000. The Eleventh District Cost of Funds Index may also be
obtained by calling the FHLBSF at (415) 616-2600.
The FHLBSF has stated in its Information Bulletin that the Eleventh
District Cost of Funds Index for a month "will be announced on or near the last
working day" of the following month and also has stated that it "cannot
guarantee the announcement" of such index on an exact date. So long as such
index for a month is announced on or before the tenth day of the second
following month, the interest rate for each class of Securities of a Series as
to which the applicable interest rate is determined by reference to an index
denominated as COFI (each, a class of "COFI Securities") for the Interest
Accrual Period commencing in such second following month will be based on the
Eleventh District Cost of Funds Index for the second preceding month. If
publication is delayed beyond such tenth day, such interest rate will be based
on the Eleventh District Cost of Funds Index for the third preceding month.
Unless otherwise specified in the related Prospectus Supplement, if on the
tenth day of the month in which any Interest Accrual Period commences for a
class of COFI Securities the most recently published Eleventh District Cost of
Funds Index relates to a month prior to the third preceding month, the index for
such current Interest Accrual Period and for each succeeding Interest Accrual
Period will, except as described in the next to last sentence of this paragraph,
be based on the National Monthly Median Cost of Funds Ratio to SAIF-Insured
Institutions (the "National Cost of Funds Index") published by the Office of
Thrift Supervision (the "OTS") for the third preceding month (or the fourth
preceding month if the National Cost of Funds Index for the third preceding
month has not been published on such tenth day of an Interest Accrual Period).
Information on the National Cost of Funds Index may be obtained by writing the
OTS at 1700 G Street, N.W., Washington, D.C. 20552 or calling (202) 906-6677,
and the current National Cost of Funds Index may be obtained by calling (202)
906-6988. If on any such tenth day of the month in which an Interest Accrual
Period commences the most recently published National Cost of Funds Index
relates to a month prior to the fourth preceding month, the applicable index for
such Interest Accrual Period and each succeeding Interest Accrual Period will be
based on LIBOR, as determined by the Calculation Agent in accordance with the
Agreement relating to such Series of Securities. A change of index from the
Eleventh District Cost of Funds Index to an alternative index will result in a
change in the index level, and, particularly if LIBOR is the alternative index,
could increase its volatility.
The establishment of COFI by the Calculation Agent and its calculation of
the rates of interest for the applicable classes for the related Interest
Accrual Period shall (in the absence of manifest error) be final and binding.
TREASURY INDEX
Unless otherwise specified in the related Prospectus Supplement, on the
Treasury Index Determination Date (as such term is defined in the related
Prospectus Supplement) for each class of Securities of a Series as to which the
applicable interest rate is determined by reference to an index denominated as a
Treasury Index, the Calculation Agent will ascertain the Treasury Index for
Treasury securities of the maturity and for the period (or, if applicable, date)
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Treasury Index for any period means the
average of the yield for each
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business day during the period specified therein (and for any date means the
yield for such date), expressed as a per annum percentage rate, on (i) U.S.
Treasury securities adjusted to the "constant maturity" (as further described
below) specified in such Prospectus Supplement or (ii) if no "constant maturity"
is so specified, U.S. Treasury securities trading on the secondary market having
the maturity specified in such Prospectus Supplement, in each case as published
by the Federal Reserve Board in its Statistical Release No. H.15(519).
Statistical Release No. H.15(519) is published on Monday or Tuesday of each week
and may be obtained by writing or calling the Publications Department at the
Board of Governors of the Federal Reserve System, 21st and C Streets,
Washington, D.C. 20551 (202) 452-3244. If the Calculation Agent has not yet
received Statistical Release No. H.15(519) for such week, then it will use such
Statistical Release from the immediately preceding week.
Yields on U.S. Treasury securities at "constant maturity" are derived from
the U.S. Treasury's daily yield curve. This curve, which relates the yield on a
security to its time to maturity, is based on the closing market bid yields on
actively traded Treasury securities in the over-the-counter market. These market
yields are calculated from composites of quotations reported by five leading
U.S. Government securities dealers to the Federal Reserve Bank of New York. This
method provides a yield for a given maturity even if no security with that exact
maturity is outstanding. In the event that the Treasury Index is no longer
published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Treasury Index, and its
calculation of the rates of interest for the applicable classes for the related
Interest Accrual Period, shall (in the absence of manifest error) be final and
binding.
PRIME RATE
Unless otherwise specified in the related Prospectus Supplement, on the
Prime Rate Determination Date (as such term is defined in the related Prospectus
Supplement) for each class of Securities of a Series as to which the applicable
interest rate is determined by reference to an index denominated as the Prime
Rate, the Calculation Agent will ascertain the Prime Rate for the related
Interest Accrual Period. Unless otherwise specified in the related Prospectus
Supplement, the Prime Rate for an Interest Accrual Period will be the "Prime
Rate" as published in the "Money Rates" section of The Wall Street Journal (or
if not so published, the "Prime Rate" as published in a newspaper of general
circulation selected by the Calculation Agent in its sole discretion) on the
related Prime Rate Determination Date. If a prime rate range is given, then the
average of such range will be used. In the event that the Prime Rate is no
longer published, a new index based upon comparable data and methodology will be
designated in accordance with the Agreement relating to the particular Series of
Securities. The Calculation Agent's determination of the Prime Rate and its
calculation of the rates of interest for the related Interest Accrual Period
shall (in the absence of manifest error) be final and binding.
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the related Prospectus Supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
certificates (the "Book-Entry Securities"). Persons acquiring beneficial
ownership interests in the Securities ("Security Owners") will hold their
Securities through the Depository Trust Company ("DTC") in the United States, or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
Book-Entry Securities will be issued in one or more certificates which equal the
aggregate principal balance of the Securities and will initially be registered
in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A., will
act as depositary for CEDEL and The Chase Manhattan Bank will act as depositary
for Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Except as described below, no person
acquiring a Book-Entry Security (each, a "beneficial owner") will be entitled to
receive a physical certificate representing such Security (a "Definitive
Security"). Unless and until
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Definitive Securities are issued, it is anticipated that the only
"Securityholders" of the Securities will be Cede & Co., as nominee of DTC.
Security Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The beneficial owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant, and on
the records of CEDEL or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and DTC participants.
While the Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants and indirect participants with whom Security Owners
have accounts with respect to Securities are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Security Owners. Accordingly, although Security Owners will not
possess certificates, the Rules provide a mechanism by which Security Owners
will receive distributions and will be able to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Security Owners who are not Participants may transfer ownership of
Securities only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Security
Owners.
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
herein) or Euroclear Participant (as defined herein) to a DTC Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds
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settlement applicable to DTC. CEDEL Participants and Euroclear Participants may
not deliver instructions directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York ("Morgan" and in such capacity, the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Belgian Cooperative"). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.
Under a book-entry format, beneficial owners of the Book-Entry Securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede & Co., as nominee of DTC. Distributions with
respect to Securities held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences -- Tax Treatment of Foreign Investors" and "-- Tax
Consequences to Holders of the Notes -- Backup Withholding." Because DTC can
only act on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Securities to persons or entities that do not
participate in the
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Depository system, may be limited due to the lack of physical certificates for
such Book-Entry Securities. In addition, issuance of the Book-Entry Securities
in book-entry form may reduce the liquidity of such Securities in the secondary
market since certain potential investors may be unwilling to purchase Securities
for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust Fund will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Securities of such beneficial owners are
credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of the
Book-Entry Securities under the applicable Agreement only at the direction of
one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Securities are credited, to the extent that such actions are taken on behalf of
Financial Intermediaries whose holdings include such Book-Entry Securities.
CEDEL or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Securityholder under the Agreement on behalf of a
CEDEL Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to the ability of the Relevant Depositary to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Securities which
conflict with actions taken with respect to other Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
None of the Master Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes of a
Series of Securities or with respect to the related Trust Fund Assets. Credit
enhancement may be in the form of a limited financial guaranty policy issued by
an entity named in the related Prospectus Supplement, the subordination of one
or more classes of the Securities of such Series, the establishment of one or
more Reserve Accounts, the use of a cross-collateralization feature, use of a
mortgage pool insurance policy, FHA Insurance, VA Guarantee, bankruptcy bond,
special hazard insurance policy, surety bond, letter of credit, guaranteed
investment contract, overcollateralization, interest rate swap agreement,
interest rate cap agreement or another method of credit enhancement contemplated
herein and described in the related Prospectus Supplement, or any combination of
the foregoing. Unless otherwise specified in the related Prospectus Supplement,
credit enhancement will not provide protection against all risks of loss and
will not guarantee repayment of the entire principal balance of the Securities
and interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement, Securityholders
will bear their allocable share of any deficiencies.
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SUBORDINATION
If so specified in the related Prospectus Supplement, protection afforded
to holders of one or more classes of Securities of a Series by means of the
subordination feature may be accomplished by the preferential right of holders
of one or more other classes of such Series (the "Senior Securities") to
distributions in respect of scheduled principal, Principal Prepayments, interest
or any combination thereof that otherwise would have been payable to holders of
one or more classes of subordinate Securities (the "Subordinated Securities")
under the circumstances and to the extent specified in the related Prospectus
Supplement. Protection may also be afforded to the holders of Senior Securities
of a Series by: (i) reducing the ownership interest (if applicable) of the
related Subordinated Securities; (ii) a combination of the immediately preceding
sentence and clause (i) above; or (iii) as otherwise described in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
delays in receipt of scheduled payments on the Loans and losses on defaulted
Loans may be borne first by the various classes of Subordinated Securities and
thereafter by the various classes of Senior Securities, in each case under the
circumstances and subject to the limitations specified in such Prospectus
Supplement. The aggregate distributions in respect of delinquent payments on the
Loans over the lives of the Securities or at any time, the aggregate losses in
respect of defaulted Loans which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securityholders that will be distributable to
Senior Securityholders on any Distribution Date may be limited as specified in
the related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Loans or aggregate losses in respect of such Loans
were to exceed an amount specified in the related Prospectus Supplement, holders
of Senior Securities would experience losses on the Securities.
In addition to or in lieu of the foregoing, if so specified in the related
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Securities on any Distribution Date may instead be
deposited into one or more Reserve Accounts established with the Trustee or
distributed to holders of Senior Securities. Such deposits may be made on each
Distribution Date, for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Securities or otherwise, thereafter to the extent
necessary to restore the balance in the Reserve Account to required levels, in
each case as specified in the related Prospectus Supplement. Amounts on deposit
in the Reserve Account may be released to the holders of certain classes of
Securities at the times and under the circumstances specified in such Prospectus
Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross-collateralization
mechanism or otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
As between classes of Subordinated Securities, payments to holders of Senior
Securities on account of delinquencies or losses and payments to any Reserve
Account will be allocated as specified in the related Prospectus Supplement.
LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities will
be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). Under the letter of credit, the L/C Bank
will be obligated to honor drawings thereunder in an aggregate fixed dollar
amount, net of unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Loans on the related Cut-off Date or of one or more Classes of
Securities (the "L/C Percentage"). If so specified in the related Prospectus
Supplement, the letter of credit may permit drawings in the event of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies, losses resulting
from the bankruptcy of a borrower and the application of certain provisions of
the federal Bankruptcy Code, or losses
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resulting from denial of insurance coverage due to misrepresentations in
connection with the origination of a Loan. The amount available under the letter
of credit will, in all cases, be reduced to the extent of the unreimbursed
payments thereunder. The obligations of the L/C Bank under the letter of credit
for each Series of Securities will expire at the earlier of the date specified
in the related Prospectus Supplement or the termination of the Trust Fund. See
"The Agreements -- Termination; Optional Termination." A copy of the letter of
credit for a Series, if any, will be filed with the Commission as an exhibit to
a Current Report on Form 8-K to be filed within 15 days of issuance of the
Securities of the related Series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the Prospectus Supplement for a Series of Securities,
deficiencies in amounts otherwise payable on such Securities or certain classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Securities of the related Series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. In addition, if specified in the
related Prospectus Supplement, a Trust Fund may also include bankruptcy bonds,
special hazard insurance policies, other insurance or guaranties for the purpose
of (i) maintaining timely payments or providing additional protection against
losses on the assets included in such Trust Fund, (ii) paying administrative
expenses or (iii) establishing a minimum reinvestment rate on the payments made
in respect of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which Securityholders are entitled to
receive amounts deposited in various accounts held by the Trustee upon the terms
specified in such Prospectus Supplement. A copy of any such instrument for a
Series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Securities of the related Series.
OVER-COLLATERALIZATION
If so provided in the Prospectus Supplement for a Series of Securities, a
portion of the interest payment on each Loan may be applied as an additional
distribution in respect of principal to reduce the principal balance of a
certain class or classes of Securities and, thus, accelerate the rate of payment
of principal on such class or classes of Securities.
RESERVE ACCOUNTS
If specified in the related Prospectus Supplement, credit support with
respect to a Series of Securities will be provided by the establishment and
maintenance with the Trustee for such Series of Securities, in trust, of one or
more Reserve Accounts for such Series. The related Prospectus Supplement will
specify whether or not any such Reserve Accounts will be included in the Trust
Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit therein
of cash, United States Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in the related Prospectus Supplement, (ii) by the deposit therein from
time to time of certain amounts, as specified in the related Prospectus
Supplement to which the Subordinate Securityholders, if any, would otherwise be
entitled or (iii) in such other manner as may be specified in the related
Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any other
instrument upon maturity will be held in cash or will be invested in "Permitted
Investments" which may include (i) obligations of the United States or any
agency thereof, provided such obligations are backed by the full faith and
credit of the United States; (ii) general obligations of or obligations
guaranteed by any state of the United States or the District of Columbia
receiving the highest long-term debt rating of each Rating Agency rating the
related Series of Securities, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to such Securities by
each such Rating Agency; (iii) commercial or finance company paper which is then
receiving the highest commercial or finance company paper rating of each such
Rating Agency, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to such Securities
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by each such Rating Agency; (iv) certificates of deposit, demand or time
deposits, or bankers' 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 long term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's Investors Service, Inc. ("Moody's") is not a Rating Agency) are then
rated in one of the two highest long-term and the highest short-term ratings of
each such Rating Agency for such securities, or such lower ratings as will not
result in the downgrading or withdrawal of the rating then assigned to such
Securities by any such rating Agency; (iv) demand or time deposits or
certificates of deposit issued by any bank or trust company or savings
institution to the extent that such deposits are fully insured by the FDIC; (v)
guaranteed reinvestment agreements issued by any bank, insurance company or
other corporation containing, at the time of the issuance of such agreements,
such terms and conditions as will not result in the downgrading or withdrawal of
the rating then assigned to such Securities by any such Rating Agency; (vi)
repurchase obligations with respect to any security described in clauses (i) and
(ii) above, in either case entered into with a depository institution or trust
company (acting as principal) described in clause (iv) above; (vii) securities
(other than stripped bonds, stripped coupons or instruments sold at a purchase
price in excess of 115% of the face amount thereof) bearing interest or sold at
a discount and issued by any corporation incorporated under the laws of the
United States or any state thereof which, at the time of such investment, have
one of the two highest ratings of each Rating Agency (except that if the Rating
Agency is Moody's, such rating shall be the highest commercial paper rating of
Moody's for any such securities), or such lower rating as will not result in the
downgrading or withdrawal of the rating then assigned to such Securities by any
such Rating Agency; (viii) interests in any money market fund which at the date
of acquisition of the interests in such fund and throughout the time such
interests are held in such fund has the highest applicable rating by each such
Rating Agency or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to such Securities by each such Rating
Agency; and (ix) short term investment funds sponsored by any trust company or
national banking association incorporated under the laws of the United States or
any state thereof which on the date of acquisition has been rated by each such
Rating Agency in their respective highest applicable rating category or such
lower rating as will not result in the downgrading or withdrawal of the ratings
then assigned to such Securities by each such Rating Agency; provided, that no
such instrument shall be a Permitted Investment if such instrument evidences the
right to receive interest only payments with respect to the obligations
underlying such instrument. If a letter of credit is deposited with the Trustee,
such letter of credit will be irrevocable. Unless otherwise specified in the
related Prospectus Supplement, any instrument deposited therein will name the
Trustee, in its capacity as trustee for the holders of the Securities, as
beneficiary and will be issued by an entity acceptable to each Rating Agency
that rates the Securities of the related Series. Additional information with
respect to such instruments deposited in the Reserve Accounts will be set forth
in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Securities of the related Series for the purposes, in the manner and
at the times specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate pool
insurance policy ("Pool Insurance Policy") will be obtained for the Pool and
issued by the insurer (the "Pool Insurer") named in such Prospectus Supplement.
Each Pool Insurance Policy will, subject to the limitations described
below, cover loss by reason of default in payment on Loans in the Pool in an
amount equal to a percentage specified in such Prospectus Supplement of the
aggregate principal balance of such Loans on the Cut-off Date which are not
covered as to their entire outstanding principal balances by Primary Mortgage
Insurance Policies. As more fully described below, the Master Servicer will
present claims thereunder to the Pool Insurer on behalf of itself, the Trustee
and the holders of the Securities of the related Series. The Pool Insurance
Policies, however, are not blanket
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policies against loss, since claims thereunder may only be made respecting
particular defaulted Loans and only upon satisfaction of certain conditions
precedent described below. Unless otherwise specified in the related Prospectus
Supplement, the Pool Insurance Policies will not cover losses due to a failure
to pay or denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that no claims may be validly presented unless (i)
any required Primary Mortgage Insurance Policy is in effect for the defaulted
Loan and a claim thereunder has been submitted and settled; (ii) hazard
insurance on the related Property has been kept in force and real estate taxes
and other protection and preservation expenses have been paid; (iii) if there
has been physical loss or damage to the Property, it has been restored to its
physical condition (reasonable wear and tear excepted) at the time of issuance
of the policy; and (iv) the insured has acquired good and merchantable title to
the Property free and clear of liens except certain permitted encumbrances. Upon
satisfaction of these conditions, the Pool Insurer will have the option either
(a) to purchase the property securing the defaulted Loan at a price equal to the
principal balance thereof plus accrued and unpaid interest at the Loan Rate to
the date of such purchase and certain expenses incurred by the Master Servicer
on behalf of the Trustee and Securityholders, or (b) to pay the amount by which
the sum of the principal balance of the defaulted Loan plus accrued and unpaid
interest at the Loan Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an approved sale of
the Property, in either case net of certain amounts paid or assumed to have been
paid under the related Primary Mortgage Insurance Policy. If any Property
securing a defaulted Loan is damaged and proceeds, if any, from the related
hazard insurance policy or the applicable special hazard insurance policy are
insufficient to restore the damaged Property to a condition sufficient to permit
recovery under the Pool Insurance Policy, the Master Servicer will not be
required to expend its own funds to restore the damaged Property unless it
determines that (i) such restoration will increase the proceeds to
Securityholders on liquidation of the Loan after reimbursement of the Master
Servicer for its expenses and (ii) such expenses will be recoverable by it
through proceeds of the sale of the Property or proceeds of the related Pool
Insurance Policy or any related Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will not insure (and many Primary Mortgage Insurance Policies
do not insure) against loss sustained by reason of a default arising from, among
other things, (i) fraud or negligence in the origination or servicing of a Loan,
including misrepresentation by the borrower, the originator or persons involved
in the origination thereof, or (ii) failure to construct a Property in
accordance with plans and specifications. A failure of coverage attributable to
one of the foregoing events might result in a breach of the related Seller's or
Originator's representations described above, and, in such events might give
rise to an obligation on the part of such Seller or Originator to repurchase the
defaulted Loan if the breach cannot be cured by such Seller or Originator. No
Pool Insurance Policy will cover (and many Primary Mortgage Insurance Policies
do not cover) a claim in respect of a defaulted Loan occurring when the servicer
of such Loan, at the time of default or thereafter, was not approved by the
applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Securities by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the Pool Insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the Master Servicer as well as accrued interest on
delinquent Loans to the date of payment of the claim, unless otherwise specified
in the related Prospectus Supplement. Accordingly, if aggregate net claims paid
under any Pool Insurance Policy reach the original policy limit, coverage under
that Pool Insurance Policy will be exhausted and any further losses will be
borne by the related Securityholders.
CROSS-COLLATERALIZATION
If specified in the related Prospectus Supplement, the beneficial ownership
of separate groups of assets included in a Trust Fund may be evidenced by
separate classes of the related Series of Securities. In such case, credit
support may be provided by a cross-collateralization feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in, or secured by, one or more asset groups
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within the same Trust Fund prior to distributions to Subordinated Securities
evidencing a beneficial ownership interest in, or secured by, one or more other
asset groups within such Trust Fund. Cross-collateralization may be provided by
(i) the allocation of certain excess amounts generated by one or more asset
groups within the same Trust Fund to one or more other asset groups within the
same Trust Fund or (ii) the allocation of losses with respect to one or more
asset groups to one or more other asset groups within the same Trust Fund. Such
excess amounts will be applied and/or such losses will be allocated to the class
or classes of Subordinated Securities of the related Series then outstanding
having the lowest rating assigned by any Rating Agency or the lowest payment
priority, in each case to the extent and in the manner more specifically
described in the related Prospectus Supplement. The Prospectus Supplement for a
Series which includes a cross-collateralization feature will describe the manner
and conditions for applying such cross-collateralization feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more forms of credit support described in this Prospectus may apply
concurrently to two or more related Trust Funds. If applicable, the related
Prospectus Supplement will identify the Trust Funds to which such credit support
relates and the manner of determining the amount of the coverage provided
thereby and of the application of such coverage to the identified Trust Funds.
OTHER INSURANCE, SURETY BONDS, GUARANTIES, LETTERS OF CREDIT AND SIMILAR
INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust Fund may also
include bankruptcy bonds, special hazard insurance policies, other insurance,
guaranties, or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the assets
included in such Trust Fund, (ii) paying administrative expenses or (iii)
establishing a minimum reinvestment rate on the payments made in respect of such
assets or principal payment rate on such assets. Such arrangements may include
agreements under which Securityholders are entitled to receive amounts deposited
in various accounts held by the Trustee upon the terms specified in such
Prospectus Supplement. If specified in the related Prospectus Supplement, the
Trust Fund may also include interest rate swap agreements or interest rate cap
agreements. An interest rate swap agreement involves an agreement between two
parties under which one party makes to the other party periodic payments based
on a fixed rate of interest and receives in return periodic payments based on a
variable rate of interest, which rates of interest are calculated on the basis
of a specified notional amount of principal for a specified period of time as
will be described in the related Prospectus Supplement. An interest rate cap
agreement involves an agreement between two parties in which one party agrees to
make payments to the other party when a designated market interest rate goes
above a designated level on predetermined dates or during a specified time
period as will be described in the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities will be
affected primarily by the amount and timing of principal payments received on or
in respect of the Trust Fund Assets included in the related Trust Fund. The
original terms to maturity of the Loans in a given Pool will vary depending upon
the type of Loans included therein. Each Prospectus Supplement will contain
information with respect to the type and maturities of the Loans in the related
Pool. The related Prospectus Supplement will specify the circumstances, if any,
under which the related Loans will be subject to prepayment penalties. The
prepayment experience on the Loans in a Pool will affect the weighted average
life of the related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity loans
and home improvement contracts have been originated in significant volume only
during the past few years and the Depositor is not aware of any publicly
available studies or statistics on the rate of prepayment of such loans.
Generally, home equity loans and home improvement contracts are not viewed by
borrowers as permanent financing. Accordingly, the Loans may experience a higher
rate of prepayment than traditional first mortgage loans. On the other hand,
because home equity loans such as the Revolving Credit Line Loans generally are
not fully amortizing, the absence of voluntary borrower prepayments could cause
rates of principal payments lower
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than, or similar to, those of traditional fully-amortizing first mortgage loans.
The prepayment experience of the related Trust Fund may be affected by a wide
variety of factors, including general economic conditions, prevailing interest
rate levels, the availability of alternative financing, homeowner mobility and
the frequency and amount of any future draws on any Revolving Credit Line Loans.
Other factors that might be expected to affect the prepayment rate of a pool of
home equity mortgage loans or home improvement contracts include the amounts of,
and interest rates on, the underlying senior mortgage loans, and the use of
first mortgage loans as long-term financing for home purchase and subordinate
mortgage loans as shorter-term financing for a variety of purposes, including
home improvement, education expenses and purchases of consumer durables such as
automobiles. Accordingly, the Loans may experience a higher rate of prepayment
than traditional fixed-rate mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on home equity loans for
federal income tax purposes may further increase the rate of prepayments of the
Loans. The enforcement of a "due-on-sale" provision (as described below) will
have the same effect as a prepayment of the related Loan. See "Certain Legal
Aspects of the Loans -- Due-on-Sale Clauses." The yield to an investor who
purchases Securities in the secondary market at a price other than par will vary
from the anticipated yield if the rate of prepayment on the Loans is actually
different than the rate anticipated by such investor at the time such Securities
were purchased.
Collections on Revolving Credit Line Loans may vary because, among other
things, borrowers may (i) make payments during any month as low as the minimum
monthly payment for such month or, during the interest-only period for certain
Revolving Credit Line Loans and, in more limited circumstances, Closed-End
Loans, with respect to which an interest-only payment option has been selected,
the interest and the fees and charges for such month or (ii) make payments as
high as the entire outstanding principal balance plus accrued interest and the
fees and charges thereon. It is possible that borrowers may fail to make the
required periodic payments. In addition, collections on the Loans may vary due
to seasonal purchasing and the payment habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement, all
conventional Loans will contain due-on-sale provisions permitting the mortgagee
to accelerate the maturity of the loan upon sale or certain transfers by the
borrower of the related Property. Loans insured by the FHA, and Single Family
Loans partially guaranteed by the VA, are assumable with the consent of the FHA
and the VA, respectively. Thus, the rate of prepayments on such Loans may be
lower than that of conventional Loans bearing comparable interest rates. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
generally will enforce any due-on-sale or due-on-encumbrance clause, to the
extent it has knowledge of the conveyance or further encumbrance or the proposed
conveyance or proposed further encumbrance of the Property and reasonably
believes that it is entitled to do so under applicable law; provided, however,
that the Master Servicer will not take any enforcement action that would impair
or threaten to impair any recovery under any related insurance policy. See "The
Agreements -- Collection Procedures" and "Certain Legal Aspects of the Loans"
for a description of certain provisions of each Agreement and certain legal
developments that may affect the prepayment experience on the Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Loan Rates borne by the Loans, such Loans are more
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above such Loan Rates. Conversely, if prevailing interest
rates rise appreciably above the Loan Rates borne by the Loans, such Loans are
more likely to experience a lower prepayment rate than if prevailing rates
remain at or below such Loan Rates. However, there can be no assurance that such
will be the case.
When a full prepayment is made on a Loan, the borrower is charged interest
on the principal amount of the Loan so prepaid only for the number of days in
the month actually elapsed up to the date of the prepayment, rather than for a
full month. Unless otherwise provided in the related Prospectus Supplement, the
effect of prepayments in full will be to reduce the amount of interest passed
through or paid in the following month to holders of Securities because interest
on the principal amount of any Loan so prepaid generally will be paid only to
the date of prepayment. Partial prepayments in a given month may be applied to
the outstanding principal balances of the Loans so prepaid on the first day of
the month of receipt or the month following receipt. In the latter case, partial
prepayments will not reduce the amount of interest passed through
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or paid in such month. Unless otherwise specified in the related Prospectus
Supplement, neither full nor partial prepayments will be passed through or paid
until the month following receipt.
Even assuming that the Properties provide adequate security for the Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Loans and corresponding delays in the receipt of related proceeds by
Securityholders could occur. An action to foreclose on a Property securing a
Loan is regulated by state statutes and rules and is subject to many of the
delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a property. In the event of a default by a borrower, these
restrictions among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Loan. In addition, the Master
Servicer will be entitled to deduct from related liquidation proceeds all
expenses reasonably incurred in attempting to recover amounts due on defaulted
Loans and not yet repaid, including payments to senior lienholders, legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding
principal balance of the loan at the time of default. Therefore, assuming that a
servicer took the same steps in realizing upon a defaulted mortgage loan having
a small remaining principal balance as it would in the case of a defaulted
mortgage loan having a large remaining principal balance, the amount realized
after expenses of liquidation would be smaller as a percentage of the remaining
principal balance of the small mortgage loan than would be the case with the
other defaulted mortgage loan having a large remaining principal balance.
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of certain originators and
servicers of Loans. In addition, most have other laws, public policy and general
principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices which may apply to the origination, servicing
and collection of the Loans. Depending on the provisions of the applicable law
and the specific facts and circumstances involved, violations of these laws,
policies and principles may limit the ability of the Master Servicer to collect
all or part of the principal of or interest on the Loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the Master Servicer to damages and administrative sanctions.
If the rate at which interest is passed through or paid to the holders of
Securities of a Series is calculated on a Loan-by-Loan basis, disproportionate
principal prepayments among Loans with different Loan Rates will affect the
yield on such Securities. In most cases, the effective yield to Securityholders
will be lower than the yield otherwise produced by the applicable Pass-Through
Rate or interest rate and purchase price, because while interest will accrue on
each Loan from the first day of the month (unless otherwise specified in the
related Prospectus Supplement), the distribution of such interest will not be
made earlier than the month following the month of accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related Prospectus
Supplement may have the option to purchase the assets of a Trust Fund thereby
effecting earlier retirement of the related Series of Securities. See "The
Agreements -- Termination; Optional Termination."
The relative contribution of the various factors affecting prepayment may
also vary from time to time. There can be no assurance as to the rate of payment
of principal of the Trust Fund Assets at any time or over the lives of the
Securities.
The Prospectus Supplement relating to a Series of Securities will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Securities.
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THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. The description
is subject to, and qualified in its entirety by reference to, the provisions of
each Agreement. Where particular provisions or terms used in the Agreements are
referred to, such provisions or terms are as specified in the Agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. At the time of issuance of the Securities of a
Series, and except as otherwise specified in the related Prospectus Supplement,
the Depositor will cause the Loans comprising the related Trust Fund to be
assigned to the Trustee, without recourse, together with all principal and
interest received by or on behalf of the Depositor on or with respect to such
Loans after the Cut-off Date, other than principal and interest due on or before
the Cut-off Date and other than any Retained Interest specified in the related
Prospectus Supplement. The Trustee will, concurrently with such assignment,
deliver such Securities to the Depositor in exchange for the Loans. Each Loan
will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the outstanding
principal balance of each Loan after application of payments due on or before
the Cut-off Date, as well as information regarding the Loan Rate or APR, the
maturity of the Loan, the Loan-to-Value Ratios or Combined Loan-to-Value Ratios,
as applicable, at origination and certain other information.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, within the time period specified therein, the
Depositor will also deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) as to each Mortgage Loan or Home Equity Loan,
among other things, (i) the mortgage note or contract endorsed without recourse
in blank or to the order of the Trustee, (ii) the mortgage, deed of trust or
similar instrument (a "Mortgage") with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office, in which
case the Depositor will deliver or cause to be delivered a copy of such Mortgage
together with a certificate that the original of such Mortgage was delivered to
such recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form in the case of a Mortgage
assignment, and (iv) such other security documents, including those relating to
any senior interests in the Property, as may be specified in the related
Prospectus Supplement or the related Agreement. Unless otherwise specified in
the related Prospectus Supplement, the Depositor will promptly cause the
assignments of the related Loans to be recorded in the appropriate public office
for real property records, except in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such Loans against the claim of any subsequent transferee
or any successor to or creditor of the Depositor or the Originators of such
Loans.
With respect to any Loans that are Cooperative Loans, the Depositor will
cause to be delivered to the Trustee the related original cooperative note
endorsed without recourse in blank or to the order of the Trustee, the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate, related blank stock powers and any other document specified in the
related Prospectus Supplement. The Depositor will cause to be filed in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will as to each Contract, deliver or cause to be delivered to the
Trustee the original Contract and copies of documents and instruments related to
each Contract and, other than in the case of unsecured Contracts, the security
interest in the Property securing such Contract. In order to give notice of the
right, title and interest of Securityholders to the Contracts, the Depositor
will cause a UCC-1 financing statement to be executed by the Depositor or the
Seller identifying the Trustee as the secured party and identifying all
Contracts as collateral. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will not be stamped or otherwise marked to reflect
their assignment to the Trustee. Therefore, if, through negligence, fraud or
otherwise, a subsequent purchaser were able to take physical possession of the
Contracts without notice of such assignment, the
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interest of Securityholders in the Contracts could be defeated. See "Certain
Legal Aspects of the Loans -- The Contracts."
The Trustee (or the custodian hereinafter referred to) will review such
Loan documents within the time period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee will hold such documents in
trust for the benefit of the related Securityholders. Unless otherwise specified
in the related Prospectus Supplement, if any such document is found to be
missing or defective in any material respect, the Trustee (or such custodian)
will notify the Master Servicer and the Depositor, and the Master Servicer will
notify the related Seller or Originator.
If such Seller or Originator cannot cure the omission or defect within the
time period specified in the related Prospectus Supplement after receipt of such
notice, such Seller or Originator will be obligated to either (i) purchase the
related Loan from the Trust Fund at the Purchase Price or (ii) if so specified
in the related Prospectus Supplement, remove such Loan from the Trust Fund and
substitute in its place one or more other Loans that meets certain requirements
set forth therein. There can be no assurance that a Seller or Originator will
fulfill this purchase or substitution obligation. Although the Master Servicer
may be obligated to enforce such obligation to the extent described above under
"The Trust Fund -- Representations by Sellers or Originators; Repurchases,"
neither the Master Servicer nor the Depositor will be obligated to purchase or
replace such Loan if the Seller or Originator defaults on its obligation, unless
such breach also constitutes a breach of the representations or warranties of
the Master Servicer or the Depositor, as the case may be. Unless otherwise
specified in the related Prospectus Supplement, this obligation to cure,
purchase or substitute constitutes the sole remedy available to the
Securityholders or the Trustee for omission of, or a material defect in, a
constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the Loans as agent of the Trustee.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Upon a breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Securityholders in a Loan, the Master Servicer will be obligated either to cure
the breach in all material respects or to purchase (at the Purchase Price) or if
so specified in the related Prospectus Supplement, replace the Loan. Unless
otherwise specified in the related Prospectus Supplement, this obligation to
cure, purchase or substitute constitutes the sole remedy available to the
Securityholders or the Trustee for such a breach of representation by the Master
Servicer.
Notwithstanding the foregoing provisions, with respect to a Trust Fund for
which a REMIC election is to be made, no purchase or substitution of a Loan will
be made if such purchase or substitution would result in a prohibited
transaction tax under the Code.
NO RECOURSE TO SELLERS, ORIGINATORS, DEPOSITOR OR MASTER SERVICER
As described above under "-- Assignment of the Trust Fund Assets," the
Depositor will cause the Loans comprising the related Trust Fund to be assigned
to the Trustee, without recourse. However, each Seller or Originator will be
obligated to repurchase or substitute for any Loan as to which certain
representations and warranties are breached or for failure to deliver certain
documents relating to the Loans as described above under "-- Assignment of the
Trust Fund Assets" and under "The Trust Fund -- Representations by Sellers or
Originators; Repurchases." These obligations to purchase or substitute
constitute the sole remedy available to the Securityholders or the Trustee for a
breach of any such representation or failure to deliver a constituent document.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust Fund a separate account or
accounts for the collection of payments on the related Trust Fund Assets in the
Trust Fund (the "Security Account") which, unless otherwise specified in the
related Prospectus
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Supplement, must be either (i) maintained with a depository institution the debt
obligations of which (or in the case of a depository institution that is the
principal subsidiary of a holding company, the obligations of which) are rated
in one of the two highest rating categories by the Rating Agency or Rating
Agencies that rated one or more classes of the related Series of Securities,
(ii) an account or accounts the deposits in which are fully insured by either
the Bank Insurance Fund (the "BIF") of the FDIC or the Savings Association
Insurance Fund (as successor to the Federal Savings and Loan Insurance
Corporation ("SAIF")), (iii) an account or accounts the deposits in which are
insured by the BIF or SAIF (to the limits established by the FDIC), and the
uninsured deposits in which are otherwise secured such that, as evidenced by an
opinion of counsel, the Securityholders have a claim with respect to the funds
in the Security Account or a perfected first priority security interest against
any collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the depository institution with which the
Security Account is maintained, or (iv) an account or accounts otherwise
acceptable to each Rating Agency. The collateral eligible to secure amounts in
the Security Account is limited to Permitted Investments. A Security Account may
be maintained as an interest bearing account or the funds held therein may be
invested pending each succeeding Distribution Date in Permitted Investments.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or its designee will be entitled to receive any such interest or other
income earned on funds in the Security Account as additional compensation and
will be obligated to deposit in the Security Account the amount of any loss
immediately as realized. The Security Account may be maintained with the Master
Servicer or with a depository institution that is an affiliate of the Master
Servicer, provided it meets the standards set forth above.
The Master Servicer will deposit or cause to be deposited in the Security
Account for each Trust Fund, to the extent applicable and unless otherwise
specified in the related Prospectus Supplement and provided in the Agreement,
the following payments and collections received or advances made by or on behalf
of it subsequent to the Cut-off Date (other than payments due on or before the
Cut-off Date and exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement, any
applicable prepayment penalties, on the Loans;
(ii) all payments on account of interest on the Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the
extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other
cash amounts (net of unreimbursed expenses incurred in connection with
liquidation or foreclosure ("Liquidation Expenses") and unreimbursed
Advances made, by the Master Servicer, if any) received and retained in
connection with the liquidation of defaulted Loans, by foreclosure or
otherwise ("Liquidation Proceeds"), together with any net proceeds received
on a monthly basis with respect to any properties acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof purchased
by the Master Servicer, the Depositor or any Seller or Originators as
described under "The Trust Funds -- Representations by Sellers or
Originators; Repurchases" or under "-- Assignment of Trust Fund Assets"
above and all proceeds of any Loan repurchased as described under
"-- Termination; Optional Termination" below;
(v) all payments required to be deposited in the Security Account with
respect to any deductible clause in any blanket insurance policy described
under "-- Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Security Account and, to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls; and
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(vii) all other amounts required to be deposited in the Security
Account pursuant to the Agreement.
The Master Servicer (or the Depositor, as applicable) may from time to time
direct the institution that maintains the Security Account to withdraw funds
from the Security Account for the following purposes:
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the amounts in the Security
Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest on
such Loan (or Insurance Proceeds or Liquidation Proceeds with respect
thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
(vi) to pay to the Master Servicer, with respect to each Loan or
property acquired in respect thereof that has been purchased by the Master
Servicer pursuant to the Agreement, all amounts received thereon and not
taken into account in determining the principal balance of such repurchased
Loan;
(vii) to reimburse the Master Servicer or the Depositor for expenses
incurred and reimbursable pursuant to the Agreement;
(viii) to withdraw any amount deposited in the Security Account and
not required to be deposited therein; and
(ix) to clear and terminate the Security Account upon termination of
the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Security Account
the amount of Available Funds, to the extent on deposit, for deposit in an
account maintained by the Trustee for the related Series of Securities.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Trustee on behalf of the related Securityholders, into which the Depositor will
deposit cash from the proceeds of the issuance of the related Securities in an
amount equal to the Pre-Funded Amount on the related Closing Date. The
Pre-Funded Amount will not exceed 25% of the initial aggregate principal amount
of the Certificates and/or Notes of the related Series. The Pre-Funding Account
will be maintained with the Trustee for the related Series of Securities and is
designed solely to hold funds to be applied by such Trustee during the Funding
Period to pay to the Depositor the purchase price for Subsequent Loans. Monies
on deposit in the Pre-Funding Account will not be available to cover losses on
or in respect of the related Loans. The Pre-Funded Amount will be used by the
related Trustee to purchase Subsequent Loans from the Depositor from time to
time during the Funding Period. Each Subsequent Loan that is purchased by the
related Trustee will be required to be underwritten in accordance with the
eligibility criteria set forth in the related Agreement and in the related
Prospectus Supplement. Such eligibility criteria will be determined in
consultation with the applicable Rating Agency or Rating Agencies prior to the
issuance of the related Series of Securities and are designed to ensure that if
such Subsequent Loans were included as
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part of the initial Loans, the credit quality of such assets would be consistent
with the initial rating or ratings of the Securities of such Series. The
Depositor will certify to the Trustee that all conditions precedent to the
transfer of the Subsequent Loans to the Trust Fund, including, among other
things, the satisfaction of the related eligibility criteria, have been
satisfied. It is a condition precedent to the transfer of any Subsequent Loans
to the Trust Fund that the applicable Rating Agency or Rating Agencies, after
receiving prior notice of the proposed transfer of the Subsequent Loans to the
Trust Fund, will not have advised the Depositor or the related Trustee that the
conveyance of the Subsequent Loans to the Trust Fund will result in a
qualification, modification or withdrawal of their current rating of any
Securities of such Series. Upon the purchase by the Trustee of a Subsequent
Loan, such Subsequent Loan will be included in the related Trust Fund Assets.
The Funding Period, if any, for a Trust Fund will begin on the related Closing
Date and will end on the date specified in the related Prospectus Supplement,
which in no event will be later than the date that is three months after the
related Closing Date. Monies on deposit in the Pre-Funding Account may be
invested in Permitted Investments under the circumstances and in the manner
described in the related Agreement. See the "Index of Defined Terms" on page 119
of this Prospectus for the location of the defined term "Permitted Investments."
Earnings on investment of funds in the Pre-Funding Account will be deposited
into the related Security Account or such other trust account as is specified in
the related Prospectus Supplement and losses will be charged against the funds
on deposit in the Pre-Funding Account. Any amounts remaining in the Pre-Funding
Account at the end of the Funding Period will be distributed to the related
Securityholders in the manner and priority specified in the related Prospectus
Supplement, as a prepayment of principal of the related Securities. The
Depositor will include information regarding the additional Subsequent Loans in
a Current Report on Form 8K to the extent that such information, individually or
in the aggregate, is material.
In addition, if so provided in the related Prospectus Supplement, the
Master Servicer will establish and maintain, in the name of the Trustee on
behalf of the related Securityholders, an account (the "Capitalized Interest
Account") into which the Depositor will deposit cash from the proceeds of the
issuance of the related Securities in such amount as is necessary to cover
shortfalls in interest on the related Series of Securities that may arise as a
result of a portion of the assets of the Trust Fund not being invested in Loans
and the utilization of the Pre-Funding Account as described above. The
Capitalized Interest Account shall be maintained with the Trustee for the
related Series of Securities and is designed solely to cover the above-mentioned
interest shortfalls. Monies on deposit in the Capitalized Interest Account will
not be available to cover losses on or in respect of the related Loans. Amounts
on deposit in the Capitalized Interest Account will be distributed to
Securityholders on the Distribution Dates occurring in the Funding Period to
cover any shortfalls in interest on the related Series of Securities as
described in the related Prospectus Supplement. To the extent that the entire
amount on deposit in the Capitalized Interest Account has not been applied to
cover shortfalls in interest on the related Series of Securities by the end of
the Funding Period, any amounts remaining in the Capitalized Interest Account
will be paid to the Depositor.
SUB-SERVICING BY SELLERS
Each Seller of a Loan or any other servicing entity may act as the
Sub-Servicer for such Loan pursuant to an agreement (each, a "Sub-Servicing
Agreement"), which will not contain any terms inconsistent with the related
Agreement. While each Sub-Servicing Agreement will be a contract solely between
the Master Servicer and the Sub-Servicer, the Agreement pursuant to which a
Series of Securities is issued will provide that, if for any reason the Master
Servicer for such Series of Securities is no longer the Master Servicer of the
related Loans, the Trustee or any successor Master Servicer may assume the
Master Servicer's rights and obligations under such Sub-Servicing Agreement.
Notwithstanding any such subservicing arrangement, unless otherwise provided in
the related Prospectus Supplement, the Master Servicer will remain liable for
its servicing duties and obligations under the Master Servicing Agreement as if
the Master Servicer alone were servicing the Loans.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Loans and
will, consistent with each Agreement and any Pool
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Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty,
bankruptcy bond or alternative arrangements, follow such collection procedures
as are customary with respect to loans that are comparable to the Loans.
Consistent with the above, the Master Servicer may, in its discretion, unless
otherwise specified in the related Prospectus Supplement (i) waive any
assumption fee, late payment or other charge in connection with a Loan and (ii)
to the extent not inconsistent with the coverage of such Loan by a Pool
Insurance Policy, Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty,
bankruptcy bond or alternative arrangements, if applicable, arrange with a
borrower a schedule for the liquidation of delinquencies running for no more
than 125 days after the applicable due date for each payment. Each Agreement and
the related Prospectus Supplement will specify the time period during which
payments received by the Master Servicer may be commingled with the Master
Servicer's own funds prior to each Distribution Date. To the extent the Master
Servicer is obligated to make or cause to be made Advances, such obligation will
remain during any period of such an arrangement.
Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a Loan has been, or is about to be, conveyed by
the mortgagor or obligor, the Master Servicer will, to the extent it has
knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and will not impair or threaten to impair any
recovery under any Primary Mortgage Insurance Policy. If these conditions are
not met or if the Master Servicer reasonably believes it is unable under
applicable law to enforce such due-on-sale clause or if such Loan is a mortgage
loan insured by the FHA or partially guaranteed by the VA, the Master Servicer
will enter into or cause to be entered into an assumption and modification
agreement with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable for repayment of the Loan
and, to the extent permitted by applicable law, the mortgagor remains liable
thereon. Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See "Certain Legal Aspects of the
Loans -- Due-on-Sale Clauses." In connection with any such assumption, the terms
of the related Loan may not be changed.
With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Loans." This approval is usually based on the purchaser's income and net worth
and numerous other factors. Although the Cooperative's approval is unlikely to
be unreasonably withheld or delayed, the necessity of acquiring such approval
could limit the number of potential purchasers for those shares and otherwise
limit the Trust Fund's ability to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a "cooperative housing corporation" within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Section
for any particular year. In the event that such a Cooperative fails to qualify
for one or more years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no deduction would be
allowable to tenant-stockholders under Code Section 216(a) with respect to those
years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Code Section
216(b)(1), the likelihood that such a failure would be permitted to continue
over a period of years appears remote.
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HAZARD INSURANCE
Except as otherwise specified in the related Prospectus Supplement, the
Master Servicer will require the mortgagor or obligor on each Loan to maintain a
hazard insurance policy providing for no less than the coverage of the standard
form of fire insurance policy with extended coverage customary for the type of
Property in the state in which such Property is located. Such coverage will be
in an amount that is at least equal to the lesser of (i) the maximum insurable
value of the improvements securing such Loan or (ii) the greater of (y) the
outstanding principal balance of the Loan and (z) an amount such that the
proceeds of such policy shall be sufficient to prevent the mortgagor and/or the
mortgagee from becoming a co-insurer. All amounts collected by the Master
Servicer under any hazard policy (except for amounts to be applied to the
restoration or repair of the Property or released to the mortgagor or obligor in
accordance with the Master Servicer's normal servicing procedures) will be
deposited in the related Security Account. In the event that the Master Servicer
maintains a blanket policy insuring against hazard losses on all the Loans
comprising part of a Trust Fund, it will conclusively be deemed to have
satisfied its obligation relating to the maintenance of hazard insurance. Such
blanket policy may contain a deductible clause, in which case the Master
Servicer will be required to deposit from its own funds into the related
Security Account the amounts which would have been deposited therein but for
such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Loan by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Loans may have been underwritten
by different insurers under different state laws in accordance with different
applicable forms and therefore may not contain identical terms and conditions,
the basic terms thereof are dictated by respective state laws, and most such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flows),
nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft and, in certain cases, vandalism. The foregoing list is merely indicative
of certain kinds of uninsured risks and is not intended to be all inclusive. If
the Property securing a Loan is located in a federally designated special flood
area at the time of origination, the Master Servicer will require the mortgagor
or obligor to obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time to
carry insurance of a specified percentage of a specified percentage (generally
80% to 90%) of the full replacement value of the insured property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, then the insurer's liability in the event of
partial loss will not exceed the larger of (i) the actual cash value (generally
defined as replacement cost at the time and place of loss, less physical
depreciation) of the improvements damaged or destroyed or (ii) such proportion
of the loss as the amount of insurance carried bears to the specified percentage
of the full replacement cost of such improvements. Since the amount of hazard
insurance the Master Servicer may cause to be maintained on the improvements
securing the Loans declines as the principal balances owing thereon decrease,
and since improved real estate generally has appreciated in value over time in
the past, the effect of this requirement in the event of partial loss may be
that hazard insurance proceeds will be insufficient to restore fully the damaged
property. If specified in the related Prospectus Supplement, a special hazard
insurance policy will be obtained to insure against certain of the uninsured
risks described above. See "Credit Enhancement."
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will not require that a standard hazard or flood insurance policy be
maintained on the cooperative dwelling relating to any Cooperative Loan.
Generally, the Cooperative itself is responsible for maintenance of hazard
insurance for the property owned by the Cooperative and the tenant-stockholders
of that Cooperative do not maintain individual hazard insurance policies. To the
extent, however, that a Cooperative and the related borrower on a Cooperative
Loan do not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's cooperative dwelling or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan to the extent not covered by other credit support.
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If the Property securing a defaulted Loan is damaged and proceeds, if any,
from the related hazard insurance policy are insufficient to restore the damaged
Property, the Master Servicer is not required to expend its own funds to restore
the damaged Property unless it determines (i) that such restoration will
increase the proceeds to Securityholders on liquidation of the Loan after
reimbursement of the Master Servicer for its expenses and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If recovery on a defaulted Loan under any related Insurance Policy is not
available for the reasons set forth in the preceding paragraph, or if the
defaulted Loan is not covered by an Insurance Policy, the Master Servicer will
be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Loan. If the proceeds of any liquidation of the Property securing the defaulted
Loan are less than the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Trust Fund will realize a loss
in the amount of such difference plus the aggregate of expenses incurred by the
Master Servicer in connection with such proceedings and which are reimbursable
under the Agreement. In the unlikely event that any such proceedings result in a
total recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the Master Servicer will be entitled
to withdraw or retain from the Security Account amounts representing its normal
servicing compensation with respect to such Loan and, unless otherwise specified
in the related Prospectus Supplement, amounts representing the balance of such
excess, exclusive of any amount required by law to be forwarded to the related
borrower, as additional servicing compensation.
Unless otherwise specified in the related Prospectus Supplement, if the
Master Servicer or its designee recovers Insurance Proceeds which, when added to
any related Liquidation Proceeds and after deduction of certain expenses
reimbursable to the Master Servicer, exceed the principal balance of such Loan
plus interest accrued thereon that is payable to Securityholders, the Master
Servicer will be entitled to withdraw or retain from the Security Account
amounts representing its normal servicing compensation with respect to such
Loan. In the event that the Master Servicer has expended its own funds to
restore the damaged Property and such funds have not been reimbursed under the
related hazard insurance policy, it will be entitled to withdraw from the
Security Account out of related Liquidation Proceeds or Insurance Proceeds an
amount equal to such expenses incurred by it, in which event the Trust Fund may
realize a loss up to the amount so charged. Since Insurance Proceeds cannot
exceed deficiency claims and certain expenses incurred by the Master Servicer,
no such payment or recovery will result in a recovery to the Trust Fund which
exceeds the principal balance of the defaulted Loan together with accrued
interest thereon. See "Credit Enhancement."
Unless otherwise specified in the related Prospectus Supplement or the
related Agreement, the proceeds from any liquidation of a Loan will be applied
in the following order of priority: first, to reimburse the Master Servicer for
any unreimbursed expenses incurred by it to restore the related Property and any
unreimbursed servicing compensation payable to the Master Servicer with respect
to such Loan; second, to reimburse the Master Servicer for any unreimbursed
Advances with respect to such Loan; third, to accrued and unpaid interest (to
the extent no Advance has been made for such amount) on such Loan; and fourth,
as a recovery of principal of such Loan.
REALIZATION UPON DEFAULTED LOANS
Primary Mortgage Insurance Policies. If so specified in the related
Prospectus Supplement, the Master Servicer will maintain or cause to be
maintained, as the case may be, in full force and effect, a Primary Mortgage
Insurance Policy with regard to each Loan for which such coverage is required.
Primary Mortgage Insurance Policies reimburse certain losses sustained by reason
of defaults in payments by borrowers. Although the terms and conditions of
Primary Mortgage Insurance Policies differ, each Primary Mortgage Insurance
Policy will generally cover losses up to an amount equal to the excess of the
unpaid principal amount of a defaulted Loan (plus accrued and unpaid interest
thereon and certain approved expenses) over a specified percentage of the value
of the related Mortgaged Property. The Master Servicer will not cancel or refuse
to renew any such Primary Mortgage Insurance Policy in effect at the time of the
initial issuance of a Series of Securities that is required to be kept in force
under the applicable Agreement unless the replacement
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Primary Mortgage Insurance Policy for such cancelled or nonrenewed policy is
maintained with an insurer whose claims-paying ability is sufficient to maintain
the current rating of the classes of Securities of such Series that have been
rated.
FHA Insurance; VA Guaranties. Loans designated in the related Prospectus
Supplement as insured by the FHA will be insured by the FHA as authorized under
the United States Housing Act of 1937, as amended. In addition to the Title I
Program of the FHA, see "Certain Legal Aspects of the Loans -- The Title I
Program," certain Loans will be insured under various FHA programs including the
standard FHA 203(b) program to finance the acquisition of one- to four-family
housing units and the FHA 245 graduated payment mortgage program. These programs
generally limit the principal amount and interest rates of the mortgage loans
insured. Loans insured by FHA generally require a minimum down payment of
approximately 5% of the original principal amount of the loan. No FHA-insured
Loans relating to a Series may have an interest rate or original principal
amount exceeding the applicable FHA limits at the time of origination of such
loan.
Loans designated in the related Prospectus Supplement as guaranteed by the
VA will be partially guaranteed by the VA under the Serviceman's Readjustment
Act of 1944, as amended (a "VA Guaranty"). The Serviceman's Readjustment Act of
1944, as amended, permits a veteran (or in certain instances the spouse of a
veteran) to obtain a mortgage loan guaranty by the VA covering mortgage
financing of the purchase of a one-to four-family dwelling unit at interest
rates permitted by the VA. The program has no mortgage loan limits, requires no
down payment from the purchaser and permits the guaranty of mortgage loans of up
to 30 years' duration. However, no Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guaranty for
such Loan. The maximum guaranty that may be issued by the VA under a VA
guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 United States Code Section 1803(a), as
amended.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Loan, and such compensation will be retained by it from
collections of interest on such Loan in the related Trust Fund (the "Master
Servicing Fee"). Unless otherwise specified in the related Prospectus
Supplement, as compensation for its servicing duties, a Sub-Servicer or, if
there is no Sub-Servicer, the Master Servicer will be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In addition,
unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or Sub-Servicer will retain all prepayment charges, assumption fees and
late payment charges, to the extent collected from borrowers, and any benefit
that may accrue as a result of the investment of funds in the applicable
Security Account (unless otherwise specified in the related Prospectus
Supplement).
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Fund and incurred by it in connection with its
responsibilities under the related Agreement, including, without limitation,
payment of any fee or other amount payable in respect of any credit enhancement
arrangements, payment of the fees and disbursements of the Trustee, any
custodian appointed by the Trustee, the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
Sub-Servicers and Sellers. The Master Servicer will be entitled to reimbursement
of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers
under certain limited circumstances.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, the servicing by or on behalf of the Master Servicer of mortgage loans or
private asset backed securities, or under pooling and servicing agreements
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substantially similar to each other (including the related Agreement), was
conducted in compliance with such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, the Audit
Program for Mortgages serviced for FHLMC, or the Uniform Single Attestation
Program for Mortgage Bankers, it is required to report. In rendering its
statement such firm may rely, as to matters relating to the direct servicing of
Loans by Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by two officers of
the Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Securityholders of the related Series
without charge upon written request to the Master Servicer at the address set
forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Pooling and Servicing Agreement or Master
Servicing Agreement, as applicable, will be named in the related Prospectus
Supplement. Each Agreement will provide that the Master Servicer may not resign
from its obligations and duties under the Agreement except upon a determination
that its duties thereunder are no longer permissible under applicable law. The
Master Servicer may, however, be removed from its obligations and duties as set
forth in the Agreement. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Depositor nor any director, officer, employee, or agent of the Master Servicer
or the Depositor will be under any liability to the related Trust Fund or
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Master Servicer, the Depositor nor any such
person will be protected against any liability which would otherwise be imposed
by reason of wilful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each Agreement will further provide that the
Master Servicer, the Depositor and any director, officer, employee or agent of
the Master Servicer or the Depositor will be entitled to indemnification by the
related Trust Fund and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the Agreement
or the Securities, other than any loss, liability or expense related to any
specific Loan or Loans (except any such loss, liability or expense otherwise
reimbursable pursuant to the Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer nor the Depositor will be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
respective responsibilities under the Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Securityholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Master Servicer or the Depositor, as the case may be, will be entitled
to be reimbursed therefor out of funds otherwise distributable to
Securityholders.
Except as otherwise specified in the related Prospectus Supplement, any
person into which the Master Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master Servicer
is a party, or any person succeeding to the business of the Master Servicer,
will be the successor of the Master Servicer under each Agreement, provided that
such person is qualified to sell
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mortgage loans to, and service mortgage loans on behalf of, FNMA or FHLMC and
further provided that such merger, consolidation or succession does not
adversely affect the then current rating or ratings of the class or classes of
Securities of such Series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. Except as
otherwise specified in the related Prospectus Supplement, Events of Default
under each Agreement will consist of (i) any failure by the Master Servicer to
distribute or cause to be distributed to Securityholders of any class any
required payment (other than an Advance) which continues unremedied for five
days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Securities of such class evidencing not less than
25% of the total distributions allocated to such class ("Percentage Interests");
(ii) any failure by the Master Servicer to make an Advance as required under the
Agreement, unless cured as specified therein; (iii) any failure by the Master
Servicer duly to observe or perform in any material respect any of its other
covenants or agreements in the Agreement which continues unremedied for thirty
days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Securities of any class evidencing not less than
25% of the aggregate Percentage Interests constituting such class; and (iv)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceeding and certain actions by or on behalf of the
Master Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Trust Fund Assets and the other assets of the
Trust Fund described under "Credit Enhancement" herein in the event that
payments in respect thereto are insufficient to make payments required in the
Agreement. The assets of the Trust Fund will be sold only under the
circumstances and in the manner specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, so long as
an Event of Default under an Agreement remains unremedied, the Depositor or the
Trustee may, and at the direction of holders of Securities of any class
evidencing not less than 25% of the aggregate Percentage Interests constituting
such class and under such other circumstances as may be specified in such
Agreement, the Trustee shall terminate all of the rights and obligations of the
Master Servicer under the Agreement relating to such Trust Fund and in and to
the related Trust Fund Assets, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement, including, if specified in the related Prospectus Supplement, the
obligation to make Advances, and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, a mortgage loan servicing institution with a net worth of a least
$10,000,000 to act as successor to the Master Servicer under the Agreement.
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and any such successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation payable to the
Master Servicer under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, no
Securityholder, solely by virtue of such holder's status as a Securityholder,
will have any right under any Agreement to institute any proceeding with respect
to such Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Securities of any class of
such Series evidencing not less than 25% of the aggregate Percentage Interests
constituting such class 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.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default in the payment of any principal of or interest on any
Note of such Series which continues unremedied for five days after the giving of
written notice of such default is given as specified in the related Prospectus
Supplement; (ii) failure to perform in any material
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respect any other covenant of the Depositor or the Trust Fund in the Indenture
which continues for a period of thirty (30) days after notice thereof is given
in accordance with the procedures described in the related Prospectus
Supplement; (iii) certain events of bankruptcy, insolvency, receivership or
liquidation of the Depositor or the Trust Fund; or (iv) any other Event of
Default provided with respect to Notes of that Series including but not limited
to certain defaults on the part of the issuer, if any, of a credit enhancement
instrument supporting such Notes.
If an Event of Default with respect to the Notes of any Series at the time
outstanding occurs and is continuing, either the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount (or, if the Notes of that Series have an
interest rate of 0%, such portion of the principal amount as may be specified in
the terms of that Series, as provided in the related Prospectus Supplement) of
all the Notes of such Series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of
more than 50% of the Percentage Interests of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes, the
Notes of such Series have been declared to be due and payable, the Trustee may,
in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default, other than a default in the payment of
any principal or interest on any Note of such Series for five days or more,
unless (a) the holders of 100% of the Percentage Interests of the Notes of such
Series consent to such sale, (b) the proceeds of such sale or liquidation are
sufficient to pay in full the principal of and accrued interest, due and unpaid,
on the outstanding Notes of such Series at the date of such sale or (c) the
Trustee determines that such collateral would not be sufficient on an ongoing
basis to make all payments on such Notes as such payments would have become due
if such Notes had not been declared due and payable, and the Trustee obtains the
consent of the holders of 66 2/3% of the Percentage Interests of the Notes of
such Series.
In the event that the Trustee liquidates the collateral in connection with
an Event of Default involving a default for five days or more in the payment of
principal of or interest on the Notes of a Series, the Indenture provides that
the Trustee will have a prior lien on the proceeds of any such liquidation for
unpaid fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders would be less
than would otherwise be the case. However, the Trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the Indenture for the benefit of
the Noteholders after the occurrence of such an Event of Default.
Except as otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with respect
to a Series of Notes, the Trustee shall be under no obligation to exercise any
of the rights or powers under the Indenture at the request or direction of any
of the holders of Notes of such Series, unless such holders offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, the holders of a majority of the then
aggregate outstanding amount of the Notes of such Series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the holders of a majority
of the then aggregate outstanding amount of the Notes of such Series may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a
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default in respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all the holders of the outstanding
Notes of such Series affected thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Securityholders, (i) to cure any ambiguity;
(ii) to correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein; or (iii) to make any other
revisions with respect to matters or questions arising under the Agreement which
are not inconsistent with the provisions thereof, provided that such action will
not adversely affect in any material respect the interests of any
Securityholder. An amendment will be deemed not to adversely affect in any
material respect the interests of the Securityholders if the person requesting
such amendment obtains a letter from each Rating Agency requested to rate the
class or classes of Securities of such Series stating that such amendment will
not result in the downgrading or withdrawal of the respective ratings then
assigned to such Securities. In addition, to the extent provided in the related
Agreement, an Agreement may be amended without the consent of any of the
Securityholders, to change the manner in which the Security Account is
maintained, provided that any such change does not adversely affect the then
current rating on the class or classes of Securities of such Series that have
been rated. In addition, if a REMIC election is made with respect to a Trust
Fund, the related Agreement may be amended to modify, eliminate or add to any of
its provisions to such extent as may be necessary to maintain the qualification
of the related Trust Fund as a REMIC, provided that the Trustee has received an
opinion of counsel to the effect that such action is necessary or helpful to
maintain such qualification. Except as otherwise specified in the related
Prospectus Supplement, each Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee with consent of holders of Securities of such
Series evidencing not less than 66% of the aggregate Percentage Interests of
each class affected thereby for the purpose of adding any provisions to or
changing in an manner or eliminating any of the provisions of the Agreement or
of modifying in any manner the rights of the holders of the related Securities;
provided, however, that no such amendment may (i) reduce in any manner the
amount of or delay the timing of, payments received on Loans which are required
to be distributed on any Security without the consent of the holder of such
Security, or (ii) reduce the aforesaid percentage of Securities of any class the
holders of which are required to consent to any such amendment without the
consent of the holders of all Securities of such class covered by such Agreement
then outstanding. If a REMIC election is made with respect to a Trust Fund, the
Trustee will not be entitled to consent to an amendment to the related Agreement
without having first received an opinion of counsel to the effect that such
amendment will not cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related Agreement, the obligations created by each Pooling and
Servicing Agreement and Trust Agreement for each Series of Securities will
terminate upon the payment to the related Securityholders of all amounts held in
the Security Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment of or
other liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Trust Fund
Assets remaining in the Trust Fund and (ii) the purchase by the Master Servicer
or, if REMIC treatment has been elected and if specified in the related
Prospectus Supplement, by the holder of the residual interest in the REMIC (see
"Federal Income Tax Consequences"), from the related Trust Fund of all of the
remaining Trust Fund Assets and all property acquired in respect of such Trust
Fund Assets.
Unless otherwise specified by the related Prospectus Supplement, any such
purchase of Trust Fund Assets and property acquired in respect of Trust Fund
Assets evidenced by a Series of Securities will be made at the option of the
Master Servicer, such other person or, if applicable, such holder of the REMIC
residual interest, at a price specified in the related Prospectus Supplement.
The exercise of such right will effect early retirement of the Securities of
that Series, but the right of the Master Servicer, such other person or, if
applicable, such holder of the REMIC residual interest, to so purchase is
subject to the principal balance of
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the related Trust Fund Assets being less than the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the Trust
Fund Assets at the Cut-off Date for the Series. Upon such requirement being
satisfied, the parties specified in the related Prospectus Supplement may
purchase all Trust Fund Assets and thereby effect retirement of such Series of
Securities. In such event, the applicable purchase price will be sufficient to
pay the aggregate outstanding principal balance of such Series of Securities and
any undistributed shortfall in interest of such Series of Securities as will be
described in the related Prospectus Supplement. The foregoing is subject to the
provision that if a REMIC election is made with respect to a Trust Fund, any
repurchase pursuant to clause (ii) above will be made only in connection with a
"qualified liquidation" of the REMIC within the meaning of Section 860F(g)(4) of
the Code.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture will
provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the Notes of such Series on the last scheduled
Distribution Date for such Notes and any installment of interest on such Notes
in accordance with the terms of the Indenture and the Notes of such Series. In
the event of any such defeasance and discharge of Notes of such Series, holders
of Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor, the Master Servicer and any of
their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Loans. Because such legal aspects are
governed primarily by applicable state law (which laws may differ
substantially), the descriptions do not, except as expressly provided below,
reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Loans is situated. The descriptions are
qualified in their entirety by reference to the applicable federal laws and the
appropriate laws of the states in which Loans may be originated.
GENERAL
The Loans for a Series may be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. Deeds of
trust are used almost exclusively in California instead of mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments. Priority
between mortgages depends on their terms and generally on the order of recording
with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner called the trustor (similar to
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a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title to,
as opposed to merely creating a lien upon, the subject property to the grantee
until such time as the underlying debt is repaid. The trustee's authority under
a deed of trust, the mortgagee's authority under a mortgage and the grantee's
authority under a security deed or deed to secure debt are governed by law and,
with respect to some deeds of trust, the directions of the beneficiary.
Cooperatives. Certain of Loans may be Cooperative Loans. The Cooperative
owns all the real property that comprises the project, including the land,
separate dwelling units and all common areas. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction or purchase of the Cooperative's apartment
building. The interest of the occupant under proprietary leases or occupancy
agreements to which that Cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
Cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the Cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of a Trust Fund
including Cooperative Loans, the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
FORECLOSURE/REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states (such as California), the trustee
must record a notice of default and send a copy to the borrower-trustor, to any
person who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
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beneficiary of any junior deed of trust and to certain other persons. In some
states (including California), the borrower-trustor has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
In general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a statutorily prescribed reinstatement period, cure a
monetary default by paying the entire amount in arrears plus other designated
costs and expenses incurred in enforcing the obligation. Generally, state law
controls the amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. After the reinstatement period has
expired without the default having been cured, the borrower or junior lienholder
no longer has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. If the deed of trust is not reinstated
within any applicable cure period, a notice of sale must be posted in a public
place and, in most states (including California), published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the real property. In California, the
entire process from recording a notice of default to a non-judicial sale usually
takes four to five months.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure in which event
the mortgagor's debt will be extinguished or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss may be reduced by the receipt of
any mortgage guaranty insurance proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents.
Some courts have been faced with the issue of whether federal or state
constitutional provisions reflecting due process concerns for fair notice
require that borrowers under deeds of trust receive notice longer than that
prescribed by statute. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust does not involve sufficient state action to afford constitutional
protection to the borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or deed
of trust. See "-- Junior Mortgages; Rights of Senior Mortgagees" below.
Cooperative Loans. 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
bylaws, as well as 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
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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 with 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 form the 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 in any rights it may have to dispossess the tenant-stockholders.
In some states, 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 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 the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "-- Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building but who did not purchase shares in the
Cooperative when the building was so converted.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give risks to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where EPA has incurred clean-up costs. However, a CERCLA lien
is subordinate to pre-existing, perfected security interests.
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Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an "owner" or "operator" for the costs of
addressing releases or threatened releases of hazardous substances at a
Property, even though the environmental damage or threat was caused by a prior
or current owner or operator. CERCLA imposes liability for such costs on any and
all "responsible parties," including owners or operators. However, CERCLA
excludes from the definition of "owner or operator" a secured creditor who holds
indicia of ownership primarily to protect its security interest (the "secured
creditor exclusion") but without "participating in the management" of the
Property. Thus, if a lender's activities begin to encroach on the actual
management of a contaminated facility or property, the lender may incur
liability as an "owner or operator" under CERCLA. Similarly, if a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur CERCLA liability in various circumstances, including, but not limited
to, when it holds the facility or property as an investment (including leasing
the facility or property to third party), or fails to market the property in a
timely fashion.
Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996. The new
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured creditor
exemption only if it exercises decision-making control over the borrower's
environmental compliance and hazardous substance handling and disposal
practices, or assumes day-to-day management of all operational functions of the
mortgaged property.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Certificateholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection for secured creditors.
Except as otherwise specified in the related Prospectus Supplement, at the
time the Loans were originated, no environmental assessment or a very limited
environmental assessment of the Properties was conducted.
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RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states (including California), this right of redemption applies only to
sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory and judicial restrictions that limit
the remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage. In some states, including California, statutes and case law limit the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property at the time of the foreclosure sale. As a result of these prohibitions,
it is anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. In some states, exceptions to the anti-deficiency
statutes are provided for in certain instances where the value of the lender's
security has been impaired by acts or omissions of the borrower, for example, in
the event of waste of the property. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. 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
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may provide, if the
mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured
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indebtedness to the value of the mortgaged property as of the date of the
commencement of the bankruptcy, rendering the lender a general unsecured
creditor for the difference, and also may reduce the monthly payments due under
such mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. The effect of any such proceedings under the federal
Bankruptcy Code, including but not limited to any automatic stay, could result
in delays in receiving payments on the Loans underlying a Series of Securities
and possible reductions in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party.
DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will generally provide
that if the mortgagor or obligor sells, transfers or conveys the Property, the
loan or contract may be accelerated by the mortgagee or secured party. Court
decisions and legislative actions have placed substantial restriction on the
right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on-sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St Germain Act"), subject to certain exceptions, preempts
state constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the "window period" under the Garn-St
Germain Act which ended in all cases not later than October 15, 1982, and (ii)
originated by lenders other than national banks, federal savings institutions
and federal credit unions. FHLMC has taken the position in its published
mortgage servicing standards that, out of a total of eleven "window period
states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Act may
not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Property to an
uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Loans and the number of Loans which may extend to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Under certain state laws, prepayment charges may not be imposed
after a certain period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the Loans. The absence of such a restraint on prepayment, particularly with
respect to fixed rate Loans having higher Loan Rates, may
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increase the likelihood of refinancing or other early retirement of such loans
or contracts. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V") provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition, even
where Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered by
Title V. Certain states have taken action to reimpose interest rate limits
and/or to limit discount points or other charges.
THE CONTRACTS
General. The Contracts, other than those Contracts that are unsecured or
secured by mortgages on real estate (such Contracts are hereinafter referred to
in this section as "contracts") generally are "chattel paper" or constitute
"purchase money security interests" each as defined in the UCC. Pursuant to the
UCC, the sale of chattel paper is treated in a manner similar to perfection of a
security interest in chattel paper. Under the related Agreement, the Depositor
will transfer physical possession of the contracts to the Trustee or a
designated custodian or may retain possession of the contracts as custodian for
the Trustee. In addition, the Depositor will make an appropriate filing of a
UCC-1 financing statement in the appropriate states to, among other things, give
notice of the Trust Fund's ownership of the contracts. Unless otherwise
specified in the related Prospectus Supplement, the contracts will not be
stamped or otherwise marked to reflect their assignment from the Depositor to
the Trustee. With respect to each transaction, a decision will be made as to
whether or not the contracts will be stamped or otherwise marked to reflect
their assignment from the Depositor to the Trustee, based upon, among other
things, the practices and procedures of the related Originator and Master
Servicer and after consultation with the applicable Rating Agency or Rating
Agencies. Therefore, if the contracts are not stamped or otherwise marked to
reflect their assignment from the Depositor to the Trustee and through
negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the contracts without notice of such assignment, the
Trust Fund's interest in the contracts could be defeated. See "Risk
Factors -- Security Interest Risks Associated with Certain Loans."
Security Interests in Home Improvements. The contracts that are secured by
the Home Improvements financed thereby grant to the originator of such contracts
a purchase money security interest in such Home Improvements to secure all or
part of the purchase price of such Home Improvements and related services. A
financing statement generally is not required to be filed to perfect a purchase
money security interest in consumer goods. Such purchase money security
interests are assignable. In general, a purchase money security interest grants
to the holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in such Home Improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose such characterization upon incorporation
of such materials into the related property, will not be secured by a purchase
money security interest in the Home Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the Home
Improvement has not become subject to the real estate law, a creditor can
repossess a Home Improvement securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process.
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The holder of a contract must give the debtor a number of days' notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to resale
of the unit that the debtor may redeem at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments, and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Manufactured Housing Contracts may be located in all 50 states and
the District of Columbia. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the state
motor vehicle authority, depending on state law. Unless otherwise specified in
the related Prospectus Supplement, the security interests of the related Trustee
in the Manufactured Homes will not be noted on the certificates of title or by
delivery of the required documents and payment of fees to the applicable state
motor vehicle authorities. With respect to each transaction, a decision will be
made as to whether or not the security interests of the related Trustee in the
Manufactured Homes will be noted on the certificates of title and the required
documents and fees will be delivered to the applicable state motor vehicle
authorities based upon, among other things, the practices and procedures of the
related Originator and Master Servicer and after consultation with the
applicable Rating Agency or Rating Agencies. See "Risk Factors -- Security
Interest Risks Associated with Certain Loans." In some nontitle states,
perfection pursuant to the provisions of the UCC is required. As manufactured
homes have become large and often have been attached to their sites without any
apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the manufactured home under applicable state
real estate law. In order to perfect a security interest in a manufactured home
under real estate laws, the secured party must file either a "fixture filing"
under the provisions of the UCC or a real estate mortgage under the real estate
laws of the state where the home is located. These filings must be made in the
real estate records office of the county where the manufactured home is located.
If so specified in the related Prospectus Supplement, the Manufactured Housing
Contracts may contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the borrower does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest in
the Manufactured Home. If, however, a Manufactured Home is permanently attached
to its site, the related lender may be required to perfect a security interest
in the Manufactured Home under applicable real estate laws.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register a security interest in such state, the security interest in
the Manufactured Home would cease to be perfected. A majority of states
generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the secured party must surrender possession if
it holds the certificate of title to such Manufactured Home or, in the case of
Manufactured Homes registered in states which provide for notation of lien on
the certificate of title, notice of surrender would be given to the secured
party noted on the certificate of title. In states which do not require a
certificate of title for registration of a manufactured home, re-registration
could defeat perfection.
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Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over a
perfected security interest in the Manufactured Home.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"), provides
that, subject to the following conditions, state usury limitations shall not
apply to any contract which is secured by a first lien on certain kinds of
consumer goods. The contracts would be covered if they satisfy certain
conditions governing, among other things, the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
INSTALLMENT CONTRACTS
The Loans may also consist of installment contracts. Under an installment
contract ("Installment Contract") the seller (hereinafter referred to in this
section as the "lender") retains legal title to the property and enters into an
agreement with the purchaser hereinafter referred to in this section as the
"borrower") for the payment of the purchase price, plus interest, over the term
of such contract. Only after full performance by the borrower of the contract is
the lender obligated to convey title to the property to the purchaser. As with
mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower is generally responsible for maintaining the
property in good condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the Installment Contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an Installment Contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under Installment Contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the Installment Contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the
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property under an Installment Contract for the sale of real estate to share in
the proceeds of sale of the property after the indebtedness is repaid or may
otherwise refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title under
an Installment Contract in a given state are simpler and less time-consuming and
costly than are the procedures for foreclosing and obtaining clear title to a
property subject to one or more liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's Loan (including a borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Loan and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of such borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Master Servicer to collect
full amounts of interest on certain of the Loans. Unless otherwise provided in
the related Prospectus Supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to
Securityholders. The Relief Act also imposes limitations which would impair the
ability of the Master Servicer to foreclose on an affected Loan during the
borrower's period of active duty status. Moreover, the Relief Act permits the
extension of a Loan's maturity and the re-adjustment of its payment schedule
beyond the completion of military service. Thus, in the event that such a Loan
goes into default, there may be delays and losses occasioned by the inability to
realize upon the Property in a timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the Loans comprising the Trust Fund for a Series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the Trust Fund (and therefore the
Securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the Loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure a default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under senior mortgages will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgages. Proceeds in excess of the amount
of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee under the mortgage. Upon a
failure of the mortgagor to perform any of these obligations, the mortgagee is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee for any sums
expended by the mortgagee
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on behalf of the mortgagor. All sums so expended by the mortgagee become part of
the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically contains
a "future advance" clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
Cut-off Date with respect to any Mortgage will not be included in the Trust
Fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
THE TITLE I PROGRAM
General. Certain of the Loans contained in a Trust Fund may be loans
insured under the FHA Title I Credit Insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I Program").
Under the Title I Program, the FHA is authorized and empowered to insure
qualified lending institutions against losses on eligible loans. The Title I
Program operates as a coinsurance program in which the FHA insures up to 90% of
certain losses incurred on an individual insured loan, including the unpaid
principal balance of the loan, but only to the extent of the insurance coverage
available in the lender's FHA insurance coverage reserve account. The owner of
the loan bears the uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under the
Title I Program include property improvement loans ("Property Improvement Loans"
or "Title I Loans"). A Property Improvement Loan or Title I Loan means a loan
made to finance actions or items that substantially protect or improve the basic
livability or utility of a property and includes single family improvement
loans.
There are two basic methods of lending or originating such loans which
include a "direct loan" or a "dealer loan." With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from lender and the lender may distribute proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or other parties. With
respect to a dealer Title I Loan, a dealer may include a seller, a contractor or
supplier of goods or services.
Loans insured under the Title I Program are required to have fixed interest
rates and, generally, provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually in order to correspond with the borrower's irregular flow of
income. The first or last payments (or both) may vary in amount but may not
exceed 150% of the regular installment payment, and the first payment may be due
no later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest rate
may be established by the lender and must be fixed for the term of the loan and
recited in the note. Interest on an insured loan must accrue from the date of
the loan and be calculated according to the actuarial method. The lender must
assure
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that the note and all other documents evidencing the loan are in compliance with
applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
Requirements for Title I Loans. The maximum principal amount for Title I
Loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that such maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. Generally, the term of a Title I Loan may not be less
than six months nor greater than 20 years and 32 days. A borrower may obtain
multiple Title I Loans with respect to multiple properties, and a borrower may
obtain more than one Title I Loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I Loans in the same
property does not exceed the maximum loan amount for the type of Title I Loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have at
least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturity
of the Title I Loan or a recorded land installment contract for the purchase of
the real property, and that the borrower have equity in the property being
improved at least equal to the amount of the Title I Loan if such loan amount
exceeds $15,000. Any Title I Loan in excess of $7,500 must be secured by a
recorded lien on the improved property which is evidenced by a mortgage or deed
of trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
Loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan, the lender is
required to obtain, promptly upon completion of the improvements but not later
than six months after disbursement of the loan proceeds with one six month
extension if necessary, a completion certificate, signed by the borrower. The
lender is required to conduct an on-site inspection on any Title I Loan where
the principal obligation is $7,500 or more, and on any direct Title I Loan where
the borrower fails to submit a completion certificate.
FHA Insurance Coverage. Under the Title I Program, the FHA establishes an
insurance coverage reserve account for each lender which has been granted a
Title I insurance contract. The amount of insurance coverage in this account is
10% of the amount disbursed, advanced or expended by the lender in originating
or purchasing eligible loans registered with FHA for Title I insurance, with
certain adjustments. The balance in the insurance coverage reserve account is
the maximum amount of insurance claims the FHA is required to pay. Loans to be
insured under the Title I Program will be registered for insurance by the FHA
and the
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insurance coverage attributable to such loans will be included in the insurance
coverage reserve account for the originating or purchasing lender following the
receipt and acknowledgment by the FHA of a loan report on the prescribed form
pursuant to the Title I regulations. The FHA charges a fee of 0.50% per annum of
the net proceeds (the original balance) of any eligible loan so reported and
acknowledged for insurance by the originating lender. The FHA bills the lender
for the insurance premium on each insured loan annually, on approximately the
anniversary date of the loan's origination. If an insured loan is prepaid during
the year, FHA will not refund or abate the insurance premium.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans and
(ii) the amount of insurance coverage attributable to insured loans sold by the
lender, and such insurance coverage may be reduced for any FHA insurance claims
rejected by the FHA. The balance of the lender's FHA insurance coverage reserve
account will be further adjusted as required under Title I or by the FHA, and
the insurance coverage therein may be earmarked with respect to each or any
eligible loans insured thereunder, if a determination is made by the Secretary
of HUD that it is in its interest to do so. Origination and acquisitions of new
eligible loans will continue to increase a lender's insurance coverage reserve
account balance by 10% of the amount disbursed, advanced or expended in
originating or acquiring such eligible loans registered with the FHA for
insurance under the Title I Program. The Secretary of HUD may transfer insurance
coverage between insurance coverage reserve accounts with earmarking with
respect to a particular insured loan or group of insured loans when a
determination is made that it is in the Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide transaction)
insured loans and loans reported for insurance only to another qualified lender
under a valid Title I contract of insurance. Unless an insured loan is
transferred with recourse or with a guaranty or repurchase agreement, the FHA,
upon receipt of written notification of the transfer of such loan in accordance
with the Title I regulations, will transfer from the transferor's insurance
coverage reserve account to the transferee's insurance coverage reserve account
an amount, if available, equal to 10% of the actual purchase price or the net
unpaid principal balance of such loan (whichever is less). However, under the
Title I Program not more than $5,000 in insurance coverage shall be transferred
to or from a lender's insurance coverage reserve account during any October 1 to
September 30 period without the prior approval of the Secretary of HUD.
Claims Procedures Under Title I. Under the Title I Program the lender may
accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the lender
may either (a) proceed against the property under any security instrument, or
(b) make a claim under the lender's contract of insurance. If the lender chooses
to proceed against the property under a security instrument (or if it accepts a
voluntary conveyance or surrender of the property), the lender may file an
insurance claim only with the prior approval of the Secretary of HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any Title I Loan must be filed
with the FHA no later than nine months after the date of default of such loan.
Concurrently with filing the insurance claim, the lender shall assign to the
United States of America the lender's entire interest in the
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loan note (or a judgment in lieu of the note), in any security held and in any
claim filed in any legal proceedings. If, at the time the note is assigned to
the United States, the Secretary has reason to believe that the note is not
valid or enforceable against the borrower, the FHA may deny the claim and
reassign the note to the lender. If either such defect is discovered after the
FHA has paid a claim, the FHA may require the lender to repurchase the paid
claim and to accept a reassignment of the loan note. If the lender subsequently
obtains a valid and enforceable judgment against the borrower, the lender may
resubmit a new insurance claim with an assignment of the judgment. The FHA may
contest any insurance claim and make a demand for repurchase of the loan at any
time up to two years from the date the claim was certified for payment and may
do so thereafter in the event of fraud or misrepresentation on the part of the
lender.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the Claimable Amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. For the purposes
hereof, the "Claimable Amount" means an amount equal to 90% of the sum of: (a)
the unpaid loan obligation (net unpaid principal and the uncollected interest
earned to the date of default) with adjustments thereto if the lender has
proceeded against property securing such loan; (b) the interest on the unpaid
amount of the loan obligation from the date of default to the date of the
claim's initial submission for payment plus 15 calendar days (but not to exceed
9 months from the date of default), calculated at the rate of 7% per annum; (c)
the uncollected court costs; (d) the attorney's fees not to exceed $500; and (e)
the expenses for recording the assignment of the security to the United States.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and enforcement of loans secured by Single Family Properties. These laws include
the federal Truth-in-Lending Act and Regulation Z promulgated thereunder, Real
Estate Settlement Procedures Act and Regulation B promulgated thereunder, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. In particular, Regulation Z requires certain
disclosures to the borrowers regarding the terms of the Loans; the Equal Credit
Opportunity Act and Regulation B promulgated thereunder prohibit discrimination
on the basis of age, race, color, sex, religion, marital status, national
origin, receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; and the Fair Credit
Reporting Act regulates the use and reporting of information related to the
borrower's credit experience. Certain provisions of these laws impose specific
statutory liabilities upon lenders who fail to comply therewith. In addition,
violations of such laws may limit the ability of the Sellers to collect all or
part of the principal of or interest on the Loans and could subject the Sellers
and in some case their assignees to damages and administrative enforcement.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material anticipated federal income tax
consequences of the purchase, ownership, and disposition of the Securities and
is based on advice of Latham & Watkins, special counsel to the Depositor. The
summary is based upon the provisions of the Code, the regulations promulgated
thereunder, including, where applicable, proposed regulations, and the judicial
and administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this interpretation is based are
subject to change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily upon investors
who will hold Securities as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code, but much of the
discussion is applicable to other investors as well. Prospective investors are
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advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the Securities.
The federal income tax consequences to holders of Securities will vary
depending on whether (i) the Securities of a Series are classified as
indebtedness; (ii) an election is made to treat the Trust Fund relating to a
particular Series of Securities as a real estate mortgage investment conduit
("REMIC") under the Internal Revenue Code of 1986, as amended (the "Code");
(iii) the Securities represent an ownership interest in some or all of the
assets included in the Trust Fund for a Series; or (iv) the Trust Fund relating
to a particular Series of Certificates is treated as a partnership. The
Prospectus Supplement for each Series of Securities will specify how the
Securities will be treated for federal income tax purposes and will discuss
whether a REMIC election, if any, will be made with respect to such Series.
Prior to issuance of each Series of Securities, the Depositor shall file with
the Commission a Form 8-K on behalf of the related Trust Fund containing an
opinion of counsel to the Depositor with respect to the validity of the
information set forth under "Federal Income Tax Consequences" herein and in the
related Prospectus Supplement.
TAXATION OF DEBT SECURITIES
Status as Real Property Loans. Except to the extent otherwise provided in
the related Prospectus Supplement, Latham & Watkins will have advised the
Depositor that: (i) Securities held by a domestic building and loan association
will constitute "loans...secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); (ii) Securities held by a real estate
investment trust will constitute "real estate assets" within the meaning of Code
section 856(c)(5)(A) and interest on Securities will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code section 856(c)(3)(B) and (iii) Securities
representing interests in obligations secured by manufactured housing treated as
single family residences under Code Section 25(e)(10) will be considered
interests in "qualified mortgages" as defined in Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC ("Regular Interest Securities") are generally taxable to
holders in the same manner as evidences of indebtedness issued by the REMIC.
Stated interest on the Regular Interest Securities will be taxable as ordinary
income and taken into account using the accrual method of accounting, regardless
of the Holder's normal accounting method. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be includible
in income by holders thereof in accordance with their usual methods of
accounting. Securities characterized as debt for federal income tax purposes and
Regular Interest Securities will be referred to hereinafter collectively as
"Debt Securities."
Debt Securities that are Compound Interest Securities (generally,
securities all or a portion of the interest on which is not paid currently)
will, and certain of the other Debt Securities may, be issued with "original
issue discount" ("OID"). The following discussion is based in part on the rules
governing OID which are set forth in Sections 1271-1275 of the Code and the
Treasury regulations issued thereunder on February 2, 1994 (the "OID
Regulations"). A holder of Debt Securities should be aware, however, that the
OID Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A holder of
a Debt Security must include such OID in gross income as ordinary interest
income as it accrues under a method taking into account an economic accrual of
the discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Debt
Security will be considered to be zero if it is less than a de minimis amount
determined under the Code.
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The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the related closing date, the issue price for such class will be
treated as the fair market value of such class on such closing date. The issue
price of a Debt Security also includes the amount paid by an initial Debt
Security holder for accrued interest that relates to a period prior to the issue
date of the Debt Security. The stated redemption price at maturity of a Debt
Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if such distributions
constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as described
below) provided that such interest payments are unconditionally payable at
intervals of one year or less during the entire term of the Debt Security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Certain Debt Securities may provide for default
remedies in the event of late payment or nonpayment of interest. The interest on
such Debt Securities will be unconditionally payable and constitute qualified
stated interest, not OID. However, absent clarification of the OID Regulations,
where Debt Securities do not provide for default remedies, the interest payments
will be included in the Debt Security's stated redemption price at maturity and
taxed as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on Debt Securities with respect to which deferred
interest will accrue, will not constitute qualified stated interest payments, in
which case the stated redemption price at maturity of such Debt Securities
includes all distributions of interest as well as principal thereon. Where the
interval between the issue date and the first Distribution Date on a Debt
Security is either longer or shorter than the interval between subsequent
Distribution Dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and tested
under the de minimis rule described below. In the case of a Debt Security with a
long first period which has non-de minimis OID, all stated interest in excess of
interest payable at the effective interest rate for the long first period will
be included in the stated redemption price at maturity and the Debt Security
will generally have OID. Holders of Debt Securities should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a Debt Security.
Under the de minimis rule OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (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 Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such Debt Security. In
the case of Compound Interest Securities, certain Interest Weighted Securities
(as defined herein), and certain of the other Debt Securities, none of the
payments under the instrument will be considered qualified stated interest, and
thus the aggregate amount of all payments will be included in the stated
redemption price.
The Internal Revenue Services (the "IRS") recently issued final regulations
(the "Contingent Regulations") governing the calculation of OID on instruments
having contingent interest payments. The Contingent
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Regulations specifically do not apply for purposes of calculating OID on debt
instruments subject to Code Section 1272(a)(6), such as the Debt Securities.
Additionally, the OID Regulations do not contain provisions specifically
interpreting Code Section 1272(a)(6). Until the Treasury issues guidance to the
contrary, the Trustee intends to base its computation on Code Section 1272(a)(6)
and the OID Regulations as described in this Prospectus. However, because no
regulatory guidance currently exists under Code Section 1272(a)(6), there can be
no assurance that such methodology represents the correct manner of calculating
OID.
The holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds such Debt Security, the
sum of the "daily portions" of such original issue discount. The daily portion
of OID includible in income by a holder will be computed by allocating to each
day during a taxable year a pro rata portion of the original issue discount that
accrued during the relevant accrual period. In the case of a Debt Security that
is not a Regular Interest Security and the principal payments on which are not
subject to acceleration resulting from prepayments on the Trust Fund Accounts,
the amount of OID for an accrual period (generally the period over which
interest accrues on the debt instrument) will equal the product of the yield to
maturity of the Debt Security and the adjusted issue price of the Debt Security
on the first day of such accrual period, reduced by any payments of qualified
stated interest allocable to such accrual period. The adjusted issue price of a
Debt Security on the first day of an accrual period is the sum of the issue
price of the Debt Security plus prior accruals of OID, reduced by the total
payments made with respect to such Debt Security on or before the first day of
such accrual period, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price at maturity of the
Pay-Through Security, over the adjusted issue price of the Pay-Through Security
at the beginning of the accrual period. The present value of the remaining
payments is to be determined on the basis of three factors: (i) the original
yield to maturity of the Pay-Through Security (determined on the basis of
compounding at the end of each accrual period and properly adjusted for the
length of the accrual period), (ii) events which have occurred before the end of
the accrual period and (iii) the assumption that the remaining payments will be
made in accordance with the original Prepayment Assumption. The effect of this
method is to increase the portions of OID required to be included in income by a
holder of a Pay-Through Security to take into account prepayments with respect
to the Loans at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of original issue discount
required to be included in income by a holder of a Pay-Through Security to take
into account prepayments with respect to the Loans at a rate that is slower than
the Prepayment Assumption. Although original issue discount will be reported to
holders of Pay-Through Securities based on the Prepayment Assumption, no
representation is made to holders of Pay-Through Securities that Loans will be
prepaid at that rate or at any other rate.
The Depositor may adjust the accrual of OID on a class of Regular Interest
Securities (or other regular interests in a REMIC) in a manner that it believes
to be appropriate, to take account of realized losses on the Loans, although the
OID Regulations do not provide for such adjustments. If the IRS were to require
that OID be accrued without such adjustments, the rate of accrual of OID for a
class of Regular Interest Securities could increase.
Certain classes of Regular Interest Securities may represent more than one
class of REMIC regular interests. Unless otherwise provided in the related
Prospectus Supplement, the Trustee intends, based on the OID Regulations, to
calculate OID on such Securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
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A subsequent holder of a Debt Security will also be required to include OID
in gross income, but such a holder who purchases such Debt Security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a Debt Security's issue price) to offset such
OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. Holders of Securities will be
required to report income with respect to the related Securities under an
accrual method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Trust Fund Assets, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income (including OID) reported by a
holder of such a Security in any period could significantly exceed the amount of
cash distributed to such holder in that period. The holder will eventually be
allowed a loss (or will be allowed to report a lesser amount of income) to the
extent that the aggregate amount of distributions on the Securities is deducted
as a result of a Trust Fund Asset default. However, the timing and character of
such losses or reductions in income are uncertain and, accordingly, holders of
Securities should consult their own tax advisors on this point.
Interest Weighted Securities. It is not clear how income should be accrued
with respect to Regular Interest Securities or Stripped Securities (as defined
under "-- Tax Status as a Grantor Trust -- General" herein) the payments on
which consist solely or primarily of a specified portion of the interest
payments on qualified mortgages held by the REMIC or on Loans underlying
Pass-Through Securities ("Interest Weighted Securities"). The Depositor intends
to take the position that all of the income derived from an Interest Weighted
Security should be treated as OID and that the amount and rate of accrual of
such OID should be calculated by treating the Interest Weighted Security as a
Compound Interest Security. However, in the case of Interest Weighted Securities
that are entitled to some payments of principal and that are Regular Interest
Securities the IRS could assert that income derived from an Interest Weighted
Security should be calculated as if the Security were a security purchased at a
premium equal to the excess of the price paid by such holder for such Security
over its stated principal amount, if any. Under this approach, a holder would be
entitled to amortize such premium only if it has in effect an election under
Section 171 of the Code with respect to all taxable debt instruments held by
such holder, as described below. Alternatively, the IRS could assert that an
Interest Weighted Security should be taxable under the rules governing bonds
issued with contingent payments. Such treatment may be more likely in the case
of Interest Weighted Securities that are Stripped Securities as described below.
See "-- Tax Status as a Grantor Trust -- Discount or Premium on Pass-Through
Securities."
Variable Rate Debt Securities. In the case of Debt Securities bearing
interest at a rate that varies directly, according to a fixed formula, with an
objective index, it appears that (i) the yield to maturity of such Debt
Securities and (ii) in the case of Pay-Through Securities, the present value of
all payments remaining to be made on such Debt Securities, should be calculated
as if the interest index remained at its value as of the issue date of such
Securities. Because the proper method of adjusting accruals of OID on a variable
rate Debt Security is uncertain, holders of variable rate Debt Securities should
consult their own tax advisers regarding the appropriate treatment of such
Securities for federal income tax purposes.
Market Discount. A purchaser of a Security may be subject to the market
discount rules of Sections 1276-1278 of the Code. A holder of a Debt Security
that acquires a Debt Security with more than a prescribed de minimis amount of
"market discount" (generally, the excess of the principal amount of the Debt
Security over the purchaser's purchase price) will be required to include
accrued market discount in income as ordinary income in each month, but limited
to an amount not exceeding the principal payments on the Debt Security received
in that month and, if the Securities are sold, the gain realized. Such market
discount would accrue in a manner to be provided in Treasury regulations but,
until such regulations are issued, such market discount would in general accrue
either (i) on the basis of a constant yield (in the case of a Pay-Through
Security, taking into account a prepayment assumption) or (ii) in the ratio of
(a) in the case of Securities (or in the case of a Pass-Through Security, as set
forth below, the Loans underlying such Security) not originally issued with
original issue discount, stated interest payable in the relevant period to total
stated interest remaining to be paid at the beginning of the period or (b) in
the case of Securities (or, in the case of a Pass-Through
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Security, as described below, the Loans underlying such Security) originally
issued at a discount, OID in the relevant period to total OID remaining to be
paid.
Section 1277 of the Code provides that, regardless of the origination date
of the Debt Security (or, in the case of a Pass-Through Security, the Loans),
the excess of interest paid or accrued to purchase or carry a Security (or, in
the case of a Pass-Through Security, as described below, the underlying Loans)
with market discount over interest received on such Security is allowed as a
current deduction only to the extent such excess is greater than the market
discount that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon the
sale, disposition, or repayment of the Security (or in the case of a
Pass-Through Security, an underlying Loan). A holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule will not apply.
Premium. A holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the Security at a premium, which it may elect to amortize as an offset
to interest income on such Security (and not as a separate deduction item) on a
constant yield method. Although no regulations addressing the computation of
premium accrual on securities similar to the Securities have been issued, the
legislative history of the Tax Reform Act of 1986 (the "1986 Act") indicates
that premium is to be accrued in the same manner as market discount.
Accordingly, it appears that the accrual of premium on a class of Pay-Through
Securities will be calculated using the prepayment assumption used in pricing
such class. If a holder of a Debt Security makes an election to amortize premium
on a Debt Security, such election will apply to all taxable debt instruments
(including all REMIC regular interests and all pass-through certificates
representing ownership interests in a trust holding debt obligations) held by
the holder at the beginning of the taxable year in which the election is made,
and to all taxable debt instruments acquired thereafter by such holder, and will
be irrevocable without the consent of the IRS. Purchasers who pay a premium for
the Securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
On June 27, 1996 the IRS issued proposed regulations (the "Amortizable Bond
Premium Regulations") dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code Section
1272(a)(6) such as the Securities. Absent further guidance from the IRS, the
Trustee intends to account for amortizable bond premium in the manner described
above. Prospective purchasers of the Securities should consult their tax
advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. If a REMIC election is made with respect to a Series of
Securities, then upon the issuance of those Securities, special counsel to the
Depositor, will issue an opinion generally to the effect that the arrangement by
which the Securities of that Series are issued will be treated as a REMIC as
long as all of the provisions of the applicable Agreement are complied with and
the statutory and regulatory requirements are
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satisfied. Securities will be designated as "Regular Interests" or "Residual
Interests" in a REMIC, as specified in the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Securities, (i) Securities
held by a domestic building and loan association will constitute "a regular or a
residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist of
cash, government securities, "loans secured by an interest in real property,"
and other types of assets described in Code Section 7701(a)(19)(C)); and (ii)
Securities held by a real estate investment trust will constitute "real estate
assets" within the meaning of Code Section 856(c)(6)(B), and income with respect
to the Securities will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the REMIC's
assets consist of assets described in (i) or (ii) above, then a Security will
qualify for the tax treatment described in (i) or (ii) in the proportion that
such REMIC assets are qualifying assets.
Status of Manufactured Housing Contracts. The federal income tax
regulations relating to a REMIC (the "REMIC Regulations") provide that
obligations secured by interests in manufactured housing that qualify as "single
family residences" within the meaning of Code Section 25(e)(10) may be treated
as "qualified mortgages" of the REMIC.
Under Section 25(e)(10), the term "single family residence" includes any
manufactured home which has a minimum of 400 square feet of living space and a
minimum width in excess of 102 inches and which is a kind of customarily used at
a fixed location.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code section 593(d) to any taxable year beginning after December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities on a daily basis in proportion to
the relative amounts of income accruing to each holder of a Residual Interest
Security or Regular Interest Security on that day. In the case of a holder of a
Regular Interest Security who is an individual or a "pass-through interest
holder" (including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the holder of a
Regular Interest Security, exceed 2% of such holder's adjusted gross income. In
addition, for taxable years beginning after December 31, 1990, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The reduction or disallowance of this deduction
may have a significant impact on the yield of the Regular Interest Security to
such a holder. In general terms, a single class REMIC is one that either (i)
would qualify, under existing Treasury regulations, as a grantor trust if it
were not a REMIC (treating all interests as ownership interests, even if they
would be classified as debt for federal income tax purposes) or (ii) is similar
to such a trust and which is structured with the principal purpose of avoiding
the single class REMIC rules. Unless otherwise specified in the related
Prospectus Supplement, the expenses of the REMIC will be allocated to holders of
the related Residual Interest Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account
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by the holders of residual interests. As described above, the regular interests
are generally taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any original issue discount
or market discount on loans and other assets, and (ii) deductions, including
stated interest and original issue discount accrued on Regular Interest
Securities, amortization of any premium with respect to Loans, and servicing
fees and other expenses of the REMIC. A holder of a Residual Interest Security
that is an individual or a "pass-through interest holder" (including certain
pass-through entities, but not including real estate investment trusts) will be
unable to deduct servicing fees payable on the loans or other administrative
expenses of the REMIC for a given taxable year, to the extent that such
expenses, when aggregated with such holder's other miscellaneous itemized
deductions for that year, do not exceed two percent of such holder's adjusted
gross income.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the startup
day (generally, the day that the interests are issued) (the "Startup Day"). That
aggregate basis will be allocated among the assets of the REMIC in proportion to
their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which holders of Pay-Through Securities
accrue original issue discount (i.e., under the constant yield method taking
into account the Prepayment Assumption). The REMIC will deduct OID on the
Regular Interest Securities in the same manner that the holders of the Regular
Interest Securities include such discount in income, but without regard to the
de minimis rules. See "Federal Income Tax Consequences -- General" above.
However, a REMIC that acquires loans at a market discount must include such
market discount in income currently, as it accrues, on a constant interest
basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject
to a 100% tax on any net income derived from a "prohibited transaction." For
this purpose, net income will be calculated without taking into account any
losses from prohibited transactions or any deductions attributable to any
prohibited transaction that resulted in a loss. In general, prohibited
transactions include: (i) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (ii) subject to
a limited exception, the sale or other disposition of a cash flow investment;
(iii) the receipt of any income from assets not permitted to be held by the
REMIC pursuant to the Code; or (iv) the receipt of any fees or other
compensation for services rendered by the REMIC. It is anticipated that a REMIC
will not engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, subject to a number of exceptions, a
tax is imposed at the rate of 100% on amounts contributed to a REMIC after the
close of the three-month period beginning on the Startup Day. The holders of
Residual Interest Securities will generally be responsible for the payment of
any such taxes imposed on the REMIC. To the extent not paid by such holders or
otherwise, however, such taxes will be paid out of the Trust Fund and will be
allocated pro rata to all outstanding classes of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The holder of a Security representing a residual interest (a "Residual
Interest Security") will take into account the "daily portion" of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such holder held the Residual Interest Security. The daily portion is determined
by allocating to
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each day in any calendar quarter its ratable portion of the taxable income or
net loss of the REMIC for such quarter, and by allocating that amount among the
holders (on such day) of the Residual Interest Securities in proportion to their
respective holdings on such day.
The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the loans held by the REMIC were issued or
acquired at a discount, since mortgage prepayments cause recognition of discount
income, while the corresponding portion of the prepayment could be used in whole
or in part to make principal payments on REMIC Regular Interests issued without
any discount or at an insubstantial discount (if this occurs, it is likely that
cash distributions will exceed taxable income in later years). Taxable income
may also be greater in earlier years of certain REMIC issues as a result of the
fact that interest expense deductions, as a percentage of outstanding principal
on REMIC Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A holder's basis in a
Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC generated by the same REMIC. The ability of
holders of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of
a Residual Interest Security consisting of "excess inclusion" income may not be
offset by other deductions or losses, including net operating losses, on such
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such holder's excess inclusion income will
be treated as unrelated business taxable income of such holder. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
a regulated investment company, a common trust fund, or certain cooperatives
were to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject to tax at a rate of 30% which
may not be reduced by treaty, is not eligible for treatment as "portfolio
interest" and is subject to certain additional limitations. See "-- Tax
Treatment of Foreign Investors." The
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Small Business Job Protection Act of 1996 has eliminated the special rule
permitting Section 593 institutions ("thrift institutions") to use net operating
losses and other allowable deductions to offset their excess inclusion income
from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1995, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Day multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of a Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price (calculated in a manner analogous to the determination of the issue price
of a Regular Interest Security), increased by the aggregate of the daily
accruals for prior calendar quarters, and decreased (but not below zero) by the
amount of loss allocated to a holder and the amount of distributions made on the
Residual Interest Security before the beginning of the quarter. The long-term
federal rate, which is announced monthly by the Treasury Department, is an
interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Interest Securities may be disregarded. See "-- Restrictions on
Ownership and Transfer of Residual Interest Securities" and "-- Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities. As
a condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any "Disqualified
Organization." Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from the tax imposed by Sections 1-1399 of the Code,
if such entity is not subject to tax on its unrelated business income.
Accordingly, the applicable Agreement will prohibit Disqualified Organizations
from owning a Residual Interest Security. In addition, no transfer of a Residual
Interest Security will be permitted unless the proposed transferee shall have
furnished to the Trustee an affidavit representing and warranting that it is
neither a Disqualified Organization nor an agent or nominee acting on behalf of
a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a pass-through entity after March 31, 1988
(including, among others, a partnership, trust, real estate investment trust,
regulated investment company, or any person holding as nominee), that owns a
Residual Interest Security, the pass-through entity will be required to pay an
annual tax on its allocable share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all Federal
tax purposes unless no significant purpose of the transfer was to impede the
assessment or collection of tax. A Residual Interest Security is a "noneconomic
residual interest" unless, at the time of the transfer (i) the present value of
the expected future distributions on the Residual Interest Security at least
equals the
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product of the present value of the anticipated excess inclusions and the
highest rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes. If a
transfer of a Residual Interest Security is disregarded, the transferor would be
liable for any Federal income tax imposed upon taxable income derived by the
transferee from the REMIC. The REMIC Regulations provide no guidance as to how
to determine if a significant purpose of a transfer is to impede the assessment
or collection of tax. A similar type of limitation exists with respect to
certain transfers of residual interests by foreign persons to United States
persons. See "-- Tax Treatment of Foreign Investors."
Mark to Market Rules. Prospective purchasers of a REMIC Residual Interest
Security should be aware that the IRS recently finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Interest
Security acquired after January 3, 1995 cannot be marked-to-market. The Mark-
to-Market Regulations replace the temporary regulations which allowed a REMIC
Residual Interest Security to be marked-to-market provided that it was not a
negative value residual interest and did not have the same economic effect as a
negative value residual interest. The IRS could issue subsequent regulations,
which could apply retroactively, providing additional or different requirements
with respect to such deemed negative value residual interests. Prospective
purchasers of a REMIC Residual Interest Security should consult their tax
advisors regarding the possible application of the Mark-to-Market Regulations.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As specified in the related Prospectus Supplement, if a REMIC or
partnership election is not made, Latham & Watkins, special counsel to the
Depositor, will issue an opinion generally to the effect that the Trust Fund
relating to a Series of Securities will be classified for federal income tax
purposes as a grantor trust under Subpart E, Part I of Subchapter J of the Code
and not as an association taxable as a corporation (the Securities of such
Series, "Pass-Through Securities"). In some Series there will be no separation
of the principal and interest payments on the Loans. In such circumstances, a
holder of a Pass-Through Security will be considered to have purchased a pro
rata undivided interest in each of the Loans. In other cases ("Stripped
Securities"), sale of the Securities will produce a separation in the ownership
of all or a portion of the principal payments from all or a portion of the
interest payments on the Loans.
Each holder of a Pass-Through Security must report on its federal income
tax return its share of the gross income derived from the Loans (not reduced by
the amount payable as fees to the Trustee and the Servicer and similar fees
(collectively, the "Servicing Fee"), at the same time and in the same manner as
such items would have been reported under the holder's tax accounting method had
it held its interest in the Loans directly, received directly its share of the
amounts received with respect to the Loans, and paid directly its share of the
Servicing Fees. In the case of Pass-Through Securities other than Stripped
Securities, such income will consist of a pro rata share of all of the income
derived from all of the Loans and, in the case of Stripped Securities, such
income will consist of a pro rata share of the income derived from each stripped
bond or stripped coupon in which the holder owns an interest. The holder of a
Security will generally be entitled to deduct such Servicing Fees under Section
162 or Section 212 of the Code to the extent that such Servicing Fees represent
"reasonable" compensation for the services rendered by the Trustee and the
Servicer (or third parties that are compensated for the performance of
services). In the case of a noncorporate holder, however, Servicing Fees (to the
extent not otherwise disallowed, e.g., because they exceed reasonable
compensation) will be deductible in computing such holder's regular tax
liability only to the extent that such fees, when added to other miscellaneous
itemized deductions, exceed 2% of adjusted gross income and may not be
deductible to any extent in computing such holder's alternative minimum tax
liability. In addition, for taxable years
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beginning after December 31, 1990, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (which amount will be adjusted for inflation in
taxable years beginning after 1990) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount or (ii) 80% of
the amount of itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. The holder's purchase
price of a Pass-Through Security is to be allocated among the Loans in
proportion to their fair market values, determined as of the time of purchase of
the Securities. In the typical case, the Trustee (to the extent necessary to
fulfill its reporting obligations) will treat each Loan as having a fair market
value proportional to the share of the aggregate principal balances of all of
the Loans that it represents, since the Securities, unless otherwise specified
in the related Prospectus Supplement, will have a relatively uniform interest
rate and other common characteristics. To the extent that the portion of the
purchase price of a Pass-Through Security allocated to a Loan (other than to a
right to receive any accrued interest thereon and any undistributed principal
payments) is less than or greater than the portion of the principal balance of
the Loan allocable to the Security, the interest in the Loan allocable to the
Pass-Through Security will be deemed to have been acquired at a discount or
premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess of a
prescribed de minimis amount or a Stripped Security, a holder of a Security will
be required to report as interest income in each taxable year its share of the
amount of OID that accrues during that year in the manner described above. OID
with respect to a Loan could arise, for example, by virtue of the financing of
points by the originator of the Loan, or by virtue of the charging of points by
the originator of the Loan in an amount greater than a statutory de minimis
exception, in circumstances under which the points are not currently deductible
pursuant to applicable Code provisions. Any market discount or premium on a Loan
will be includible in income, generally in the manner described above, except
that in the case of Pass-Through Securities, market discount is calculated with
respect to the Loans underlying the Security, rather than with respect to the
Security. A holder of a Security that acquires an interest in a Loan originated
after July 18, 1984 with more than a de minimis amount of market discount
(generally, the excess of the principal amount of the Loan over the purchaser's
allocable purchase price) will be required to include accrued market discount in
income in the manner set forth above. See "-- Taxation of Debt Securities;
Market Discount" and "-- Premium" above.
In the case of market discount on a Pass-Through Security attributable to
Loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of such discount that is allocable to a loan
among the principal payments on the Loan and to include the discount allocable
to each principal payment in ordinary income at the time such principal payment
is made. Such treatment would generally result in discount being included in
income at a slower rate than discount would be required to be included in income
using the method described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to receive
only a portion of the interest payments on the Loans, a right to receive only
principal payments on the Loans, or a right to receive certain payments of both
interest and principal. Certain Stripped Securities ("Ratio Strip Securities")
may represent a right to receive differing percentages of both the interest and
principal on each Loan. Pursuant to Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. Section 1286
of the Code applies the OID rules to stripped bonds and stripped coupons. For
purposes of computing original issue discount, a stripped bond or a stripped
coupon is treated as a debt instrument issued on the date that such stripped
interest is purchased with an issue price equal to its purchase price or, if
more than one stripped interest is purchased, the ratable share of the purchase
price allocable to such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Loan
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principal balance) or the Securities are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Securities should be treated
as market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Loan by Loan basis, which could result in some Loans being
treated as having more than 100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct guidance
as to how the interest and original issue discount rules are to apply to
Stripped Securities and other Pass-Through Securities. Under the method
described above for Pay-Through Securities (the "Cash Flow Bond Method"), a
prepayment assumption is used and periodic recalculations are made which take
into account with respect to each accrual period the effect of prepayments
during such period. However, the 1986 Act does not, absent Treasury regulations,
appear specifically to cover instruments such as the Stripped Securities which
technically represent ownership interests in the underlying Loans, rather than
being debt instruments "secured by" those loans. Nevertheless, it is believed
that the Cash Flow Bond Method is a reasonable method of reporting income for
such Securities, and it is expected that OID will be reported on that basis
unless otherwise specified in the related Prospectus Supplement. In applying the
calculation to Pass-Through Securities, the Trustee will treat all payments to
be received by a holder with respect to the underlying Loans as payments on a
single installment obligation. The IRS could, however, assert that original
issue discount must be calculated separately for each Loan underlying a
Security.
Under certain circumstances, if the Loans prepay at a rate faster than the
Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a
holder's recognition of income. If, however, the Loans prepay at a rate slower
than the Prepayment Assumption, in some circumstances the use of this method may
decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted Security,
the Trustee intends, absent contrary authority, to report income to holders of
Securities as OID, in the manner described above for Interest Weighted
Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations of
the applicable Code provisions. Among other possibilities, the IRS could contend
that (i) in certain Series, each non-Interest Weighted Security is composed of
an unstripped undivided ownership interest in Loans and an installment
obligation consisting of stripped principal payments; (ii) the non-Interest
Weighted Securities are subject to the contingent payment provisions of the
Contingent Regulations; or (iii) each Interest Weighted Stripped Security is
composed of an unstripped undivided ownership interest in Loans and an
installment obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped Securities
and the different federal income tax consequences that result from each
alternative, potential purchasers are urged to consult their own tax advisers
regarding the proper treatment of the Securities for federal income tax
purposes.
Character as Qualifying Loans. In the case of Stripped Securities, there
is no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as the Loans. The
IRS could take the position that the Loans' character is not carried over to the
Securities in such circumstances. Pass-Through Securities will be, and, although
the matter is not free from doubt, Stripped Securities should be, considered to
represent "real estate assets" within the meaning of Section 856(c)(6)(B) of the
Code, and "loans secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; interest income attributable to the
Securities should be considered to represent "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Section 856(c)(3)(B) of the Code. Reserves or funds underlying the Securities
may cause a proportionate reduction in the above-described qualifying status
categories of Securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trust Funds as to which a
partnership election is made, a holder's tax basis in its Security is the price
such holder pays for a Security, plus amounts of original issue or
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market discount included in income and reduced by any payments received (other
than qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be capital gain or loss, assuming that the Security is held as a
capital asset. In the case of a Security held by a bank, thrift, or similar
institution described in Section 582 of the Code, however, gain or loss realized
on the sale or exchange of a Regular Interest Security will be taxable as
ordinary income or loss. In addition, gain from the disposition of a Regular
Interest Security that might otherwise be capital gain will be treated as
ordinary income to the extent of the excess, if any, of (i) the amount that
would have been includible in the holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of the
beginning of such holder's holding period, over the amount of ordinary income
actually recognized by the holder with respect to such Regular Interest
Security. For taxable years beginning after December 31, 1993, the maximum tax
rate on ordinary income for individual taxpayers is 39.6% and the maximum tax
rate on long-term capital gains reported after December 31, 1990 for such
taxpayers is 28%. The maximum tax rate on both ordinary income and long-term
capital gains of corporate taxpayers is 35%.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to Trust
Funds as to which a partnership election is made, a holder of a Security, other
than a holder of a REMIC Residual Security, may, under certain circumstances, be
subject to "backup withholding" at a rate of 31% with respect to distributions
or the proceeds of a sale of certificates to or through brokers that represent
interest or original issue discount on the Securities. This withholding
generally applies if the holder of a Security (i) fails to furnish the Trustee
with its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such holder's securities broker
with a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that the holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to certain
payments made to holders of Securities, including payments to certain exempt
recipients (such as exempt organizations) and to certain Nonresidents (as
defined below). Holders of Securities should consult their tax advisers as to
their qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the holders of Securities and to the Master
Servicer for each calendar year the amount of any "reportable payments" during
such year and the amount of tax withheld, if any, with respect to payments on
the Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds as to which a
partnership election is made, under the Code, unless interest (including OID)
paid on a Security (other than a Residual Interest Security) is considered to be
"effectively connected" with a trade or business conducted in the United States
by a nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer, or (ii) the recipient
is a controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. Upon receipt of appropriate ownership
statements, the issuer normally will be relieved of obligations to withhold tax
from such interest payments. These provisions supersede the generally applicable
provisions of United States law that would otherwise require the issuer to
withhold at a 30% rate (unless such rate were reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed or
determinable, annual or periodic income paid to Nonresidents. Holders of
Pass-Through Securities and Stripped Securities, including Ratio Strip
Securities, however, may be subject to withholding to the extent that the Loans
were originated on or before July 18, 1984.
Interest and OID of holders of Securities who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the holder. They will, however, generally be subject to
the regular United States income tax.
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Payments to holders of Residual Interest Securities who are foreign persons
will generally be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Holders of Residual Interest Securities
should assume that such income does not qualify for exemption from United States
withholding tax as "portfolio interest." It is clear that, to the extent that a
payment represents a portion of REMIC taxable income that constitutes excess
inclusion income, a holder of a Residual Interest Security will not be entitled
to an exemption from or reduction of the 30% (or lower treaty rate) withholding
tax rule. If the payments are subject to United States withholding tax, they
generally will be taken into account for withholding tax purposes only when paid
or distributed (or when the Residual Interest Security is disposed of). The
Treasury has statutory authority, however, to promulgate regulations which would
require such amounts to be taken into account at an earlier time in order to
prevent the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case of Residual Interest
Securities that do not have significant value. Under the REMIC Regulations, if a
Residual Interest Security has tax avoidance potential, a transfer of a Residual
Interest Security to a Nonresident will be disregarded for all federal tax
purposes. A Residual Interest Security has tax avoidance potential unless, at
the time of the transfer the transferor reasonably expects that the REMIC will
distribute to the transferee residual interest holder amounts that will equal at
least 30% of each excess inclusion, and that such amounts will be distributed at
or after the time at which the excess inclusions accrue and not later than the
calendar year following the calendar year of accrual. If a Nonresident transfers
a Residual Interest Security to a United States person, and if the transfer has
the effect of allowing the transferor to avoid tax on accrued excess inclusions,
then the transfer is disregarded and the transferor continues to be treated as
the owner of the Residual Interest Security for purposes of the withholding tax
provisions of the Code. See "-- Taxation of Holders of Residual Interest
Securities -- Excess Inclusions."
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
If so provided in a Prospectus Supplement with respect to a Series of
Securities, upon the issuance of those Securities, special counsel to the
Depositor, will deliver its opinion generally to the effect that a Trust Fund
for which a partnership election is made will not be an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
This opinion will be based on the assumption that the terms of the related
Agreement and related documents will be complied with, and on counsel's
conclusions that (1) the Trust Fund will not have certain characteristics
necessary for a business trust to be classified as an association taxable as a
corporation and (2) the nature of the income of the Trust Fund will exempt it
from the rule that certain publicly traded partnerships are taxable as
corporations or the issuance of the Securities has been structured as a private
placement under an IRS safe harbor, so that the Trust Fund will not be
characterized as a publicly traded partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, the Trust Fund would be subject to corporate income tax on its taxable
income. The Trust Fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and holders of Certificates could be liable
for any such tax that is unpaid by the Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the
holders of Notes will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Special counsel to the Depositor will,
except as otherwise provided in the related Prospectus Supplement, advise the
Depositor that the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Stripped Securities. Moreover, the discussion assumes
that the interest formula for the Notes meets the requirements for "qualified
stated interest" under the OID regulations, and that any OID on the Notes (i.e.,
any excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 0.25% of their principal
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amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations. If these conditions are not satisfied
with respect to any given Series of Notes, additional tax considerations with
respect to such Notes will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a holder of a Note as
ordinary interest income when received or accrued in accordance with such
holder's method of tax accounting. Under the OID regulations, a holder of a Note
issued with a de minimis amount of OID must include such OID in income, on a pro
rata basis, as principal payments are made on the Note. It is believed that any
prepayment premium paid as a result of a mandatory redemption will be taxable as
contingent interest when it becomes fixed and unconditionally payable. A
purchaser who buys a Note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a holder of a Note sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular holder of a Note will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such holder in income with respect
to the Note and decreased by the amount of bond premium (if any) previously
amortized and by the amount of principal payments previously received by such
holder with respect to such Note. Any such gain or loss will be capital gain or
loss if the Note was held as a capital asset, except for gain representing
accrued interest and accrued market discount not previously included in income.
Capital losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a holder of a Note
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio interest,"
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust Fund or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust Fund or the Seller is a "related person" within the meaning of the Code
and (ii) provides the Depositor or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
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Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt holder of a Note
fail to provide the required certification, the Trust Fund will be required to
withhold 31 percent of the amount otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income tax
liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of special counsel to the Depositor, the IRS successfully asserted that one or
more of the Notes did not represent debt for federal income tax purposes, the
Notes might be treated as equity interests in the Trust Fund. If so treated, the
Trust Fund might be taxable as a corporation with the adverse consequences
described above (and the taxable corporation would not be able to reduce its
taxable income by deductions for interest expense on Notes recharacterized as
equity). Alternatively, and most likely in the view of special counsel to the
Depositor, the Trust Fund might be treated as a publicly traded partnership that
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income," income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of the Trust Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Master Servicer will agree, and the holders of Certificates will agree by their
purchase of Certificates, to treat the Trust Fund as a partnership for purposes
of federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the assets
held by the Trust Fund, the partners of the partnership being the holders of
Certificates, and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust Fund, the Certificates,
the Notes, the Trust Fund and the Master Servicer is not clear because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
holders of Certificates as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Stripped Securities, and that a Series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given Series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be subject
to federal income tax. Rather, each holder of a Certificate will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust Fund. The Trust Fund's income will
consist primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market
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discount, OID and bond premium) and any gain upon collection or disposition of
Loans. The Trust Fund's deductions will consist primarily of interest accruing
with respect to the Notes, servicing and other fees, and losses or deductions
upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust Fund for each month equal to the sum of (i) the interest that accrues on
the Certificates in accordance with their terms for such month, including
interest accruing at the Pass-Through Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Trust Fund income attributable to discount on the Loans that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price (iii) prepayment premium payable to the holders of Certificates for such
month; and (iv) any other amounts of income payable to the holders of
Certificates for such month. Such allocation will be reduced by any amortization
by the Trust Fund of premium on Loans that corresponds to any excess of the
issue price of Certificates over their principal amount. All remaining taxable
income of the Trust Fund will be allocated to the Depositor. Based on the
economic arrangement of the parties, this approach for allocating Trust Fund
income should be permissible under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of income
to be allocated to holders of Certificates. Moreover, even under the foregoing
method of allocation, holders of Certificates may be allocated income equal to
the entire Pass-Through Rate plus the other items described above even though
the Trust Fund might not have sufficient cash to make current cash distributions
of such amount. Thus, cash basis holders will in effect be required to report
income from the Certificates on the accrual basis and holders of Certificates
may become liable for taxes on Trust Fund income even if they have not received
cash from the Trust Fund to pay such taxes. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all holders of
Certificates but holders of Certificates may be purchasing Certificates at
different times and at different prices, holders of Certificates may be required
to report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust Fund.
All of the taxable income allocated to a holder of a Certificate that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the Master Servicer but not interest expense) would be miscellaneous
itemized deductions. Such deductions might be disallowed to the individual in
whole or in part and might result in such holder being taxed on an amount of
income that exceeds the amount of cash actually distributed to such holder over
the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income and
allocations to holders of Certificates on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Loan, the Trust Fund
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on holders of Certificates.
Discount and Premium. It is believed that the Loans were not issued with
OID, and, therefore, the Trust Fund should not have OID income. However, the
purchase price paid by the Trust Fund for the Loans may be greater or less than
the remaining principal balance of the Loans at the time of purchase. If so, the
Loan will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust Fund will make this calculation on an aggregate
basis, but might be required to recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium, the
Trust Fund will elect to include any such discount in income currently as it
accrues over the life of the Loans or to offset any such premium against
interest income on the Loans. As indicated above, a portion of such market
discount income or premium deduction may be allocated to holders of
Certificates.
Section 708 Termination. Under Section 708 of the Code, the Trust Fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust Fund are sold or
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exchanged within a 12-month period. If such a termination occurs, the Trust Fund
will be considered to distribute its assets to the partners, who would then be
treated as recontributing those assets to the Trust Fund as a new partnership.
The Trust Fund will not comply with certain technical requirements that might
apply when such a constructive termination occurs. As a result, the Trust Fund
may be subject to certain tax penalties and may incur additional expenses if it
is required to comply with those requirements. Furthermore, the Trust Fund might
not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A holder's tax basis in a Certificate will generally equal the holder's cost
increased by the holder's share of Trust Fund income (includible in income) and
decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificates and the amount realized on a
sale of a Certificate would include the holder's share of the Notes and other
liabilities of the Trust Fund. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a portion of such aggregate tax basis to the Certificates sold (rather
than maintaining a separate tax basis in each Certificate for purposes of
computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Loans would generally be treated as
ordinary income to the holder and would give rise to special tax reporting
requirements. The Trust Fund does not expect to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the Trust Fund will elect to include market discount in
income as it accrues.
If a holder of a Certificate is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the holders of
Certificates in proportion to the principal amount of Certificates owned by them
as of the close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust Fund might be reallocated among the holders of Certificates. The
Trust Fund's method of allocation between transferors and transferees may be
revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a holder of a Certificate sells
its Certificates at a profit (loss), the purchasing holder of a Certificate will
have a higher (lower) basis in the Certificates than the selling holder of a
Certificate had. The tax basis of the Trust Fund's assets will not be adjusted
to reflect that higher (or lower) basis unless the Trust Fund were to file an
election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the Trust Fund
will not make such election. As a result, holders of Certificates might be
allocated a greater or lesser amount of Trust Fund income than would be
appropriate based on their own purchase price for Certificates.
Administrative Matters. The Owner Trustee (as defined in the applicable
Prospectus Supplement) is required to keep or have kept complete and accurate
books of the Trust Fund. Such books will be maintained for financial reporting
and tax purposes on an accrual basis and the fiscal year of the Trust Fund will
be the calendar year. The Owner Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust Fund and
will report each holder's allocable share of items of Trust Fund income and
expense to holders and the IRS on Schedule K-1. The Trust Fund will provide the
Schedule K-l
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information to nominees that fail to provide the Trust Fund with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust Fund or be subject to penalties unless the holder notifies the IRS of
all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust Fund
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust Fund information
as to themselves and their ownership of Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Trust Fund. The information referred to above
for any calendar year must be furnished to the Trust Fund on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust Fund with the information described above may be subject to
penalties.
The Depositor will be designated as the tax matters partner in the related
Agreement and, as such, will be responsible for representing the holders of
Certificates in any dispute with the IRS. The Code provides for administrative
examination of a partnership as if the partnership were a separate and distinct
taxpayer. Generally, the statute of limitations for partnership items does not
expire before three years after the date on which the partnership information
return is filed. Any adverse determination following an audit of the return of
the Trust Fund by the appropriate taxing authorities could result in an
adjustment of the returns of the holders of Certificates, and, under certain
circumstances, a holder of a Certificate may be precluded from separately
litigating a proposed adjustment to the items of the Trust Fund. An adjustment
could also result in an audit of a holder's returns and adjustments of items not
related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Holders of Certificates. It is not clear
whether the Trust Fund would be considered to be engaged in a trade or business
in the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is not
expected that the Trust Fund would be engaged in a trade or business in the
United States for such purposes, the Trust Fund will withhold as if it were so
engaged in order to protect the Trust Fund from possible adverse consequences of
a failure to withhold. The Trust Fund expects to withhold on the portion of its
taxable income that is allocable to foreign holders of Certificates pursuant to
Section 1446 of the Code, as if such income were effectively connected to a U.S.
trade or business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust Fund to change its withholding procedures. In determining a
holder's withholding status, the Trust Fund may rely on IRS Form W-8, IRS Form
W-9 or the holder's certification of nonforeign status signed under penalties of
perjury.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate
whose income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust Fund's income. Each foreign holder must
obtain a taxpayer identification number from the IRS and submit that number to
the Trust Fund on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust Fund taking the
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position that no taxes were due because the Trust Fund was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a holder of a
Certificate who is a foreign person generally will be considered guaranteed
payments to the extent such payments are determined without regard to the income
of the Trust Fund. If these interest payments are properly characterized as
guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, holders of Certificates will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In such case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements (including, but not limited to,
individual retirement accounts and annuities), as well as on collective
investment funds and certain separate and general accounts in which such plans
or arrangements are invested (all of which are hereinafter referred to as a
"Plan"). Generally, ERISA applies to investments made by Plans. Among other
things, ERISA requires that the assets of Plans be held in trust and that the
trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant).
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Securities should determine whether such an investment is permitted under the
governing Plan instruments and is prudent and appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. More generally, any Plan fiduciary which proposes to cause a Plan to
acquire any of the Securities or any other person proposing to use the assets of
a Plan to acquire any of the Securities should consult with its counsel with
respect to the potential consequences under ERISA and the Code (including under
the prohibited transactions rules described below) of the acquisition and
ownership of such Securities.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under section 410(d) of the Code), are not subject
to the restrictions of ERISA, and assets of such plans may be invested in the
Securities without regard to the ERISA considerations described below, subject
to other applicable federal and state law. However, any such governmental or
church plan which is qualified under section 401(a) of the Code and exempt from
taxation under section 501(a) of the Code is subject to the prohibited
transaction rules set forth in section 503 of the Code.
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PROHIBITED TRANSACTIONS
GENERAL
Sections 406 and 407 of ERISA and section 4975 of the Code prohibit certain
transactions involving the assets of a Plan and "disqualified persons" (within
the meaning of the Code) and "parties in interest" (within the meaning of ERISA,
collectively "Parties in Interest") who have certain specified relationships to
the Plan, unless an exemption applies (see below). Therefore, a Plan fiduciary
or any other person using the assets of a Plan considering an investment in the
Securities should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code, or whether there
is an applicable exemption.
PLAN ASSET REGULATION
The United States Department of Labor ("DOL") has issued final regulations
defining the "assets" of a Plan for purposes of ERISA and the prohibited
transaction provisions of the Code (29 C.F.R. sec. 2510.3-101, the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan acquires
an "equity interest" in an entity that is neither a "publicly-offered security"
(defined as a security which is widely held, freely transferable and registered
under the Securities Exchange Act of 1934, as amended) nor a security issued by
an investment company registered under the Investment Company Act of 1940, as
amended, the assets of the entity will be treated as assets of the Plan unless
certain exceptions apply. If the Securities were deemed to be equity interests
and no statutory, regulatory or administrative exemption applies, the Trust Fund
could be considered to hold plan assets by reason of a Plan's investment in the
Securities. Such plan assets would include an undivided interest in any assets
held by the Trust Fund. In such an event, the Trustee and other persons, in
providing services with respect to the Trust Fund's assets, may be Parties in
Interest with respect to such Plans, subject to the fiduciary responsibility
provisions of ERISA, including the prohibited transaction provisions with
respect to transactions involving the Trust Fund's assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, the
DOL has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, the DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
EXEMPTION 83-1
In Prohibited Transaction Class Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Class Exemption 81-7, the DOL exempted from ERISA's
prohibited transaction rules certain transactions relating to the operation of
residential mortgage pool investment trusts and the purchase, sale and holding
of "mortgage pool pass-through certificates" in the initial issuance of such
certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to those Plans related to the origination, maintenance and termination
of mortgage pools consisting of mortgage loans secured by first or second
mortgages or deeds of trust on single-family residential property, and the
acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans. If the general
conditions (discussed below) of PTE 83-1 are satisfied, investments by a Plan in
Securities that represent interests in a Pool consisting of Loans ("Single
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Family Securities") will be exempt from the prohibitions of ERISA Sections
406(a) and 407 (relating generally to transactions with Parties in Interest who
are not fiduciaries) if the Plan purchases the Single Family Securities at no
more than fair market value and will be exempt from the prohibitions of ERISA
Sections 406(b)(1) and (2) (relating generally to transactions with fiduciaries)
if, in addition, the purchase is approved by an independent fiduciary, no sales
commission is paid to the pool sponsor, the Plan does not purchase more than 25%
of all Single Family Securities, and at least 50% of all Single Family
Securities are purchased by persons independent of the pool sponsor or pool
trustee. PTE 83-1 does not provide an exemption for transactions involving
Subordinate Securities. Accordingly, unless otherwise provided in the related
Prospectus Supplement, no transfer of a Subordinate Security or a Security which
is not a Single Family Security may be made to a Plan pursuant to this
exemption.
The discussion in this and the next succeeding paragraph applies only to
Single Family Securities. The Depositor believes that, for purposes of PTE 83-1,
the term "mortgage pool pass-through certificate" would include Securities
issued in a Series consisting of only a single class of Securities provided that
the Securities evidence the beneficial ownership of both a specified percentage
of future interest payments (greater than 0%) and a specified percentage of
future principal payments (greater than 0%) on the Loans. It is not clear
whether a class of Securities that evidences the beneficial ownership in a Trust
Fund divided into Loan groups, beneficial ownership of a specified percentage of
interest payments only or principal payments only, or a notional amount of
either principal or interest payments, or a class of Securities entitled to
receive payments of interest and principal on the Loans only after payments to
other classes or after the occurrence of certain specified events would be a
"mortgage pass-through certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Securityholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payment retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the Pool.
The Depositor believes that the first general condition referred to above
will be satisfied with respect to the Securities in a Series if any Reserve
Account, subordination by shifting of interests, pool insurance or other form of
credit enhancement described under "Credit Enhancement" herein (such reserve
account, subordination, pool insurance or other form of credit enhancement being
the system of insurance or other protection referred to above) with respect to
such Securities is maintained in an amount not less than the greater of one
percent of the aggregate principal balance of the Loans or the principal balance
of the largest Loan. See "Description of the Securities" herein. In the absence
of a ruling that the system of insurance or other protection with respect to a
Series of Securities satisfies the first general condition referred to above,
there can be no assurance that these features will be so viewed by the DOL. The
Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Securities
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions.
THE UNDERWRITER'S EXEMPTION
The DOL has granted to Morgan Stanley & Co. Incorporated an administrative
exemption (Prohibited Transaction Exemption 90-24, 55 Fed. Reg. 20,548 (1990)
(the "Exemption") from certain of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code with respect to
the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that
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consist of certain receivables, loans, and other obligations that meet the
conditions and requirements of the Exemption.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the Securities by a Plan is on terms (including
the price for such Securities) 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 the Securities acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust Fund;
(3) the Securities 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 one of Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Inc. ("Duff & Phelps")
or Fitch Investors Service, L.P. ("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 the Securities represents not more than
reasonable compensation for underwriting such Securities; the sum of all
payments made to and retained by the Depositor pursuant to the assignment
of the Trust Fund Assets to the Trust Fund represents not more than the
fair market value of such Trust Fund Assets; the sum of all payments made
to and retained by the Master Servicer and any other servicer represents
not more than reasonable compensation for such person's services under the
related Agreement and reimbursements of such person's reasonable expenses
in connection therewith; and
(6) the Plan investing in the Securities is 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 Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories of S&P,
Moody's, Fitch or Duff & Phelps for at least one year prior to the Plan's
acquisition of the Securities; 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 Securities.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when any person who has
discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire certificates in a trust,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations or receivables contained in the trust; (ii) the Plan is not a plan
with respect to which any member of the Restricted Group (as defined below) is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA); (iii) in the case
of an acquisition in connection with the initial issuance of certificates, at
least fifty percent of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group (as defined below)
and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) 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 (v) immediately after the acquisition, no more than twenty-five
percent of the assets of the Plan with respect to which such person has
discretionary authority or renders investment advice are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Seller, the Depositor, Morgan Stanley and the other
underwriters set forth in the related Prospectus Supplement, the Trustee, the
Master
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Servicer, the Pool Insurer, any obligor with respect to the Trust Fund Asset
included in the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of any of such parties (the "Restricted Group").
The Exemption may apply to the acquisition, holding and transfer of the
Securities by Plans if all of the conditions of the Exemption are met, including
those within the control of the investor. Notwithstanding any of the foregoing,
the Exemption will not apply with respect to any Securities until such time as
the balance of the related Pre-Funding Account, if any, is reduced to zero.
Accordingly, until such time, the Securities may not be purchased by Plans
pursuant to the Exemption. As of the date hereof, there is no single Trust Fund
Asset included in the Trust Fund that constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust Fund.
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult with their legal
advisors with respect to the applicability of Prohibited Transaction Class
Exemption ("PTE") 95-60, regarding transactions by insurance company general
accounts. In addition to any exemption that may be available under PTE 95-60 for
the purchase and holding of Securities by an insurance company general account,
the Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the Code, for transactions
involving an insurance company general account. Pursuant to Section 401(c) of
ERISA, the DOL is required to issue final regulations ("401(c) Regulations") no
later than December 31, 1997 which are to provide guidance for the purpose of
determining, in cases where insurance policies supported by an insurer's general
account are issued to or for the benefit of a Plan on or before December 31,
1998, which general account assets constitute plan assets. Section 401(c) of
ERISA generally provides that, until the date which is 18 months after the
401(c) Regulations become final, no person shall be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the Code on the basis of a claim
that the assets of an insurance company general account constitute plan assets,
unless (i) as otherwise provided by the Secretary of Labor in the 401(c)
Regulations to prevent avoidance of the regulations or (ii) an action is brought
by the Secretary of Labor for certain breaches of fiduciary duty which would
also constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
Plan after December 31, 1998 or issued to Plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as plan assets. In addition, because Section 401(c) does not relate
to insurance company separate accounts, separate account assets are still
treated as plan assets of any Plan invested in such separate account. Insurance
companies contemplating the investment of general account assets in the
Securities should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the Securities after the date which is 18 months
after the date the 401(c) Regulations become final.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Securities will specify which,
if any, of the classes of Securities offered thereby constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA"). Classes of Securities that qualify as "mortgage related
securities" will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts, and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulations to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to "mortgage related securities,"
securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA
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provides, however, that in no event will the enactment of any such legislation
affect the validity of any contractual commitment to purchase, hold or invest in
securities, or require the sale or other disposition of securities, so long as
such contractual commitment was made or such securities were acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities and the NCUA's regulation "Investment and Deposit Activities" (12
C.F.R. Part 703), which sets forth certain restrictions on investment by federal
credit unions in mortgage related securities (in each case whether or not the
class of Securities under consideration for purchase constituted a "mortgage
related security").
All depository institutions considering an investment in the Securities
(whether or not the class of Securities under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement") setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities," which are
"high-risk mortgage securities" as defined in the Policy Statement. According to
the Policy Statement, such "high-risk mortgage securities" include securities
such as Securities not entitled to distributions allocated to principal or
interest, or Subordinated Securities. Under the Policy Statement, it is the
responsibility of each depository institution to determine, prior to purchase
(and at stated intervals thereafter), whether a particular mortgage derivative
product is a "high-risk mortgage security," and whether the purchase (or
retention) of such a product would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions which may restrict or prohibit investment in
securities which are not "interest bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to purchase
Securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in Series. The distribution of the Securities may be effected 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. If so specified in the related
Prospectus Supplement, the Securities will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting agreement,
by Morgan Stanley & Co. Incorporated ("Morgan Stanley") acting as underwriter
with other underwriters, if any, named therein. In such event, the Prospectus
Supplement may also specify that the underwriters will not be obligated to pay
for any Securities agreed to be purchased by purchasers pursuant to purchase
agreements acceptable to the Depositor. In connection with the sale of
Securities, underwriters may receive compensation from the Depositor or from
purchasers of Securities in the form of discounts, concessions or commissions.
The Prospectus Supplement will describe any such compensation paid by the
Depositor.
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<PAGE> 340
Alternatively, the Prospectus Supplement may specify that Securities will
be distributed by Morgan Stanley acting as agent or in some cases as principal
with respect to Securities that it has previously purchased or agreed to
purchase. If Morgan Stanley acts agent in the sale of Securities, Morgan Stanley
will receive a selling commission with respect to such Securities, depending on
market conditions, expressed as a percentage of the aggregate principal balance
or notional amount of such Securities as of the Cut-off Date. The exact
percentage for each Series of Securities will be disclosed in the related
Prospectus Supplement. To the extent that Morgan Stanley elects to purchase
Securities as principal, Morgan Stanley may realize losses or profits based upon
the difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any Series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Securities
of such Series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Securities.
Securities will be sold primarily to institutional investors. Purchaser of
Securities, including dealers, may, depending on the facts and circumstances of
such purchases, be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with reoffers and sales by them of
Securities. Certificateholders should consult with their legal advisors in this
regard prior to any such reoffer or sale.
As to each Series of Securities, only those classes rated in an investment
grade rating category by any Rating Agency will be offered hereby. Any
non-investment grade class may be initially retained by the Depositor, and may
be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
The validity of the Securities of each Series, including certain federal
income tax consequences with respect thereto, will be passed upon for the
Depositor by Latham & Watkins.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of Securities
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of the Securities of each Series offered
hereby and by the Prospectus Supplement that they shall have been rated in one
of the four highest rating categories by the nationally recognized statistical
rating agency or agencies (each, a "Rating Agency") specified in the related
Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of the
value of the Trust Fund Assets and any credit enhancement with respect to such
class and will reflect such Rating Agency's assessment solely of the likelihood
that holders of a class of Securities of such class will receive payments to
which such Securityholders are entitled under the related Agreement. Such rating
will not constitute an assessment of the likelihood that principal prepayments
on the related Loans will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination of the Series of Securities. Such rating should not
be deemed a recommendation to
117
<PAGE> 341
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. Each security rating should be
evaluated independently of any other security rating. Such rating will not
address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a Security at a significant
premium might fail to recoup its initial investment under certain prepayment
scenarios.
There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the Rating Agency in the future if in its judgment circumstances in the future
so warrant. In addition to being lowered or withdrawn due to any erosion in the
adequacy of the value of the Trust Fund Assets or any credit enhancement with
respect to a Series, such rating might also be lowered or withdrawn among other
reasons, because of an adverse change in the financial or other condition of a
credit enhancement provider or a change in the rating of such credit enhancement
provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that values of any Properties have remained
or will remain at their levels on the respective dates of origination of the
related Loans. If the residential real estate markets should experience an
overall decline in property values such that the outstanding principal balances
of the Loans in a particular Trust Fund and any secondary financing on the
related Properties become equal to or greater than the value of the Properties,
the rates of delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry. In additional,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that such
losses are not covered by credit enhancement, such losses will be borne, at
least in part, by the holders of one or more classes of the Securities of the
related Series.
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<PAGE> 342
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ----------
<S> <C>
401(c) Regulations............................................................... 115
Accretion Directed............................................................... 48
Accrual.......................................................................... 50
Accrual Securities............................................................... 45
Advance.......................................................................... 13
Agency Securities................................................................ 1
Agreement........................................................................ 27
Amortizable Bond Premium Regulations............................................. 96
APR.............................................................................. 31
Auction Rate..................................................................... 49
Available Funds.................................................................. 44
Balloon payment.................................................................. 29
Belgian Cooperative.............................................................. 55
beneficial owner................................................................. 53
BIF.............................................................................. 66
Book-Entry Securities............................................................ 53
borrower......................................................................... 86
Buydown Fund..................................................................... 29
Buydown Loans.................................................................... 29
Calculation Agent................................................................ 50
Capitalized Interest Account..................................................... 68
Cash Flow Bond Method............................................................ 103
CEDEL Participants............................................................... 55
CERCLA........................................................................... 21, 80
Certificates..................................................................... 1, 6
Charter Act...................................................................... 35
Claimable Amount................................................................. 91
Class Security Balance........................................................... 44
Closed-End Loans................................................................. 6, 28
CMO.............................................................................. 8, 38
Code............................................................................. 14, 92
COFI Securities.................................................................. 52
Collateral Value................................................................. 31
Combined Loan-to-Value Ratio..................................................... 31
Commission....................................................................... 3
Commodity Indexed Securities..................................................... 43
companion classes................................................................ 49
Component Securities............................................................. 48
Components....................................................................... 48
Contingent Regulations........................................................... 93
contracts........................................................................ 84
Contracts........................................................................ 1, 7, 31
Cooperative Loans................................................................ 28
Cooperatives..................................................................... 28
Currency Indexed Securities...................................................... 43
Cut-off Date Principal Balance................................................... 42
</TABLE>
119
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<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ----------
<S> <C>
Cut-off Date..................................................................... 6, 27
Debt Securities.................................................................. 92
debt-to-income ratio............................................................. 33
Definitive Security.............................................................. 53
Depositor........................................................................ 1, 6
Detailed Description............................................................. 28
Disqualified Organization........................................................ 100
Distribution Date................................................................ 9
DOL.............................................................................. 112
DTC.............................................................................. 24, 53
Duff & Phelps.................................................................... 114
Eleventh District................................................................ 51
EPA.............................................................................. 80
ERISA............................................................................ 15, 111
Euroclear Operator............................................................... 55
Euroclear Participants........................................................... 55
European Depositaries............................................................ 53
excess servicing................................................................. 102
Exchange Act..................................................................... 3
Exemption........................................................................ 113
Face Amount...................................................................... 44
FHA Loans........................................................................ 33
FHA.............................................................................. 12
FHLBSF........................................................................... 51
FHLMC............................................................................ 1
FHLMC Certificates............................................................... 7
FHLMC Act........................................................................ 36
FHLMC Certificate Group.......................................................... 36
FHLMC Project Certificates....................................................... 38
Financial Intermediary........................................................... 54
Fitch............................................................................ 114
Fixed Rate....................................................................... 49
Floating Rate.................................................................... 49
FNMA Certificates................................................................ 7
FNMA SMBS........................................................................ 35
FNMA MBS......................................................................... 35
FNMA Project Issuers............................................................. 35
FNMA............................................................................. 1
foreign person................................................................... 106
Funding Period................................................................... 25
Garn-St Germain Act.............................................................. 83
GNMA Certificates................................................................ 7
GNMA Project Certificates........................................................ 35
GNMA............................................................................. 1
GNMA Issuer...................................................................... 1, 33
Guaranty Agreement............................................................... 33
Holder in Due Course Rules....................................................... 23
Home Improvement Contracts....................................................... 1, 7
</TABLE>
120
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<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ----------
<S> <C>
Home Improvements................................................................ 1, 7
Home Equity Loans................................................................ 1, 7, 28
Housing Act...................................................................... 33
HUD.............................................................................. 33, 38
Indenture........................................................................ 42
Index............................................................................ 43
Indexed Currency................................................................. 43
Indexed Principal Amount......................................................... 43
Indexed Securities............................................................... 43
Indexed Commodity................................................................ 43
Installment Contract............................................................. 86
Insurance Proceeds............................................................... 66
Insured Expenses................................................................. 66
Interest Only.................................................................... 50
Interest Weighted Securities..................................................... 95
Inverse Floating Rate............................................................ 49
IRS.............................................................................. 93
L/C Percentage................................................................... 11, 57
L/C Bank......................................................................... 11, 57
lender........................................................................... 86
Liquidation Expenses............................................................. 66
Liquidation Proceeds............................................................. 66
Loan Rate........................................................................ 10, 28
Loan-to-Value Ratio.............................................................. 31
Loans............................................................................ 1
Lockout periods.................................................................. 29
Manufactured Housing Contracts................................................... 1, 7, 31
Manufactured Homes............................................................... 31
Mark-to-Market Regulations....................................................... 101
Master Servicer.................................................................. 6
Master Servicing Fee............................................................. 72
Master Servicing Agreement....................................................... 27
mixed used properties............................................................ 30
Moody's.......................................................................... 59, 114
Morgan........................................................................... 55
Morgan Stanley................................................................... 1, 116
Mortgage Loan.................................................................... 6
Mortgage......................................................................... 64
Mortgaged Properties............................................................. 29
mortgage related securities...................................................... 14, 114
National Cost of Funds Index..................................................... 52
NCUA............................................................................. 116
1986 Act......................................................................... 96
noneconomic residual interest.................................................... 100
Nonresidents..................................................................... 104
Notes............................................................................ 1, 6
Notional Amount Securities....................................................... 48
</TABLE>
121
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<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ----------
<S> <C>
OID Regulations.................................................................. 92
OID.............................................................................. 14, 92
Originator....................................................................... 2, 17
OTS.............................................................................. 52
PACs............................................................................. 48
Partial Accrual.................................................................. 50
Parties in Interest.............................................................. 112
Pass-Through Securities.......................................................... 101
Pass-Through Rate................................................................ 10
Pay-Through Security............................................................. 94
Percentage Interests............................................................. 74
Permitted Investments............................................................ 58
Planned Principal Class.......................................................... 47
Plan............................................................................. 111
Plan Asset Regulation............................................................ 112
PMBS Agreement................................................................... 38
PMBS............................................................................. 1, 38
PMBS Issuer...................................................................... 8, 38
PMBS Servicer.................................................................... 8, 38
PMBS Trustee..................................................................... 8, 38
Policy Statement................................................................. 116
Pool Insurance Policy............................................................ 59
Pool Insurer..................................................................... 59
Pool............................................................................. 6, 27
Pooling and Servicing Agreement.................................................. 41
Principal Only................................................................... 50
Purchase Price................................................................... 40
Pre-Funded Amount................................................................ 25
Pre-Funding Account.............................................................. 6, 25
Prepayment Assumption............................................................ 94
Primary Mortgage Insurance Policy................................................ 30
Prime Rate....................................................................... 53
Principal Prepayments............................................................ 45
Private Mortgage-Backed Securities............................................... 1
Properties....................................................................... 7, 29
Property Improvement Loans....................................................... 88
PTE.............................................................................. 115
PTE 83-1......................................................................... 112
publicly offered security........................................................ 112
Purchase Price................................................................... 40
Rating Agency.................................................................... 117
Ratio Strip Securities........................................................... 102
RCRA............................................................................. 81
Record Date...................................................................... 43
Reference Banks.................................................................. 50
Refinance Loan................................................................... 31
Regular Interest Securities...................................................... 92
Relevant Depositary.............................................................. 53
</TABLE>
122
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<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ----------
<S> <C>
Relief Act....................................................................... 87
REMIC............................................................................ 2, 43, 92
REMIC Regulations................................................................ 97
Reserve Account.................................................................. 11, 44
Reserve Interest Rate............................................................ 51
Residual Interest Security....................................................... 98
Restricted Group................................................................. 115
Retained Interest................................................................ 42
Revolving Credit Line Loans...................................................... 7
Riegle Act....................................................................... 23
Rules............................................................................ 54
S&P.............................................................................. 114
SAIF............................................................................. 66
Scheduled Principal Class........................................................ 48
secured creditor exclusion....................................................... 81
Securities....................................................................... 1, 6
Securityholders.................................................................. 2
Security Account................................................................. 65
Security Owners.................................................................. 53
Security Account................................................................. 65
Security Register................................................................ 43
Seller........................................................................... 1, 27
Senior Securities................................................................ 9, 57
Sequential Pay Class............................................................. 49
Series........................................................................... 1
Servicing Fee.................................................................... 101
Short-Term Note.................................................................. 106
Single Family Properties......................................................... 30
Single Family Securities......................................................... 112
SMMEA............................................................................ 14, 115
Startup Day...................................................................... 98
Stock Indexed Securities......................................................... 44
Stock Index...................................................................... 44
Strip............................................................................ 49
Stripped Securities.............................................................. 101
Sub-Servicing Agreement.......................................................... 68
Sub-Servicer..................................................................... 13, 27
Subordinated Securities.......................................................... 9, 57
Subsequent Loans................................................................. 25
Support Class.................................................................... 49
TACs............................................................................. 49
Targeted Principal Class......................................................... 49
Terms and Conditions............................................................. 55
TIN.............................................................................. 104
Title V.......................................................................... 84, 86
Title I Loans.................................................................... 88
Title I Program.................................................................. 88
Trust Fund Assets................................................................ 1, 6, 27
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------- ----------
<S> <C>
Trust Fund....................................................................... 1
Trust Agreement.................................................................. 27, 41
Trustee.......................................................................... 6, 42
U.S. Person...................................................................... 110
UCC.............................................................................. 80
VA Loans......................................................................... 33
VA............................................................................... 12
VA Guaranty...................................................................... 72
Variable Rate.................................................................... 49
weighted average life............................................................ 19
yield to maturity................................................................ 19
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 303.03
Printing and Engraving Expenses................................. $ 35,000.00
Legal Fees and Expenses......................................... $ 65,000.00
Trustee Fees and Expenses....................................... $ 15,000.00
Accounting Fees and Expenses.................................... $ 25,000.00
Blue Sky Fees and Expenses...................................... $ 5,000.00
Rating Agency Fees.............................................. $125,000.00
Miscellaneous................................................... $ 5,000.00
-----------
Total........................................................... $275,303.03
===========
</TABLE>
- ------------
* All amounts except the SEC Registration Fee are estimates of expenses incurred
in connection with the issuance and distribution of a Series of Securities in
an aggregate principal amount assumed for these purposes to be equal to
$250,000,000 of Securities registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. In the case
of an action by or in the right of the corporation, no indemnification may be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The Certificate of Incorporation and Bylaws of the Registrant provide, in
effect, that, to the extent and under the circumstances permitted by Section 145
of the General Corporation Law of Delaware, the Registrant shall indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding of the type described above by reason of the fact that he or
she is or was a director, officer, employee or agent of the Registrant.
II-1
<PAGE> 349
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1 Form of Pooling and Servicing Agreement relating to Home Equity Loan Asset-Backed
Certificates.
4.2 Form of Pooling and Servicing Agreement relating to Mortgage Loan Asset-Backed
Pass-Through Certificates.
4.3 Form of Pooling and Servicing Agreement relating to Mortgage Loan Asset-Backed
Pass-Through Certificates.
4.4 Form of Trust Agreement.
4.5 Form of Indenture.
4.6 Form of Master Servicing Agreement.
5.1 Opinion of Latham & Watkins as to legality of the Securities.
8.1 Opinion of Latham & Watkins as to certain tax matters.
10.1 Form of Loan Purchase Agreement.
23.1 Consent of Latham & Watkins (included in Exhibits 5.1 and 8.1 hereof).
24.1 Power of Attorney.*
</TABLE>
- ------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE> 350
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of a Trust Fund's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act of 1939.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that (i) it reasonably believes that the security rating
requirement of Transaction Requirement B.5 of Form S-3 will be met by the time
of sale of each Series of Securities to which this Registration Statement
relates and (ii) it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on the
29th day of April, 1997.
Morgan Stanley ABS Capital I Inc.
By /s/ JAMES FADEL
------------------------------------
Name: James Fadel
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------------------------------------- ------------------------------------- ---------------
<C> <S> <C>
/s/ CRAIG S. PHILLIPS* President and Director April 29, 1997
- ---------------------------------------- (Principal Executive Officer)
Craig S. Phillips
/s/ JAMES FADEL Vice President April 29, 1997
- ----------------------------------------
James Fadel
/s/ EILEEN K. MURRAY* Treasurer April 29, 1997
- ---------------------------------------- (Principal Financial Officer and
Eileen K. Murray Principal Accounting Officer)
/s/ DAVID R. WARREN* Director April 29, 1997
- ----------------------------------------
David R. Warren
/s/ GAIL P. MCDONNELL* Director April 29, 1997
- ----------------------------------------
Gail P. McDonnell
By /s/ JAMES FADEL
- ----------------------------------------
(James Fadel, Attorney-in-Fact)
</TABLE>
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<PAGE> 352
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Registrant.
3.2 -- By-laws of the Registrant.
4.1 -- Form of Pooling and Servicing Agreement relating to Home Equity Loan Asset Backed
Certificates.
4.2 -- Form of Pooling and Servicing Agreement relating to Mortgage Loan Asset-Backed
Pass-Through Certificates.
4.3 -- Form of Pooling and Servicing Agreement relating to Mortgage Loan Asset-Backed
Pass-Through Certificates.
4.4 -- Form of Trust Agreement.
4.5 -- Form of Indenture.
4.6 -- Form of Master Servicing Agreement.
5.1 -- Opinion of Latham & Watkins as to legality of the Securities.
8.1 -- Opinion of Latham & Watkins as to certain tax matters.
10.1 -- Form of Loan Purchase Agreement.
23.1 -- Consent of Latham & Watkins (included in Exhibits 5.1 and 8.1).
24.1 -- Power of Attorney.*
</TABLE>
- ------------
* Previously filed.
<PAGE> 1
Exhibit 1.1
Subject to Completion
MORGAN STANLEY ABS CAPITAL I INC.
ASSET BACKED CERTIFICATES
UNDERWRITING AGREEMENT
__________, 199_
Morgan Stanley & Co. Incorporated
[Names of Other Co-Managers]
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Morgan Stanley ABS Capital I Inc., a Delaware corporation (the
"Company"), proposes to sell to you (the "Underwriters"), the Asset Backed
Certificates of the series and classes, and in the respective original principal
or notional, as the case may be, amounts or percentage interests, set forth in
Schedule I hereto (the "Offered Certificates"), evidencing ownership interests
in a trust consisting of _____________secured by _______________ to be acquired
by the Company (the "Mortgage Loans") and related property (collectively, the
"Trust Fund"). The Mortgage Loans will be acquired by the Company on the Closing
Date (as defined herein) from the seller (the "Seller") specified in the
Prospectus Supplement (as defined herein) pursuant to a purchase agreement (the
"Mortgage Loan Purchase Agreement") dated the date hereof. The Mortgage Loans
will be of the type and will have the characteristics described in the
Prospectus Supplement, subject to the variances, ranges, minimums and maximums
set forth in the Prospectus Supplement, and will have the aggregate principal
balance set forth in the Prospectus Supplement, subject to an upward or downward
variance in principal balance, not to exceed the percentage set forth in the
Prospectus Supplement, the precise aggregate principal balance within such range
to be determined by the Company in its sole discretion.
The Offered Certificates, together with the other classes of
certificates of the series specified on Schedule II hereto (the "Private
Certificates," and collectively with the Offered Certificates, the
"Certificates") are to be issued under a pooling and servicing agreement (the
"Pooling and Servicing Agreement"), dated as of the Cut-off Date (as defined in
the Prospectus Supplement), among the Company, as Depositor, the master servicer
specified in the Prospectus Supplement (the "Master Servicer"), and the trustee
specified in the Prospectus Supplement (the "Trustee"). The Offered Certificates
of each class will be issued in the minimum denominations and will have the
terms set forth in the Prospectus Supplement. Capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Pooling and Servicing Agreement.
<PAGE> 2
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (Commission
File No. 333-_____), including a prospectus, relating to the Offered
Certificates and has filed with, or transmitted for filing to, or shall promptly
hereafter file with or transmit for filing to, the Commission a prospectus
supplement (the "Prospectus Supplement") specifically relating to the Offered
Certificates pursuant to Rule 424 under the Securities Act of 1933, as amended
(the "Act"). The term "Registration Statement" means the registration statement,
including the exhibits thereto, as amended to the date of this Agreement. The
term "Basic Prospectus" means the prospectus included in the Registration
Statement. The term "Prospectus" means the Basic Prospectus together with the
Prospectus Supplement. The term "preliminary prospectus" means a preliminary
prospectus supplement specifically relating to the Offered Certificates,
together with the Basic Prospectus. As used herein, the terms "Registration
Statement", "preliminary prospectus" or "Prospectus" shall be deemed to refer to
and include the documents incorporated by reference therein pursuant to Item 12
of Form S-3 which were filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") on or before the date on which the Registration
Statement, as amended, became effective or the issue date of such preliminary
prospectus or the date on which the Prospectus is filed pursuant to Rule 424
under the Act, as the case may be; and as used herein, the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to refer to and include
the filing of any document under the Exchange Act after the date on which the
Registration Statement became effective or the issue date of any preliminary
prospectus or the date on which the Prospectus is filed pursuant to Rule 424
under the Act, as the case may be, deemed to be incorporated therein by
reference. [If the Company files a registration statement to register a portion
of the Offered Certificates and relies on Rule 462(b) for such registration
statement to become effective upon filing with the Commission (the "Rule 462
Registration Statement"), then any reference to the "Registration Statement"
shall be deemed to refer to both the Registration Statement (Commission File No.
333-19779) and the Rule 462 Registration Statement, in each case as amended from
time to time.]
1. Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:
(i) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending or, to the
Company's knowledge, threatened by the Commission.
(ii) The Registration Statement and the Prospectus, as of the
date of the Prospectus Supplement, conform, and the Registration
Statement and the Prospectus as revised, amended or supplemented and
filed with the Commission prior to the termination of the offering of
the Offered Certificates, as of their respective effective or issue
dates, will conform in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder
applicable to such documents as of such respective dates, and the
Registration Statement and the Prospectus as revised, amended or
supplemented and filed with the Commission as of the Closing Date will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder applicable to such
documents as of the Closing Date. The Registration Statement, at the
time it became effective, did not include any untrue statement of a
material fact or omit to state
2
<PAGE> 3
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Prospectus, as of the date
of the Prospectus Supplement, and the Prospectus as revised, amended or
supplemented and filed prior to the Closing Date, as of the Closing
Date, will not include any untrue statement of a material fact and will
not omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no
representations, warranties or agreements as to (A) the information
contained in the Prospectus or any revision or amendment thereof or
supplement thereto in reliance upon and in conformity with information
furnished in writing to the Company by any Underwriter through Morgan
Stanley & Co. Incorporated specifically for use in connection with the
preparation of the Prospectus or any revision or amendment thereof or
supplement thereto, and (B) any information in any Computational
Materials or ABS Terms Sheets (each as hereinafter defined) required to
be provided by any Underwriter to the Company pursuant to Section 4.2.
(iii) At or prior to the Closing Date, the direction by the
Company to the Trustee to execute, authenticate and deliver the Offered
Certificates will have been duly authorized by the Company, and the
Offered Certificates, when executed and authenticated in accordance
with the Pooling and Servicing Agreement, and delivered to and paid for
by the Underwriters in accordance with the terms of this Agreement,
will be duly and validly issued and outstanding and entitled to the
benefits of the Pooling and Servicing Agreement. [Each Certificate of
the classes indicated to be "mortgage related securities" under the
heading "Summary of Terms--Legal Investment" in the Prospectus
Supplement will, when issued, be a "mortgage related security" as such
term is defined in Section 3(a)(41) of the Exchange Act.]
(iv) This Agreement has been duly authorized, executed and
delivered by the Company. At or prior to the Closing Date, the Pooling
and Servicing Agreement will have been duly authorized, executed and
delivered by the Company and will conform in all material respects to
the descriptions thereof contained in the Prospectus and, assuming the
valid execution and delivery thereof by the other parties thereto, the
Pooling and Servicing Agreement will constitute a legal, valid and
binding agreement of the Company enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights
generally, by general principles of equity and by the effect of the
exercise by the Trustee of certain remedial provisions, including
waivers, against the Mortgage Loans.
(v) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with corporate power and authority to own its properties
and conduct its business as described in the Prospectus and to enter
into and perform its obligations under the Pooling and Servicing
Agreement and this Agreement.
(vi) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as a part of any
amendment thereto, or filed pursuant to Rule 424 or Rule
3
<PAGE> 4
462 under the Act, complied as to form, when so filed, in all material
respects with the Act and the rules and regulations of the Commission
thereunder.
(vii) Neither the execution and delivery by the Company of,
nor the performance by the Company of its obligations under, this
Agreement or the Pooling and Servicing Agreement will contravene any
provision of applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument binding
upon the Company that is material to the Company or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by the Company of its
obligations under this Agreement or the Pooling and Servicing
Agreement, except such as may be required by the securities or "blue
sky" laws of the various states in connection with the offer and sale
of the Offered Certificates.
(viii) There are no legal or governmental proceedings pending
or threatened to which the Company is a party or to which any of the
properties of the Company are subject that are required to be described
in the Registration Statement or the Prospectus and that are not so
described, nor are there any statutes, regulations, contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(ix) At the time of execution and delivery of the Pooling and
Servicing Agreement, (1) the Company will own the Mortgage Loans being
transferred to the Trust Fund pursuant thereto, free and clear of any
lien, mortgage, pledge, charge, encumbrance, adverse claim or other
security interest (collectively, "Liens"), except to the extent
permitted in the Pooling and Servicing Agreement, and will not have
assigned to any person other than the Trust Fund any of its right,
title or interest in the Mortgage Loans, (2) the Company will have the
power and authority to transfer the Mortgage Loans to the Trust Fund
and to transfer the Offered Certificates to you, (3) upon execution and
delivery to the Trustee of the Pooling and Servicing Agreement, and
delivery of the Certificates to the Company, the Trust Fund will own
the Mortgage Loans free of Liens other than Liens permitted by the
Pooling and Servicing Agreement or created or granted by you and (4)
upon payment and delivery of the Offered Certificates to you, you will
acquire ownership of the Offered Certificates, free of Liens other than
Liens permitted by the Pooling and Servicing Agreement or created or
granted by you.
(x) Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of this Agreement,
the Pooling and Servicing Agreement and the Certificates have been or
will be paid by the Company at or prior to the Closing Date, except for
fees for recording assignments of the Mortgage Loans to the Trustee
pursuant to the Pooling and Servicing Agreement that have not yet been
completed, which fees will be paid by or on behalf of the Company in
accordance with the Pooling and Servicing Agreement.
4
<PAGE> 5
2. Purchase and Sale. Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell, and each Underwriter agrees, severally and not jointly,
to purchase from the Company, the respective actual or notional, as the case may
be, amounts or percentage interests set forth in Schedule I hereto in the
respective classes of Offered Certificates at the respective purchase price for
each such class set forth therein.
3. Delivery and Payment. The Offered Certificates shall be
delivered at the office, on the date and at the time specified in, Schedule II
attached hereto, which place, date and time may be changed by agreement between
the Underwriters and the Company (such date and time of delivery of and payment
for such Offered Certificates being hereinafter referred to as the "Closing
Date"). Delivery of the [Class A] Certificates (which [Class A] Certificates
shall also be referred to herein as the "DTC Registered Certificates") shall be
made to you through DTC, and delivery of the [Class B] Certificates and [Class
R] Certificates (collectively, the "Definitive Certificates") shall be made in
registered, certified form, in each case against payment by you of the purchase
prices thereof to or upon the order of the Company by wire transfer in
immediately available funds. The Definitive Certificates shall be registered in
such names and in such denominations as you may request not less than two
business days in advance of the Closing Date. The Company agrees to have the
Definitive Certificates available for inspection, checking and packaging by you
in New York, New York not later than 1:00 p.m., New York City time, on the
business day prior to the Closing Date.
4. Offering by Underwriters.
4.1 It is understood that the Underwriters propose to offer
the Offered Certificates for sale as set forth in the Prospectus and that you
will not offer, sell or otherwise distribute the Offered Certificates (except
for the sale thereof in exempt transactions) in any state in which the Offered
Certificates are not exempt from registration under "blue sky" or state
securities laws (except where the Offered Certificates will have been qualified
for offering and sale at your direction under such "blue sky" or state
securities laws).
4.2 It is understood that the Underwriters may prepare and
provide to prospective investors certain Computational Materials and ABS Term
Sheets (each as defined below) in connection with your offering of the Offered
Certificates, subject to the following conditions:
(a) In connection with the use of Computational Materials, the
Underwriters shall comply with all applicable requirements of the No-Action
Letter of May 20, 1994, issued by the Commission to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured Asset
Corporation, as made applicable to other issuers and underwriters by the
Commission in response to the request of the Public Securities Association dated
May 24, 1994 (collectively, the "Kidder/PSA Letter"), as well as the PSA Letter
referred to below. In connection with the use of ABS Term Sheets, the
Underwriters shall comply with all applicable requirements of the No-Action
Letter of February 17, 1995, issued by the Commission to the Public Securities
Association (the "PSA Letter" and, together with the Kidder/PSA Letter, the
"No-Action Letters").
(b) "Computational Materials" as used herein shall have the
meaning given such term in the No-Action Letters, but shall include only those
Computational Materials that have been
5
<PAGE> 6
prepared or delivered to prospective investors by or at the direction of the
Underwriters. "ABS Term Sheets" and "Collateral Term Sheets" as used herein
shall have the meanings given such terms in the PSA Letter but shall include
only those ABS Term Sheets or Collateral Term Sheets that have been prepared or
delivered to prospective investors by or at the direction of the Underwriters.
(c) All Computational Materials and ABS Term Sheets provided
to prospective investors that are required to be filed pursuant to the No-Action
Letters shall bear a legend on each page including the following statement:
"THIS INFORMATION HAS BEEN PREPARED BY [UNDERWRITER] IN
CONNECTION WITH THE ISSUANCE OF THESE CERTIFICATES BY [MORGAN
STANLEY ____________] BASED ON INFORMATION PROVIDED BY
[SELLER] WITH RESPECT TO THE EXPECTED CHARACTERISTICS OF THE
POOL OF MORTGAGE LOANS IN WHICH THESE CERTIFICATES WILL
REPRESENT UNDIVIDED BENEFICIAL OWNERSHIP INTERESTS. THIS
INFORMATION IS ALSO BASED ON CERTAIN ASSUMPTIONS MADE AT YOUR
REQUEST AND CERTAIN OTHER ASSUMPTIONS SET FORTH HEREIN. THE
ACTUAL CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS
WILL DIFFER FROM THE ASSUMPTIONS USED IN PREPARING THESE
MATERIALS, WHICH ARE HYPOTHETICAL IN NATURE. CHANGES IN THE
ASSUMPTIONS MAY HAVE A MATERIAL IMPACT ON THE INFORMATION SET
FORTH IN THESE MATERIALS. NO REPRESENTATION IS MADE THAT ANY
PERFORMANCE OR RETURN INDICATED HEREIN WILL BE ACHIEVED. FOR
EXAMPLE, IT IS VERY UNLIKELY THAT A MORTGAGE LOAN WILL PREPAY
AT A CONSTANT RATE OR FOLLOWING A PREDICTABLE PATTERN. THIS
INFORMATION HAS BEEN PROVIDED TO YOU AT YOUR REQUEST AND MAY
NOT BE USED OR OTHERWISE DISSEMINATED IN CONNECTION WITH THE
OFFER AND SALE OF THESE OR ANY OTHER CERTIFICATES, EXCEPT IN
CONNECTION WITH THE INITIAL OFFER OR SALE OF THESE
CERTIFICATES TO YOU TO THE EXTENT SET FORTH BELOW. NO
REPRESENTATION IS MADE AS TO THE APPROPRIATENESS, USEFULNESS,
ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE ASSUMPTIONS
ON WHICH THEY ARE BASED. ADDITIONAL INFORMATION IS AVAILABLE
UPON REQUEST. THESE MATERIALS DO NOT CONSTITUTE AN OFFER TO
BUY OR SELL OR A SOLICITATION OF AN OFFER TO BUY OR SELL ANY
CERTIFICATE OR INSTRUMENT OR TO PARTICIPATE IN ANY PARTICULAR
TRADING STRATEGY. ANY SUCH OFFER TO BUY OR SELL ANY
CERTIFICATE WOULD BE MADE PURSUANT TO A DEFINITIVE PROSPECTUS
PREPARED BY [MORGAN STANLEY __________] WHICH WOULD CONTAIN
MATERIAL INFORMATION NOT CONTAINED IN THESE MATERIALS. SUCH
PROSPECTUS
6
<PAGE> 7
WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
CERTIFICATE OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH
CERTIFICATES SHOULD BE MADE SOLELY IN RELIANCE UPON SUCH
PROSPECTUS. IN THE EVENT OF ANY SUCH OFFERING, THESE MATERIALS
SHALL BE DEEMED SUPERSEDED, AMENDED AND SUPPLEMENTED IN THEIR
ENTIRETY BY SUCH PROSPECTUS."
The Company shall have the right to require additional specific legends or
notations to appear on any Computational Materials or ABS Term Sheets, the right
to require changes regarding the use of terminology and the right to determine
the types of information appearing therein. Notwithstanding the foregoing,
Section 4.2(c)(i) will be satisfied if all Computational Materials and ABS Term
Sheets referred to therein bear a legend in a form previously approved in
writing by the Company.
(d) Any [Computational Materials and] ABS Term Sheets are
subject to the review by and approval of the Company prior to their distribution
to any prospective investors and a copy of such [Computational Materials and]
ABS Term Sheets as are delivered to prospective investors shall, in addition to
the foregoing delivery requirements, be delivered to the Company simultaneously
with delivery to prospective investors.
(e) The Underwriters shall provide to the Company, for filing
on Form 8-K as provided in Section 5(h), five (5) copies (in such format as
required by the Company) of all Computational Materials and ABS Term Sheets that
are required to be filed with the Commission pursuant to the No-Action Letters.
The Underwriters may provide copies of the forgoing in a consolidated or
aggregate form that includes all information required to be filed. All
Computational Materials and ABS Term Sheets described in this Section 4.2(e)
must be provided to the Company not later than 10:00 a.m. New York time one
business day before filing thereof is required pursuant to the terms of this
Agreement. Each Underwriter agrees that it will not provide to any investor or
prospective investor in the Offered Certificates any Computational Materials or
ABS Term Sheets on or after the day on which Computational Materials and ABS
Term Sheets are required to be provided to the Company pursuant to this Section
4.2(e) (other than copies of Computational Materials or ABS Term Sheets
previously submitted to the Company in accordance with this Section 4.2(e) for
filing pursuant to Section 5(h)), unless such Computational Materials or ABS
Term Sheets are preceded or accompanied by the delivery of a Prospectus to such
investor or prospective investor.
(f) All information included in the Computational Materials
and ABS Term Sheets shall be generated based on substantially the same
methodology and assumptions that are used to generate the information in the
Prospectus Supplement as set forth therein; provided, however, that the
Computational Materials and ABS Term Sheets may include information based on
alternative methodologies or assumptions if specified therein. If any
Computational Materials or ABS Term Sheets that are required to be filed were
based on assumptions with respect to the Mortgage Loans that are incorrect, that
differ from the final [Pool Information (as defined in the Seller
Indemnification Certificate")] in any material respect or on Certificate
structuring terms that were revised in any material respect prior to the
printing of the Prospectus, the Underwriters shall prepare revised Computational
Materials or ABS Term Sheets, as the case may be, based on the final Pool
Information and structuring assumptions, circulate such revised Computational
Materials and ABS
7
<PAGE> 8
Term Sheets to all recipients of the preliminary versions thereof that indicated
orally to an Underwriter they would purchase all or any portion of the Offered
Certificates, and include such revised Computational Materials and ABS Term
Sheets (marked, "as revised") in the materials delivered to the Company pursuant
to Section 4.2(e).
(g) The Company shall not be obligated to file any
Computational Materials or ABS Term Sheets that (i) in the reasonable
determination of the Company [and the Underwriters] are not required to be filed
pursuant to the No-Action Letters or (ii) have been determined to contain any
material error or omission, provided that, at the request of an Underwriter, the
Company will file Computational Materials or ABS Term Sheets that contain a
material error or omission if clearly marked "superseded by materials dated
________" and accompanied by corrected Computational Materials or ABS Term
Sheets that are marked "material previously dated __________, as corrected". In
the event that at any time when a prospectus relating to the Offered
Certificates is required to be delivered under the Act, any Computational
Materials or ABS Term Sheets are determined, in the reasonable judgment of the
Company or an Underwriter, to contain a material error or omission, the
applicable Underwriter shall prepare a corrected version of such Computational
Materials or ABS Term Sheets, shall circulate such corrected version of such
Computational Materials and ABS Term Sheets to all recipients of the prior
versions thereof that either indicated orally to such Underwriter they would
purchase all or any portion of the Offered Certificates, or actually purchased
all or any portion thereof, and shall deliver copies of such corrected
Computational Materials and ABS Term Sheets (marked, "as corrected") to the
Company for filing with the Commission in a subsequent Form 8-K submission
(subject to the Company's obtaining an accountant's comfort letter in respect of
such corrected Computational Materials and ABS Term Sheets, which shall be at
the expense of the applicable Underwriter or Underwriters).
(h) Each Underwriter shall deliver to the Company a
certificate, dated as of the date the Underwriter delivers any Computational
Materials and ABS Term Sheets to the Company pursuant to Section 4.2(e), to the
effect that the representations and warranties of such Underwriter contained in
this Section 4.2 are true and correct as of such date. If an Underwriter does
not provide any Computational Materials or ABS Term Sheets to the Company
pursuant to Section 4.2(e), the Underwriter shall be deemed to have represented,
as of the Closing Date, that it did not provide any prospective investors with
any information in written or electronic form in connection with the offering of
the Offered Certificates that is required to be filed with the Commission in
accordance with the No-Action Letters, and the Underwriter shall provide the
Company with a certification to that effect on the Closing Date.
4.3 Each Underwriter represents and warrants and agrees with
the Company that as of the date hereof and as of the Closing Date that: (i) the
Computational Materials and ABS Term Sheets furnished to the Company pursuant to
Section 4.2(e) constitute (either in original, aggregated or consolidated form)
all of the materials furnished to prospective investors by the Underwriter prior
to the time of delivery thereof to the Company that are required to be filed
with the Commission with respect to the Offered Certificates in accordance with
the No-Action Letters, and such Computational Materials and ABS Term Sheets
comply with the requirements of the No-Action Letters; (ii) on the date any such
Computational Materials and ABS Term Sheets with respect to such Certificates
(or any written or electronic materials furnished to prospective investors on
which the Computational Materials and ABS Term Sheets are based) were last
furnished to each prospective investor and on
8
<PAGE> 9
the date of delivery thereof to the Company pursuant to Section 4.2(e) and on
the related Closing Date, such Computational Materials and ABS Term Sheets (or
materials) were accurate in all material respects when read in conjunction with
the Prospectus (taking into account the assumptions explicitly set forth in the
Computational Materials, except to the extent of any errors therein that are
caused by errors in the Pool Information; (iii) the Underwriters have not and
will not represent to potential investors that any Computational Materials and
ABS Term Sheets were prepared or disseminated on behalf of the Company; and (iv)
all Computational Materials and ABS Terms Sheets (or underlying materials
distributed to prospective investors on which the Computational Materials and
ABS Term Sheets were based) contained and will contain the legend in the form
set forth in Section 4.2(c) (or in such other form previously approved in
writing by the Company).
Notwithstanding the foregoing, the Underwriters make no
representation or warranty as to whether any Computational Materials or ABS Term
Sheets (or any written or electronic materials furnished to prospective
investors on which the Computational Materials or ABS Term Sheets are based)
included or will include any inaccurate statement resulting directly from any
error contained in the Pool Information.
5. Agreements. The Company agrees with each Underwriter that:
(a) The Company will cause the Prospectus Supplement to be
transmitted to the Commission for filing pursuant to Rule 424 under the Act by
means reasonably calculated to result in filing with the Commission pursuant to
said rule and, if necessary, within 15 days of the Closing Date, will transmit
for filing by means reasonably calculated to result in filing with the
Commission a report on Form 8-K for purposes of filing the Pooling and Servicing
Agreement, and will promptly advise each Underwriter when the Prospectus
Supplement has been so filed.
(b) Prior to the termination of the offering of the Offered
Certificates, the Company will promptly advise each Underwriter (i) when any
amendment to the Registration Statement has become effective or any revision of
or supplement to the Prospectus has been so filed (unless such amendment,
revision or supplement does not relate to the Certificates), (ii) of any request
by the Commission for any amendment of the Registration Statement or the
Prospectus or for any additional information (unless such request for additional
information does not relate to the Certificates), (iii) of any written
notification received by the Company of the suspension of qualification of the
Offered Certificates for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or to the knowledge of the Company, the threatening
of any proceeding for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof. Except as otherwise provided in Section 5(c),
the Company will not file prior to the termination of such offering any
amendment to the Registration Statement or any revision of or supplement to the
Prospectus (other than any such amendment, revision or supplement which does not
relate to the Certificates) which shall be disapproved by the Underwriters after
reasonable notice and review of such filing.
(c) If at any time when a prospectus relating to the Offered
Certificates is required to be delivered under the Act (i) any event occurs as a
result of which the Prospectus as then
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<PAGE> 10
amended or supplemented would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading, or (ii) it
shall be necessary to revise, amend or supplement the Prospectus to comply with
the Act or the rules and regulations of the Commission thereunder, the Company
promptly will notify each Underwriter and will, upon the request of any
Underwriter, or may, after consultation with each Underwriter, prepare and file
with the Commission a revision, amendment or supplement which will correct such
statement or omission or effect such compliance, and furnish without charge to
each Underwriter as many copies as such Underwriter may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance.
(d) The Company will furnish to each Underwriter and counsel
to each Underwriter, without charge, conformed copies of the Registration
Statement (including exhibits thereto) and, so long as delivery of a prospectus
relating to the Offered Certificates is required under the Act, as many copies
of the Prospectus and any revisions or amendments thereof or supplements thereto
as may be reasonably requested.
(e) The Company will endeavor to arrange for the qualification
of the Offered Certificates for sale under the laws of such jurisdictions as you
may reasonably designate and will maintain such qualification in effect so long
as required for the initial distribution of the Offered Certificates; provided,
however, that the Company shall not be required to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to general or unlimited service of process in any jurisdiction where
it is now so subject.
(f) Whether or not the transactions contemplated in the
Pooling and Servicing Agreement are consummated or this Agreement is terminated,
the Company shall pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel in connection with the
registration and delivery of the Offered Certificates under the Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Offered
Certificates to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any "blue sky" memorandum in
connection with the offer and sale of the Offered Certificates under state
securities laws and all expenses in connection with the qualification of the
Offered Certificates for offer and sale under state securities laws as provided
in Section 5(e), including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with such qualification and in
connection with the "blue sky" memorandum, (vi) all filing fees and
disbursements of counsel for the Underwriters incurred in connection with any
review and qualification of the offering by the National Association of
Securities Dealers, Inc., (v) the cost of printing the Offered Certificates,
(vi) the costs and charges of any transfer agent, registrar or depositary, and
(vii) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in Section
7, the Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock
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<PAGE> 11
transfer taxes payable on resale of any of the Offered Certificates by them, and
any advertising expenses connected with any offers they may make.
(g) So long as any Offered Certificates are outstanding, upon
request of an Underwriter, the Company will, or will cause the Master Servicer
to, furnish to such Underwriter, as soon as available, a copy of (i) the annual
statement of compliance delivered by the Master Servicer to the Trustee under
the Pooling and Servicing Agreement, (ii) the annual independent public
accountants' servicing report furnished to the Trustee pursuant to the Pooling
and Servicing Agreement, (iii) each report of the Company regarding the Offered
Certificates filed with the Commission under the Exchange Act or mailed to the
holders of the Offered Certificates and (iv) from time to time, such other
information concerning the Offered Certificates which may be furnished by the
Company or the Master Servicer without undue expense and without violation of
applicable law.
(h) The Company shall file the Computational Materials and ABS
Term Sheets (if any) provided to it by the Underwriters under Section 4.2(e)
with the Commission pursuant to a Current Report on Form 8-K by 10:00 a.m. on
the morning the Prospectus is delivered to the Underwriters or, the case of any
Collateral Term Sheet required to be filed prior to such date, by 10 a.m. on the
second business day following the first day on which such Collateral Term Sheet
has been sent to a prospective investor; provided, however, that prior to such
filing of the Computational Materials and ABS Term Sheets (other than any
Collateral Term Sheets that are not based on the Pool Information) by the
Company, the Underwriters must comply with their obligations pursuant to Section
4.2 and the Company must receive a letter from _______________, certified public
accountants, satisfactory in form and substance to the Company and its counsel,
to the effect that such accountants have performed certain specified procedures,
all of which have been agreed to by the Company, as a result of which they
determined that all information that is included in the Computational Materials
and ABS Term Sheets (if any) provided by the Underwriters to the Company for
filing on Form 8-K, as provided in Section 4.2 and this Section 5(h), is
accurate except as to such matters that are not deemed by the Company to be
material. The foregoing letter shall be at the expense of the Underwriters. The
Company shall file any corrected Computational Materials or ABS Terms Sheets
described in Section 4.2(g) as soon as practicable following receipt thereof.
6. Conditions to the Obligations of Underwriters. The
obligation of each Underwriter to purchase the Offered Certificates to be
purchased by it shall be subject to the accuracy in all material respects of the
representations and warranties on the part of the Company contained herein as of
the date hereof and as of the Closing Date, to the accuracy of the statements of
the Company made in any officer's certificate pursuant to the provisions hereof,
to the performance in all material respects by the Company of its obligations
hereunder and to the following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for that purpose
shall be pending or, to the knowledge of the Company, threatened, and the
Prospectus Supplement shall have been filed or transmitted for filing by means
reasonably calculated to result in a filing with the Commission pursuant to Rule
424 under the Act.
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(b) The Company shall have furnished to the Underwriters a
certificate, dated the Closing Date, of the Company, signed by a vice president
of the Company, to the effect that the signer of such certificate has carefully
examined the Registration Statement, the Prospectus and this Agreement and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date,
and the Company has complied with all agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted and are pending or, to his knowledge, have
been threatened as of the Closing Date; and
(iii) Nothing has come to the attention of such person that
would lead him to believe that the Prospectus (other than any
Computational Materials or ABS Term Sheets incorporated therein by
reference) contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
The officer signing and delivering such certificate may rely upon the best of
his knowledge as to proceedings threatened.
(c) The Company shall have furnished or caused to have been
furnished to the Underwriters a certificate, dated the Closing Date, of the
Seller, signed by a vice president or an assistant vice president of the Seller,
to the effect that the signer of such certificate has carefully examined the
Prospectus and nothing has come to the attention of such person that would lead
him to believe that the Prospectus contains any untrue statement of a material
fact with respect to the Seller or the Mortgage Loans or omits to state any
material fact with respect to the Seller or the Mortgage Loans necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(d) The Company shall have furnished to you an opinion, dated
the Closing Date, of Latham & Watkins, counsel to the Company, substantially to
the effect that:
(i) The Registration Statement and any amendments thereto
have become effective under the Act; to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and not withdrawn, no proceedings for that
purpose have been instituted or threatened and not terminated; and the
Registration Statement, the Prospectus and each amendment or supplement
thereto, as of their respective effective or issue dates (other than
the financial and statistical information contained therein as to which
such counsel need express no opinion), complied as to form in all
material respects with the applicable requirements of the Act and the
rules and regulations of the Commission thereunder;
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<PAGE> 13
(ii) To the best knowledge of such counsel, there are no
material contracts, indentures or other documents of a character
required to be described or referred to in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration
Statement other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto;
(iii) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware [and is duly qualified to do business in, and is in good
standing as a foreign corporation under the laws of, the State of New
York].
(iv) This Agreement has been duly authorized, executed and
delivered by the Company;
(v) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Company and, assuming the due
authorization execution and delivery by other parties thereto,
constitutes a valid, legal and binding agreement of the Company, is
enforceable against the Company in accordance with its terms, subject
as to enforceability to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally,
to general principles of equity regardless of whether enforcement is
sought in a proceeding in equity or at law and to the effect of the
exercise by the Trustee of certain remedial provisions, including
waivers, against the Mortgage Loans;
(vi) The Offered Certificates have been duly authorized and,
assuming authentication and delivery in the manner contemplated in the
Pooling and Servicing Agreement, and upon delivery by the Company of
the Offered Certificates to be purchased by the Underwriters and
payment by the Underwriters of the purchase price therefore in the
manner contemplated by this Agreement, the Offered Certificates will be
(A) validly issued and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement and (B) free and clear of any lien,
pledge, encumbrance or other security interest other than one permitted
by the Pooling and Servicing Agreement or created or granted by any
Underwriter;
(vii) To the best knowledge of such counsel, no consent,
approval, authorization or order of any New York, Delaware or federal
governmental agency or body or any New York, Delaware or federal court
is required for the consummation by the Company of the transactions
contemplated by the terms of this Agreement or the Pooling and
Servicing Agreement, except such as may be required under the "blue
sky" or state securities laws of any jurisdiction in connection with
the offering, sale or acquisition of the Offered Certificates, any
recordations of the assignment of the Mortgage Loans to the Trustee (to
the extent such recordations are required pursuant to the Pooling and
Servicing Agreement) that have not yet been completed and such other
approvals as have been obtained;
(viii) The sale of the Offered Certificates to be purchased by
the Underwriters pursuant to this Agreement and the consummation of any
of the transactions contemplated by the terms of the Pooling and
Servicing Agreement or this Agreement do not conflict with or result in
a breach or violation of any material term or provision of, or
constitute a default
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<PAGE> 14
under, the certificate of incorporation of the Company, or to the best
knowledge of such counsel, any indenture or other agreement or
instrument to which the Company is a party or by which it is bound, or
any New York, Delaware or federal statute or regulation applicable to
the Company or an order of any New York, Delaware or federal court,
regulatory body, administrative agency or governmental body having
jurisdiction over the Company;
(ix) The Offered Certificates and the Pooling and Servicing
Agreement conform to the descriptions thereof contained in the
Prospectus;
(x) The statements in the Prospectus and the Prospectus
Supplement, as the case may be, under the headings "Federal Income Tax
Consequences" and "ERISA Considerations," to the extent that they
constitute matters of New York or federal law or legal conclusions with
respect thereto, have been reviewed by such counsel and are correct in
all material respects;
(xi) [The Certificates indicated under the heading "Summary of
Terms--Legal Investment" in the Prospectus Supplement to be "mortgage
related securities" will be mortgage related securities, as defined in
Section 3(a)(41) of the Exchange Act, so long as such Certificates are
rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization;] [and]
(xii) The Pooling and Servicing Agreement is not required to
be qualified under the Trust Indenture Act of 1939, as amended, and the
Trust Fund created by the Pooling and Servicing Agreement is not
required to be registered under the Investment Company Act of 1940, as
amended[.] [; and]
[(xiii) The Trust Fund as described in the Prospectus
Supplement and the Pooling and Servicing Agreement will qualify as a
"real estate mortgage investment conduit" ("REMIC") within the meaning
of Section 860D of the Internal Revenue Code of 1986, as amended (the
"Code"), assuming: (i) an election is made to treat the Trust Fund as a
REMIC, (ii) compliance with the Pooling and Servicing Agreement and
(iii) compliance with changes in the law, including any amendments to
the Code or applicable Treasury regulations thereunder.]
Such counsel shall also state that nothing has come to its
attention that would lead such counsel to believe that the Registration
Statement, at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus, as of the date of the Prospectus Supplement, and on the Closing
Date, contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; it being understood that such counsel need express no view as to (i)
financial and statistical information contained therein or (ii) any description
in the Prospectus of any third party providing credit enhancement to the
Certificates.
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<PAGE> 15
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to this Agreement and the
Pooling and Servicing Agreement. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Company or its affiliates. Such opinion may
be qualified as an opinion only on the corporate laws of the State of Delaware,
the laws of the State of New York and the federal law of the United States. To
the extent that such counsel relies upon the opinion of other counsel in
rendering any portion of its opinion, the opinion of such other counsel shall be
attached to and delivered with the opinion of such counsel that is delivered to
the Underwriters.
(e) Each party providing credit enhancement to the
Certificates shall have furnished to the Underwriters an opinion, dated the
Closing Date, of its counsel, with respect to the Registration Statement and the
Prospectus, and such other related matters, in the form previously agreed to by
such provider and the Underwriters.
(f) The Underwriters shall have received from their counsel
such opinion or opinions, dated the Closing Date, with respect to the issuance
and sale of the Offered Certificates, the Registration Statement and the
Prospectus, and such other related matters as you may reasonably require.
(g) You shall have received from __________________, certified
public accountants, (a) a letter dated the date hereof and satisfactory in form
and substance to you and your counsel, to the effect that they have performed
certain specified procedures, all of which have been agreed to by you, as a
result of which they determined that certain information of an accounting,
financial or statistical nature set forth in the Prospectus Supplement under the
captions "Description of the Mortgage Pool," "Description of the Certificates"
and "Yield and Maturity Considerations" agrees with the records of the Company
and the Seller excluding any questions of legal interpretation and (b) the
letter prepared pursuant to Section 5(h).
(h) Subsequent to the date hereof, there shall not have
occurred any change, or any development involving a prospective change, in or
affecting the business or properties of the Seller which in your reasonable
judgment materially impairs the investment quality of the Offered Certificates
so as to make it impractical or inadvisable to proceed with the public offering
or the delivery of the Offered Certificates as contemplated by the Prospectus.
(i) The Offered Certificates shall be rated not lower than the
required ratings set forth under the heading "Ratings" in the Prospectus
Supplement, such ratings shall not have been rescinded and no public
announcement shall have been made that any such required rating of the Offered
Certificates has been placed under review (otherwise than for possible
upgrading).
(j) The Underwriters shall have received copies of any
opinions of counsel to the Company supplied to the rating organizations relating
to certain matters with respect to the Certificates. Any such opinions shall be
dated the Closing Date and addressed to the Underwriters or accompanied by
reliance letters addressed to the Underwriters.
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<PAGE> 16
(k) All Classes of Certificates being publicly offered by the
Underwriters shall have been issued and paid for pursuant to the terms of this
Agreement.
(l) The Trustee shall have furnished to the Underwriters an
opinion dated the Closing Date, of counsel to the Trustee (who may be an
employee of the Trustee), substantially to the effect that:
(i) The Trustee has full corporate power and authority to
execute and deliver the Pooling and Servicing Agreement and to perform
its obligations thereunder and to execute, countersign and deliver the
Certificates.
(ii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Trustee.
(iii) The Pooling and Servicing Agreement is a legal, valid
and binding obligation of the Trustee, enforceable against the Trustee
in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, receivership, conservatorship
and similar laws affecting the rights of creditors generally, and
subject, as to enforceability, to general principles of equity,
regardless of whether such enforcement is considered in a proceeding at
law or equity.
Such opinion may express its reliance as to factual matters on
the representations and warranties made by, and on certificates or other
documents furnished by officers of, the parties to the Pooling and Servicing
Agreement. Such opinion may assume the due authorization, execution and delivery
of the instruments and documents referred to therein by the parties thereto
other than the Trustee or its affiliates. Such opinion may be qualified as an
opinion only on the laws of the State of New York and the federal law of the
United States. To the extent that such counsel relies upon the opinion of other
counsel in rendering any portion of its opinion, the opinion of such other
counsel shall be attached to and delivered with the opinion of such counsel that
is delivered to the Underwriters.
(m) The Seller shall have sold the Mortgage Loans to the
Company pursuant to the Mortgage Loan Purchase Agreement.
(n) The Company shall have furnished to the Underwriters such
further information, certificates and documents as the Underwriters may
reasonably have requested, and all proceedings in connection with the
transactions contemplated by this Agreement and all documents incident hereto
shall be in all material respects reasonably satisfactory in form and substance
to the Underwriters and their counsel.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, this Agreement and all obligations of an Underwriter hereunder may be
canceled at, or at any time prior to, the Closing Date by such Underwriter.
Notice of such cancellation shall be given to the Company in writing, or by
telephone or telegraph confirmed in writing.
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<PAGE> 17
7. Indemnification and Contribution. The Company agrees to
indemnify and hold harmless each of the Underwriters and each person, if any,
who controls either such Underwriter within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act, or other Federal or State
Statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) were caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, any preliminary prospectus or the Prospectus (if
used within the period mentioned in Section 5(c) and as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto), or
were caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities were
caused by any such untrue statement or omission or alleged untrue statement or
omission made therein based upon and in conformity with (i) the information
furnished in writing to the Company by any Underwriter through Morgan Stanley &
Co. Incorporated specifically for use in connection with the preparation of the
Registration Statement, any preliminary prospectus or the Prospectus or any
revision or amendment thereof or supplement thereto and (ii) any information in
any Computational Materials or ABS Terms Sheets required to be provided by any
Underwriter to the Company pursuant to Section 4.2. Such indemnity with respect
to any Corrected Statement (as defined below) in such Prospectus (or supplement
thereto) shall not inure to the benefit of the Underwriters (or any person
controlling either of the Underwriters) from whom the person asserting any loss,
claim, damage or liability purchased the Offered Certificates that are the
subject thereof if such person did not receive a copy of the supplement to such
Prospectus at or prior to the confirmation of the sale of such Certificates and
the untrue statement or omission of a material fact contained in such Prospectus
(or supplement thereto) was corrected (a "Corrected Statement") in such other
supplement and such supplement was furnished by the Company to the Underwriters
prior to the delivery of such confirmation.
The Underwriters agree, severally and not jointly, to
indemnify and hold harmless the Company and its directors and officers who sign
the Registration Statement and any person controlling the Company within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act, to
the same extent as the foregoing indemnity from the Company to the Underwriters,
but only with reference to (i) information relating to the Underwriters
furnished in writing to the Company by any Underwriter specifically for use in
connection with the preparation of the Registration Statement, any preliminary
prospectus or the Prospectus or any revision or amendment thereof or supplement
thereto and (ii) any Computational Materials, the ABS Term Sheets or the
Collateral Term sheets, as applicable.
In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either of the two preceding paragraphs, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own
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<PAGE> 18
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated in the case of
parties indemnified pursuant to the first paragraph of this Section 7 and by the
Company in the case of parties indemnified pursuant to the second paragraph of
this Section 7. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the third sentence of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claim that are the subject matter of such
proceeding.
To the extent the indemnification provided for in this Section
7 is unavailable to an indemnified party under the first or second paragraph of
this Section 7 or is insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, and the Underwriters on the
other, from the offering of the Offered Certificates or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand, and of each of the Underwriters on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand, and each of the
Underwriters on the other, in connection with the offering of the Offered
Certificates shall be deemed to be in the same respective proportions that the
total net proceeds from the offering of the Offered Certificates (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by each of the Underwriters in respect thereof
respectively, bear to the aggregate public offering price of the Offered
Certificates. The relative fault of the Company on the one hand, and of each of
the Underwriters on the other, shall
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<PAGE> 19
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. Each
Underwriter's obligation to contribute pursuant to this Section 7 is several in
proportion to the respective principal amounts of Offered Certificates it has
purchased hereunder, and not joint.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which [the total
underwriting discounts and commissions received by such Underwriter in
connection with the Offered Certificates underwritten and distributed to the
public by such Underwriter] [the total price at which the Offered Certificates
underwritten by it and distributed to the public were offered to the public]
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission. No person guilty or fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Underwriters or any person controlling either of the Underwriters or by
or on behalf of the Company, its directors or officers or any person controlling
the Company and (iii) acceptance of any payment for any of the Offered
Certificates.
8. Termination. This Agreement shall be subject to termination
in Morgan Stanley & Co. Incorporated's absolute discretion, by notice given to
the Company, if (a) after the execution and delivery of this Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Operations Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in the judgment of
the Underwriters, is material and adverse and (b) in the case of any of the
events specified in clauses (a)(i) through (iv) above, such event singly or
together
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<PAGE> 20
with any other such event, makes it, in the judgment of the Underwriters,
impracticable to market the Offered Certificates on the terms and in the manner
contemplated in the Prospectus.
9. Default by an Underwriter. If any one or more of the
Underwriters shall fail to purchase and pay for any of the Offered Certificates
agreed to be purchased by such Underwriter or Underwriters hereunder and such
failure to purchase shall constitute a default in the performance of its or
their obligations under this Agreement, the remaining Underwriters shall be
obligated severally to take up and pay for (in the respective proportions which
the aggregate principal amount of all the Offered Certificates of the various
Classes set forth opposite their names in the Prospectus Supplement bears to the
aggregate principal amount of all of the Offered Certificates of the various
Classes set forth opposite the name of all the remaining Underwriters) the
Offered Certificates that the defaulting Underwriter or Underwriters agreed but
failed to purchase; provided, however, that in the event that the aggregate
principal amount of Offered Certificates which the defaulting Underwriter or
Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
principal amount of all of the Offered Certificates set forth in the Prospectus
Supplement, the remaining Underwriters shall have the right to purchase all, but
shall not be under any obligation to purchase any, of the Offered Certificates,
and if such nondefaulting Underwriters do not purchase all the Offered
Certificates, this Agreement will terminate without liability to any
nondefaulting Underwriter or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding seven days, as the nondefaulting Underwriters
shall determine in order that required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company and to any nondefaulting Underwriter for
damages occasioned by its defaulting hereunder.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of the failure or refusal on the part of the Company to
comply with the terms or fulfill any of the conditions of this Agreement, or if
for any reason the Company shall be unable to perform its obligations under this
Agreement, the Company shall reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering of the Offered Certificates.
10. Representations and Indemnities to Survive. The respective
indemnity and contribution agreements and the representations, warranties and
other statements of the Company, its officers and the Underwriters set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any termination of this Agreement, any investigation made by or on
behalf of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Section 7 and delivery of and payment for the
Offered Certificates.
11. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
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<PAGE> 21
12. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement will be governed by and
construed in accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
15. Notices. All communications hereunder shall be in writing
and effective only on receipt and, if sent to an Underwriter, shall be delivered
to the address specified on the signature page hereof; or if sent to the
Company, shall be delivered to 1585 Broadway, New York, New York 10036,
attention of General Counsel.
16. Miscellaneous. Time shall be of the essence of this
Agreement. This Agreement supersedes all prior or contemporaneous agreements and
understandings relating to the subject matter hereof[, other than the Seller
Indemnification Certificate]. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated except by a writing signed by the
party against whom enforcement of such change, waiver, discharge or termination
is sought.
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<PAGE> 22
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the undersigned a counterpart hereof,
whereupon this Agreement and your acceptance shall represent a binding agreement
by and among the Company and each Underwriter on [______________, 199__]
relating to the [________________] Asset Backed Certificates Series 199_-__
issued by the _________ ______________________.
Very truly yours,
[ ]
By:
--------------------------
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted.
Accepted, _______________, 199_
MORGAN STANLEY & CO.
INCORPORATED
[NAMES OF OTHER CO-MANAGERS]
Acting severally on behalf of themselves and
the several Underwriters named in Schedule I
hereto.
By Morgan Stanley & Co.
Incorporated
By:
-------------------------
Name:
Title:
22
<PAGE> 23
SCHEDULE I
I-1
<PAGE> 24
SCHEDULE II
II-1
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
MORGAN STANLEY ABS CAPITAL I INC.
The undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the General Corporation Law of the
State of Delaware (the "GCL"), does hereby certify as follows:
FIRST: The name of the corporation is Morgan Stanley ABS Capital I Inc.
(the "Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County. The name of the corporation's registered agent at such address is
The Corporation Trust Company.
THIRD: The nature of business or purposes to be conducted or promoted
by the Corporation is to engage solely in the following activities:
a. To acquire, own, hold, sell, transfer, pledge or
otherwise dispose of:
(1) interests in (A) loan agreements, promissory
notes or evidences of indebtedness (the "Mortgage Loans") secured by
mortgages, deeds of trust, pledge agreements or other security devices
creating first, second and/or more subordinate liens on one- to
four-family residential properties, detached or semi-detached one- to
four-family dwelling units, townhouses, rowhouses, individual
condominium units, individual units in planned unit developments, and
certain other dwelling units (the "Single Family Properties") or mixed
use properties which consist of structures of not more than three
stories which include one- to four-family residential dwelling units
and space used for retail, professional or other commercial uses
(together with the Single Family Properties, the "Properties"), (B)
closed-end and/or revolving home equity loans (the "Home Equity Loans")
secured by first, second and/or subordinate liens on Single Family
Properties, (C) home improvement sale contracts and installment loan
agreements (the "Home Improvement Contracts") that are either unsecured
or secured by first, second and/or more subordinate liens on Single
Family Properties or by purchase money security interests in the home
improvements financed thereby, and (D) manufactured housing installment
sales contracts and installment loan agreements (the "Manufactured
Housing Contracts" and together with the Home Equity Loans, Home
Improvement Contracts and the Mortgage Loans, the "Loans") secured by
first, second, and or more subordinate liens or by mortgages on real
estate on which the manufactured homes are located; such Loans may
include cooperative apartment loans secured by shares issued by
private, nonprofit, cooperative housing corporations ("Cooperatives")
and the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in such Cooperative
buildings;
1
<PAGE> 2
CERTIFICATE OF INCORPORATION
(2) mortgage-backed securities insured and/or
guaranteed as to timely payment of interest and/or principal by the
Government National Mortgage Association, Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation, and privately
issued mortgage-backed securities; and
(3) mortgage pass-through certificates and other
collateralized mortgage obligations issued by a financial institution
or other entity engaged generally in the business of mortgage lending,
a public agency or instrumentality of a state, local or federal
government, or a limited purpose corporation engaged in the business of
establishing trusts and acquiring and selling residential loans to such
trusts and selling beneficial interests in such trusts.
b. To act as settlor or depositor of trusts formed under a
trust agreement, pooling and servicing agreement or other agreement to issue one
or more series (any of which series may be issued in one or more classes) of
trust certificates ("Certificates") representing interests in Loans and/or to
issue pursuant to an indenture or other agreement one or more series (any of
which series may be issued in one or more classes) of bonds, notes or other
evidences of indebtedness ("Debt Obligations") collateralized by Loans and/or
other property and to enter into any other agreement in connection with the
authorization, issuance, sale and delivery of Certificates and/or Debt
Obligations ("Securities"), including arrangements for support for any series of
Securities by various forms of credit enhancement.
c. To hold, pledge, transfer or otherwise deal with
Securities, including Securities representing a senior interest in Loans
("Senior Interests"), representing a subordinated interest in Loans
("Subordinated Interests") or a residual interest in Loans ("Residual
Interests").
d. To loan or invest or otherwise apply proceeds from Loans,
funds received in respect of Securities, Senior Interests, Subordinated
Interests or Residual Interests and any other income, as determined by the
Corporation's Board of Directors.
e. To engage in any lawful act or activity to exercise any
powers permitted to corporations organized under the GCL that are incidental to
and necessary or convenient for the accomplishment of the foregoing purposes.
FOURTH: The total number of shares of all classes of capital stock that
the Corporation shall have authority to issue is 1,000 shares of common stock,
and the par value of such shares shall be $1.00 per share amounting in the
aggregate to $1,000.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
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<PAGE> 3
CERTIFICATE OF INCORPORATION
Name Mailing Address
---- ---------------
Susan M. Krause c/o Morgan Stanley & Co. Incorporated
1585 Broadway - 38th Floor
New York, NY 10036
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
1. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
2. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors shall have concurrent
power with the stockholders, subject to Article TWELFTH to make, alter,
amend, change, add to or repeal the bylaws of the Corporation.
3. The number of directors of the Corporation shall
initially be three and thereafter shall be as from time to time fixed
by, or in the manner provided in, the bylaws of the Corporation.
Election of directors need not be by written ballot unless the bylaws
so provide.
4. At least two directors of the Corporation will not
be directors, officers or employees of any direct or indirect parent of
the Corporation or of any affiliate of such parent or any successor
thereto.
5. In addition to the powers and authority
hereinabove or by statute expressly conferred upon them, the directors
are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation, subject
nevertheless to the provisions of the GCL, this Certificate of
Incorporation and the bylaws of the Corporation; provided, however,
that no bylaw hereafter adopted by the stockholders shall invalidate
any prior act of the directors that would have been valid if such bylaw
had not been adopted. The Corporation's Board of Directors will hold
appropriate meetings (or act by unanimous written consent) to duly
authorize all of the Corporation's actions.
6. The Corporation shall maintain itself and act as
an entity separate from any other entity and the Corporation shall,
among other actions or inactions: (a) not commingle its assets with
those of any other entity, (b) maintain separate corporate records and
books of account from those of any other entity and cause its financial
3
<PAGE> 4
CERTIFICATE OF INCORPORATION
statements to reflect the separate existence of the Corporation and its
assets and liabilities, (c) pay its own liabilities and expenses from
its own funds, including fairly allocating shared office and employee
expenses, (d) act only in its own corporate name and through its own
authorized officers and agents, (e) observe all corporate formalities,
(f) maintain an arm's length relationship with affiliated entities, (g)
not guarantee or become obligated for the debts of any other entity or
hold out its credit as available to others, and (h) maintain adequate
capital in light of its contemplated business operations.
EIGHTH: The Corporation shall not issue, assume or guarantee any debt
securities unless such debt securities are acceptable to the rating agencies
that have rated any outstanding Securities and such issuance, assumption or
guarantee will not result in the downgrade or withdrawal of the rating then
assigned to any outstanding Securities then rated by such rating agency.
NINTH: A director of the Corporation shall not in the absence of fraud
be disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that he, or any firm of which he is a member,
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in the manner provided in the GCL for
authorization, approval or ratification of transactions or contracts between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors and/or on
all the stockholders or class of stockholders of the Corporation, as the case
may be, and also on the Corporation.
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<PAGE> 5
CERTIFICATE OF INCORPORATION
ELEVENTH: (a) No director shall be personally liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article ELEVENTH by the stockholders of the Corporation
shall not adversely affect any right of protection of a director of the
Corporation existing at the time of such repeal or modification with respect to
acts or omissions occurring prior to such repeal or modification.
(b) If the General Corporation Law of the State of Delaware
shall be amended after this Certificate of Incorporation is filed with the
Secretary of State of Delaware to authorize corporate action further eliminating
or limiting the liability of directors, then a director of the corporation, in
addition to the circumstances in which he is not liable immediately prior to
such amendment, shall be free of liability to the fullest extent permitted by
the GCL, as so amended.
TWELFTH: Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation, for so long as any rated Securities remain
outstanding, shall not:
(i) engage in any business or activity other than those set
forth in Article THIRD;
(ii) dissolve or liquidate, in whole or in part; consolidate
or merge with or into any other entity or convey or transfer its
properties and assets substantially as an entirety to any entity,
unless:
(A) the entity (if other than the Corporation) formed
or surviving the consolidation or merger or which acquires the
properties and assets of the Corporation, is organized and
existing under the laws of the State of Delaware, expressly
assumes the due and punctual payment of, and all obligations
of the Corporation, and has a Certificate of Incorporation
containing provisions identical to the provisions of Articles
THIRD, SEVENTH, EIGHTH, TWELFTH and SIXTEENTH of this
Certificate of Incorporation;
(B) immediately after giving effect to the
transaction, no default or event of default has occurred and
is continuing under any indebtedness of the Corporation or any
agreements relating to such indebtedness; and
(C) the Corporation receives written confirmation
from each rating agency then rating any outstanding Securities
that such merger or consolidation will not result in the
downgrade or withdrawal of the rating then assigned to any
Securities then rated by such rating agency; and
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<PAGE> 6
CERTIFICATE OF INCORPORATION
(iii) without the affirmative vote of 100% of the members of
the Board of Directors of the Corporation, institute proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition
seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Corporation or a substantial part of
its property, or make any assignment for the benefit of creditors, or
admit in writing its inability to pay its debts generally as they
become due, or dissolve, liquidate, consolidate, merge or sell all or
substantially all of the assets of the Corporation.
THIRTEENTH: The Board of Directors, by the affirmative vote of a
majority of 100% of the members of the Board, and irrespective of any personal
interest of its members, shall have authority to provide reasonable compensation
to all directors for services, ordinary or extraordinary, to the Corporation as
directors, officers or otherwise.
FOURTEENTH: Meetings of stockholders and directors may be held within
or without the State of Delaware, as the bylaws of the Corporation may provide.
The books and records of the Corporation may be kept (subject to any provision
contained in the GCL) outside the State of Delaware.
FIFTEENTH: Each person who is or was a director or officer of the
Corporation, and each person who serves or served at the request of the
Corporation as a director or officer (or its equivalent) of another enterprise,
shall be indemnified by the Corporation to the fullest extent authorized by the
GCL as it may be in effect from time to time, except as to any action, suit or
proceeding brought by or on behalf of a director or officer without prior
approval of the Board of Directors.
SIXTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided that no
such amendment of Articles THIRD, SEVENTH, EIGHTH, TWELFTH or SIXTEENTH shall be
effective without the Corporation having received confirmation from each rating
agency rating any outstanding Securities that such amendment shall not result in
the termination or lowering of the rating of such Securities.
IN WITNESS WHEREOF, I the undersigned, being the sole incorporator
hereinbefore named, do hereby execute this Certificate of Incorporation this
__th day of January, 1997.
/s/ Susan Krause
-----------------
Susan M. Krause
Sole Incorporator
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<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
MORGAN STANLEY ABS CAPITAL I INC.
(A DELAWARE CORPORATION)
(AS ADOPTED ON JANUARY 14, 1997)
----------------
ARTICLE I
Offices
SECTION 1.1. Registered Office in Delaware. The registered office of
Morgan Stanley ABS Capital I Inc. (the "Corporation") in the State of Delaware
shall be in the City of Wilmington, County of New Castle, and the registered
agent in charge thereof shall be The Corporation Trust Company.
ARTICLE II
Meetings of Stockholders
SECTION 2.1. Place of Meetings. All meetings of stockholders shall be
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors, or as shall be specified
in the respective notices, or waivers of notice, thereof.
SECTION 2.2. Annual Meetings. The annual meeting of stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting.
SECTION 2.3. Special Meetings. A special meeting of the stockholders
may be called at any time and for any purpose or purposes by the President or
the Chairman of the Board or by order of the Board of Directors, and shall be
called by the Secretary upon the written request of the holders of record of at
least 80% of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors.
Every such request shall state the purpose or purposes of each meeting.
SECTION 2.4. Notice of Meetings. Except as otherwise expressly
required by law, written notice of each meeting of stockholders, whether annual
or special, stating the place, date and hour of the meeting shall be given not
less than ten days nor more than fifty days before the date on which the
meeting is to be held, to each stockholder of record entitled to vote thereat
<PAGE> 2
by delivering a notice thereof to him personally or by mailing such notice in a
postage prepaid envelope directed to him at his address as it appears on the
stock ledger of the Corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for him be directed
to another address, in which case such notice shall be directed to him at the
address designated in such request. If any stockholder shall, in person or by
attorney thereunto authorized, in writing or by telegraph, cable, telecopy or
telex, waive notice of any meeting of the stockholders, whether prior to or
after such meeting, notice thereof need not be given to him. Every notice of a
special meeting of the stockholders, besides stating the time and place of the
meeting, shall state briefly the purpose or purposes thereof.
SECTION 2.5. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of the
stock ledger to prepare and make, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in his name. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall be kept
and produced at the time and place of the meeting during the whole time thereof
and subject to the inspection of any stockholder who may be present. The
original or duplicate stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, such list or the books of
the Corporation or to vote in person or by proxy at such meeting.
SECTION 2.6. Quorum. At each meeting of the stockholders, the holders
of record of a majority of the issued and outstanding stock of the Corporation
entitled to vote at such meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business, except where otherwise
provided by law, the Certificate of Incorporation or these By-Laws. In the
absence of a quorum, any officer entitled to preside at, or act as Secretary
of, such meeting shall have the power to adjourn the meeting from time to time
until a quorum shall be constituted.
SECTION 2.7. Voting. At all meetings of the stockholders, a quorum
being present, all matters shall be decided by majority vote of the shares of
stock entitled to vote held by the stockholders present in person or by proxy,
except as otherwise required by the Certificate of Incorporation or the laws of
the State of Delaware. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted
after three years from its date, unless the proxy provides for a longer
period.
SECTION 2.8. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without
2
<PAGE> 3
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were presented and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have
not consented in writing.
ARTICLE III
Board of Directors
SECTION 3.1. Number, Term of Office and Eligibility. The number of
directors shall be fixed from time to time by resolution of the stockholders or
Board of Directors of the Corporation. Each director shall hold office until his
successor is elected and qualified, or until his earlier resignation or removal.
SECTION 3.2. Quorum and Manner of Acting. At all meetings of the Board
of Directors a majority of the total number of directors shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
the laws of the State of Delaware, the Certificate of Incorporation or the
By-Law. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.3. Annual Meeting. Immediately after each annual meeting of
stockholders for the election of directors the Board of Directors shall meet at
the place of the annual meeting of stockholders for the purpose of
organization, the election of officers and the transaction of other business.
Notice of such meeting need not be given. If such meeting is held at any other
time or place, notice thereof must be given or waived as hereinafter provided
for special meetings of the Board of Directors.
SECTION 3.4. Regular Meetings. Regular meetings of the Board of
Directors may be held at such time and place, within or without the State of
Delaware, as shall from time to time be determined by the Board of Directors.
After there has been such determination, and notice thereof has been once given
to each member of the Board of Directors, regular meetings may be held without
further notice being given.
SECTION 3.5. Special Meetings; Notice. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board or the
President. Notice of each such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least two days
before the date on which the meeting is to be held, or shall be sent to him at
such place by telegraph, cable, telecopy or telex, or be delivered personally
or by telephone, not later than the day before the day on which such meeting is
to be held. Each such notice shall state the time and place of the meeting and
the purposes thereof. If any director shall, in person or by attorney thereunto
authorized, in writing or by telegraph, cable, telecopy or
3
<PAGE> 4
telex, waive notice of any meeting of the Board of Directors, whether prior to
or after such meeting, notice thereof need not be given to him. No notice to or
waiver by any director with respect to any special meeting shall be required if
such director shall be present at said meeting.
SECTION 3.6. Resignation. Any director of the Corporation may resign
at any time by giving written notice to the Chairman of the Board, if any, the
President or the Secretary of the Corporation. The resignation of any director
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.7. Newly-Created Directorships and Vacancies on the Board of
Directors. Subject to the rights of the holders of any class or series of stock
having preference over the Common Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation to elect directors under specified
circumstances, if any, and subject to any limitations regarding eligibility to
serve as a director as set forth in the Corporations Certificate of
Incorporation, newly-created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled by a majority vote of the directors then in
office, although less than a quorum, or by a majority of the votes cast by the
holders of the Voting Stock; and any director so chosen shall hold office for
the remaining term of his predecessor or, if there shall have been no
predecessor, until the next annual election of directors or until his successor
shall have been duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SECTION 3.8. Removal of Directors. Subject to the rights of the
holders of any class or series of stock having preference over the Common Stock
as to dividends or upon liquidation, dissolution or winding up of the
Corporation to elect directors under specified circumstances, if any, and
subject to any limitations regarding eligibility to serve as a director as set
forth in the Corporation's Certificate of Incorporation, any director, or the
entire Board of Directors, may be removed from office at any time, with or
without cause, only by the affirmative vote of the holders of at least 80% of
the voting power of the Voting Stock, voting together as a single class.
SECTION 3.9. Compensation of Directors. The Board of Directors shall
have the authority to fix the compensation of directors and of members of
committees of directors.
SECTION 3.11. Meeting by Conference Telephone. Directors and members
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or of such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section shall constitute presence
in person at such meeting.
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<PAGE> 5
ARTICLE IV
Committees of Directors
SECTION 4.1. Designation of Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
SECTION 4.2. Vacancies. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
SECTION 4.3. Powers. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors to the extent provided by
Section 141(c) of the General Corporation Law of the State of Delaware as it
exists now or may hereafter be amended.
SECTION 4.4. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
ARTICLE V
Officers
SECTION 5.1. Principal Officers. The Board of Directors shall elect a
President, a Secretary and a Treasurer, and may in addition elect a Chairman of
the Board, one or more Vice Presidents, one or more Assistant Secretaries and
one or more Assistant Treasurers. One person may hold, and perform the duties
of, any two or more of said offices.
SECTION 5.2. Election, Term of Office and Eligibility. The officers of
the Corporation referred to in Section 5.1 shall be elected annually by the
Board of Directors at the annual meeting thereof. Each such officer shall hold
office until his successor shall have been duly elected and shall qualify, or
until his death or until he shall resign or shall have been removed.
SECTION 5.3. Other Officers. The Board of Directors may appoint such
other officers as it may from time to time determine, each of whom shall hold
office for such period, and perform such duties as the President or the Board
of Directors may from time to time determine. The Board of Directors may
delegate to any officer referred to in Section 5.1 the power to appoint and to
remove any such officers.
SECTION 5.4. Removal. Any officer may be removed, either with or
without cause, at any time, by resolution adopted by the Board of Directors at
any regular meeting of
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<PAGE> 6
the Board or at any special meeting of the Board called for that purpose at
which a quorum is present.
SECTION 5.5. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, to the Chairman of the Board,
if any, the President or the Secretary of the Corporation. The resignation of
any officer shall take effect upon receipt of notice or at such later time as
shall be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5.6. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of stockholders and at all meetings of the Board
of Directors. Subject to the control and the direction of the Board of
Directors, the Chairman of the Board may enter into any contract and execute
and deliver any instrument in the name and on behalf of the Corporation. The
Chairman of the Board shall perform such other duties and have such other
powers as the Board of Directors shall prescribe.
SECTION 5.7. President. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors. Subject to the control and the direction of
the Board of Directors, the President may enter into any contract and execute
and deliver any instrument in the name and on behalf of the Corporation. The
President shall perform such other duties and have such other powers as the
Board of Directors shall prescribe.
SECTION 5.8. Vice Presidents. The Vice Presidents shall perform such
duties and have such powers as the President or the Board of Directors may from
time to time prescribe. Subject to the control and the direction of the Board
of Directors, each Vice President may enter into any contract and execute and
deliver any instrument in the name and on behalf of the Corporation.
SECTION 5.9. Secretary. The Secretary, if present, shall act as
Secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a book or books to be provided for that purpose; he
shall see that all notices required to be given by the Corporation are duly
given and served; he shall have charge of the stock records of the Corporation;
he shall see that all reports, statements and other documents required by law
are properly kept and filed; and, in general, he shall perform all the duties
incident to the office of Secretary.
SECTION 5.10. Assistant Secretary. The Assistant Secretary, if any,
or, if there be more than one, the Assistant Secretaries, in the order
determined by the Board of Directors, shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chairman of the Board or the President may from time to time
prescribe.
SECTION 3.10. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto
is signed by all members of the Board or of such
6
<PAGE> 7
committee, as the case may be, and such written consent is filed with the
records of the proceedings of the Board or committee.
SECTION 5.11. Treasurer. The Treasurer shall have charge and custody
of, and be responsible for, all funds and securities of the Corporation and
shall deposit all such funds in the name of the Corporation in such banks or
other depositories as shall be selected by the Board of Directors. He shall
exhibit at all reasonable times his books of account and records to any of the
directors of the Corporation upon application during business hours at the
office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, he shall render a statement of the
condition of the finances of the Corporation at any meeting of the Board or at
the annual meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; and, in
general, he shall perform all the duties incident to the office of Treasurer.
The Treasurer shall give such bond, if any, for the faithful discharge of his
duties as the Board of Directors may require.
SECTION 5.12. Assistant Treasurer. The Assistant Treasurer, if any, or,
if there shall be more than one, the Assistant Treasurers, in the order
determined by the Board of Directors, shall, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors, the Chairman of the Board or the President may from time to time
prescribe.
ARTICLE VI
Shares and Their Transfer
SECTION 6.1. Certificates for Stock. The interest of each stockholder
in the Corporation shall be evidenced by a certificate or certificates for
shares of stock of the Corporation certifying the number of shares owned by
him, in such form as the Board of Directors may from time to time prescribe.
The certificates for shares of stock of the Corporation shall be signed by the
Chairman of the Board, the President or a Vice President and by the Secretary
or the Treasurer or an Assistant Secretary or an Assistant Treasurer, and shall
be countersigned and registered in such manner, if any, as the Board of
Directors may by resolution prescribe; provided, however, that in case such
certificates are signed by a transfer agent other than the Corporation or its
employee or by a registrar other than the Corporation or its employee the
signatures of the Chairman of the Board, President, Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary may be facsimile; and
further provided that in case any officer or officers who shall have signed, or
whose facsimile signature or signatures shall have been used on any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
Corporation.
7
<PAGE> 8
SECTION 6.2. Stock Ledger. A record shall be kept by the Secretary,
transfer agent or by any other officer, employee or agent designated by the
Board of Directors of the name of each person, firm or corporation holding
capital stock of the Corporation, the number of shares represented by, and the
respective dates of, each certificate for such capital stock, and in case of
cancellation of any such certificate, the respective dates of cancellation.
SECTION 6.3. Cancellation. Every certificate surrendered to the
Corporation for exchange or registration of transfer shall be canceled, and no
new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except
as provided in Section 6.5 and in cases provided by the applicable law.
SECTION 6.4. Transfers. Shares of stock shall be transferable on the
books of the Corporation by the holder of record thereof in person or by his
attorney upon surrender of such certificate with an assignment endorsed thereon
or attached thereto duly executed and with such proof of authenticity of
signatures as the Corporation may reasonably require. The Board of Directors
may make such rules and regulations as it may deem expedient, not inconsistent
with the Certificate of Incorporation or these By-Laws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. The Board of Directors may appoint, or authorize any principal
officer or officers to appoint, one or more transfer clerks or one or more
transfer agents and one or more registrars, and may require all certificates of
stock to bear the signature or signatures of any of them.
SECTION 6.5. Lost, Stolen, Destroyed or Mutilated Certificates. Before
any certificates for stock of the Corporation shall be issued in exchange for
certificates which shall become mutilated or shall be lost, stolen or
destroyed, proper evidence of such loss, theft, mutilation or destruction shall
be procured for the Board of Directors, if it so requires. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 6.6. Record Dates. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a date as a record date for any such determination of stockholders. Such record
date shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
8
<PAGE> 9
ARTICLE VII
Indemnification
The Corporation shall indemnify, to the fullest extent permitted by
applicable law, any person who was or is a party or is threatened to be made a
party to, or is involved in any manner in, any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person (1) is or was a director
or officer of the Corporation or a Subsidiary or (2) is or was serving at the
request of the Corporation or a Subsidiary as a director, officer, partner,
member, employee or agent of another corporation, partnership, joint venture,
trust, committee or other enterprise.
To the extent deemed advisable by the Board of Directors, the
Corporation may indemnify, to the fullest extent permitted by applicable law,
any person who was or is a party or is threatened to be made a party to, or is
involved in any manner in, any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that the person is or was an employee or agent (other than a
director or officer) of the Corporation or a Subsidiary.
The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation or a Subsidiary, or is or was serving at the request of the
Corporation or a Subsidiary as a director, officer, partner, member, employee
or agent of another corporation, partnership, joint venture, trust, committee
or other enterprise, against any expense, liability or loss asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation or a Subsidiary would have the power to
indemnify him against such expense, liability or loss under the provisions of
applicable law.
No repeal, modification or amendment of, or adoption of any provision
inconsistent with, this Article VII, nor to the fullest extent permitted by
applicable law, any modification of law shall adversely affect any right or
protection of any person granted pursuant hereto existing at, or with respect to
events that occurred prior to, the time of such repeal, amendment, adoption or
modification.
For purposes of this Article VII the term "Subsidiary" or
"Subsidiaries" shall mean a corporation(s), all of the capital stock of which
is owned directly or indirectly by the Corporation, other than directors'
qualifying shares.
The right to indemnification conferred in this Article VII also
includes, to the fullest extent permitted by applicable law, the right to be
paid the expenses (including attorney's fees) incurred in connection with any
such proceeding in advance of its final disposition. The payment of any amounts
to any director, officer, partner, member, employee or agent pursuant to this
Article VII shall subrogate the Corporation to any right such director,
officer, partner, member, employee or agent may have against any other person
or entity. The rights conferred in this Article VII shall be contract rights.
9
<PAGE> 10
ARTICLE VIII
Liability of Directors
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach by the
director of his duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived an improper personal benefit.
No repeal, modification or amendment of, or adoption of any provision
inconsistent with, this Article VIII nor, to the fullest extent permitted by
law, any modification of law shall adversely affect any right or protection of
a director of the Corporation existing at the time of such repeal, amendment,
adoption or modification or affect the liability of any director of the
Corporation for any action taken or any omission that occurred prior to the
time of such repeal, amendment, adoption or modification.
If the General Corporation Law of the State of Delaware shall be
amended, after these By-Laws are amended to include this Article VIII, to
authorize corporate action further eliminating or limiting the liability of
directors, then a director of the Corporation, in addition to the circumstances
in which he is not liable immediately prior to such amendment, shall be free of
liability to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
ARTICLE IX
Miscellaneous Provisions
SECTION 9.1. Corporate Seal. The Board of Directors shall provide a
corporate seal, which shall be in the form of a circle and shall bear the name
of the Corporation and words and figures showing that it was incorporated in
the State of Delaware in the year 1997. The Secretary shall be the custodian of
the seal.
SECTION 9.2. Fiscal Year. The fiscal year of the Corporation shall be
as specified by the Board of Directors.
SECTION 9.3. Voting of Stocks Owned by the Corporation. The Board of
Directors may authorize any person on behalf of the Corporation to vote and
grant proxies to be used at any meeting of stockholders of any corporation
(except this Corporation) in which the Corporation may hold stock.
ARTICLE X
Amendment of By-Laws
10
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In furtherance of and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation from time to time may make,
amend or repeal the By-Laws of the Corporation; provided that any By-Laws may
be amended or repealed, and may be made, by the stockholders of the Corporation.
Notwithstanding any other provisions of the Certificate of Incorporation of the
Corporation or these By-Laws (and not withstanding the fact that a lesser
percentage may be specified by law, the Certificate of Incorporation or these
By-Laws), the affirmative vote of the holders of at least 80% of the voting
power of the Voting Stock, voting together as a single class, shall be
required for the stockholders of the Corporation to amend, repeal or adopt any
By-Laws of the Corporation.
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<PAGE> 1
Exhibit 4.1
Subject to Completion
MORGAN STANLEY ABS CAPITAL I INC.,
as Depositor,
-------------------------------------------
as Master Servicer,
and
[-----------------------------------]
as Trustee
-----------------------
POOLING AND SERVICING AGREEMENT
Dated as of _________________, 199__
----------------------
Home Equity Loan Asset Backed Certificates
Series 199__-__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.01. Definitions............................................................................. 1
Section 1.02. Interest Calculations................................................................... 16
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES;
TAX TREATMENT
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to
Fund Advances Under Credit Line Agreements.............................................. 16
Section 2.02. Acceptance by Trustee; Retransfer of Mortgage Loans..................................... 19
Section 2.03. Representations and Warranties Regarding the Master Servicer............................ 21
Section 2.04. Representations and Warranties of the Seller Regarding
the Mortgage Loans; Retransfer of Certain Mortgage Loans................................ 22
Section 2.05. Covenants of the Depositor.............................................................. 27
Section 2.06. Retransfers of Mortgage Loans at Election of Transferor................................. 27
Section 2.07. Execution and Authentication of Certificates............................................ 28
Section 2.08. Tax Treatment........................................................................... 28
Section 2.09. Representations and Warranties of the Depositor......................................... 29
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. The Master Servicer..................................................................... 29
Section 3.02. Collection of Certain Mortgage Loan Payments............................................ 31
Section 3.03. Withdrawals from the Collection Account................................................. 32
Section 3.04. Maintenance of Hazard Insurance; Property Protection Expenses........................... 33
Section 3.05. Assumption and Modification Agreements.................................................. 33
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase
of Certain Mortgage Loans.............................................................. 34
Section 3.07. Trustee to Cooperate.................................................................... 35
Section 3.08. Servicing Compensation; Payment of Certain Expenses
by Master Servicer..................................................................... 35
Section 3.09. Annual Statement as to Compliance....................................................... 36
Section 3.10. Annual Servicing Report................................................................. 36
Section 3.11. Annual Opinion of Counsel............................................................... 36
Section 3.12. Access to Certain Documentation and Information
Regarding the Mortgage Loans........................................................... 36
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.13. Maintenance of Certain Servicing Insurance Policies..................................... 37
Section 3.14. Reports to the Securities and Exchange Commission....................................... 37
Section 3.15. Tax Returns............................................................................. 37
Section 3.16. Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments
of Mortgaged Property................................................................... 37
ARTICLE IV
SERVICING CERTIFICATE
Section 4.01. Servicing Certificate................................................................... 38
Section 4.02. Claims upon the Policy; Policy Payments Account......................................... 40
Section 4.03. Spread Account.......................................................................... 41
Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation.................................. 42
Section 4.05. Optional Advances of the Master Servicer................................................ 43
ARTICLE V
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS; RIGHTS OF CERTIFICATEHOLDERS
Section 5.01. Distributions........................................................................... 43
Section 5.02. Calculation of the Investor Certificate Rate............................................ 45
Section 5.03. Statements to Certificateholders........................................................ 45
Section 5.04. Rights of Certificateholders............................................................ 47
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates........................................................................ 47
Section 6.02. Registration of Transfer and Exchange of Investor
Certificates; Appointment of Registrar.................................................. 47
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates....................................... 49
Section 6.04. Persons Deemed Owners................................................................... 49
Section 6.05. Restrictions on Transfer of Transferor Certificates..................................... 49
Section 6.06. Appointment of Paying Agent............................................................. 51
Section 6.07. Acceptance of Obligations............................................................... 51
ARTICLE VII
THE MASTER SERVICER AND THE DEPOSITOR
Section 7.01. Liability of the Master Servicer and the Depositor...................................... 51
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor.................................... 51
Section 7.03. Limitation on Liability of the Master Servicer and Others............................... 51
Section 7.04. Master Servicer Not to Resign........................................................... 52
Section 7.05. Delegation of Duties.................................................................... 53
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.06. Indemnification of the Trust by the Master Servicer..................................... 53
Section 7.07. Indemnification of the Trust by the Transferor.......................................... 53
Section 7.08. Limitation on Liability of the Transferor............................................... 53
ARTICLE VIII
SERVICING TERMINATION
Section 8.01. Events of Servicing Termination......................................................... 54
Section 8.02. Trustee to Act; Appointment of Successor................................................ 55
Section 8.03. Notification to Certificateholders...................................................... 56
ARTICLE IX
THE TRUSTEE
Section 9.01. Duties of Trustee....................................................................... 56
Section 9.02. Certain Matters Affecting the Trustee................................................... 58
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans................................... 59
Section 9.04. Trustee May Own Certificates............................................................ 59
Section 9.05. Master Servicer to Pay Trustee's Fees and Expenses;
Master Servicer to Indemnify............................................................ 60
Section 9.06. Eligibility Requirements for Trustee.................................................... 60
Section 9.07. Resignation or Removal of Trustee....................................................... 60
Section 9.08. Successor Trustee....................................................................... 61
Section 9.09. Merger or Consolidation of Trustee...................................................... 61
Section 9.10. Appointment of Co-Trustee or Separate Trustee........................................... 61
Section 9.11. Limitation of Liability................................................................. 63
Section 9.12. Trustee May Enforce Claims Without Possession of Certificates........................... 63
Section 9.13. Suits for Enforcement................................................................... 63
ARTICLE X
TERMINATION
Section 10.01. Termination............................................................................. 63
ARTICLE XI
RAPID AMORTIZATION EVENTS
Section 11.01. Rapid Amortization Events.............................................................. 65
Section 11.02. Additional Rights Upon the Occurrence of Certain Events................................ 66
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Amendment.............................................................................. 67
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 12.02. Recordation of Agreement............................................................... 69
Section 12.03. Limitation on Rights of Certificateholders............................................. 69
Section 12.04. Governing Law.......................................................................... 70
Section 12.05. Notices................................................................................ 70
Section 12.06. Severability of Provisions............................................................. 70
Section 12.07. Assignment............................................................................. 70
Section 12.08. Certificates Nonassessable and Fully Paid.............................................. 71
Section 12.09. Third-Party Beneficiaries.............................................................. 71
Section 12.10. Counterparts........................................................................... 71
Section 12.11. Effect of Headings and Table of Contents............................................... 71
Section 12.12. Insurance Agreement.................................................................... 71
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT A - FORM OF INVESTOR CERTIFICATE......................................................... A-1
EXHIBIT B - FORM OF TRANSFEROR CERTIFICATE....................................................... B-1
EXHIBIT C - MORTGAGE LOAN SCHEDULE............................................................... C-1
EXHIBIT D - RESERVED............................................................................. D-1
EXHIBIT E - ANNUAL OPINION OF COUNSEL............................................................ E-1
EXHIBIT F - FORM OF CREDIT LINE AGREEMENT........................................................ F-1
EXHIBIT G - RESERVED............................................................................. G-1
EXHIBIT H - RESERVED............................................................................. H-1
EXHIBIT I - LETTER OF REPRESENTATIONS............................................................ I-1
EXHIBIT J - RESERVED............................................................................. J-1
EXHIBIT K - FORM OF INVESTMENT LETTER............................................................ K-1
EXHIBIT L - FORM OF REQUEST FOR RELEASE.......................................................... L-1
</TABLE>
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<PAGE> 6
This Pooling and Servicing Agreement, dated as of
____________, 199__, among Morgan Stanley ABS Capital I Inc. (the "Depositor"),
______________________________, the "Master Servicer", and
[______________________], as Trustee (the "Trustee"),
W I T N E S S E T H T H A T:
In consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the meanings specified in this Article.
Accelerated Principal Distribution Amount: With respect to any
Distribution Date, the amount, if any, required to reduce the Investor
Certificate Principal Balance (after giving effect to the distribution of all
other amounts actually distributed on the Investor Certificates on such
Distribution Date) so that the Invested Amount (immediately following such
Distribution Date) exceeds the Investor Certificate Principal Balance (as so
reduced) by the Required Overcollateralization Amount.
Additional Balance: As to any Mortgage Loan and day, the
aggregate amount of all Draws conveyed to the Trust pursuant to Section 2.01.
[Adjustment Date: With respect to any Interest Period, the
second LIBOR Business Day preceding the first day of such Interest Period.]
Affiliate: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
Agreement: This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
Alternative Principal Payment: As to any Distribution Date,
the greater of (x) _____% of the Investor Certificate Principal Balance
immediately prior to the Distribution Date or (y) the amount (but not less than
zero) equal to Principal Collections for such Distribution Date less the
aggregate of Draws under the Credit Line Agreements during the related
Collection Period.
Appointment Day: As defined in Section 11.02.
Appraised Value: As to any Mortgaged Property, the value
established by any of the following: (i) with respect to Credit Line Agreements
with Credit Limits greater than $________, by a full appraisal, (ii) with
respect to Credit Line Agreements with Credit Limits equal to or less than
$_________, by a drive by inspection of such Mortgaged Property made to
establish compliance with the underwriting criteria then in effect in connection
with the application for the Mortgage Loan secured by such Mortgaged Property.
<PAGE> 7
Asset Balance: As to any Mortgage Loan, other than a
Liquidated Mortgage Loan, and day, the related Cut-off Date Asset Balance, plus
(i) any Additional Balance in respect of such Mortgage Loan, minus (ii) all
collections credited as principal against the Asset Balance of any such Mortgage
Loan in accordance with the related Credit Line Agreement. For purposes of this
definition, a Liquidated Mortgage Loan shall be deemed to have an Asset Balance
equal to the Asset Balance of the related Mortgage Loan immediately prior to the
final recovery of related Liquidation Proceeds and an Asset Balance of zero
thereafter.
Assignment of Mortgage: With respect to any Mortgage, an
assignment, notice of transfer or equivalent instrument, in recordable form,
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect the sale of the Mortgage to the Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage Loans secured by Mortgaged
Properties located in the same jurisdiction.
Authorized Newspaper: A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
BIF: The Bank Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Bank Insurance Fund is not existing and performing duties now
assigned to it, the body performing such duties on such date.
Billing Cycle: With respect to any Mortgage Loan and
Collection Period, the billing period specified in the related Credit Line
Agreement and with respect to which amounts billed are received during such
Collection Period.
Book-Entry Certificate: Any Investor Certificate registered in
the name of the Depository or its nominee, ownership of which is reflected on
the books of the Depository or on the books of a Person maintaining an account
with such Depository (directly or as an indirect participant in accordance with
the rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the State of New York or ___________
are required or authorized by law to be closed.
Certificate: An Investor Certificate or a Transferor
Certificate.
Certificate Owner: The Person who is the beneficial owner of a
Book-Entry Certificate.
Certificate Register and Certificate Registrar: The register
maintained and the registrar appointed pursuant to Section 6.02.
Certificateholder or Holder: The Person in whose name a
Certificate is registered in the Certificate Register, except that, solely for
the purpose of giving any consent, direction, waiver or request pursuant to this
Agreement, (x) any Investor Certificate registered in the name of the
Transferor, or any Person known to a Responsible Officer to be an Affiliate of
either the Depositor or the Transferor and (y) any Investor Certificate for
which the Transferor, or any Person known to a Responsible Officer to
2
<PAGE> 8
be an Affiliate of either such entity is the Certificate Owner shall be deemed
not to be outstanding (unless to the knowledge of a Responsible Officer (i) the
Transferor, or such Affiliate is acting as trustee or nominee for a Person who
is not an Affiliate of the Transferor and who makes the voting decision with
respect to such Investor Certificate or (ii) the Transferor, or such Affiliate
is the Certificate Owner of all the Investor Certificates) and the Percentage
Interest evidenced thereby shall not be taken into account in determining
whether the requisite amount of Percentage Interests necessary to effect any
such consent, direction, waiver or request has been obtained.
Closing Date: _______________, 199___.
Code: The Internal Revenue Code of 1986, as the same may be
amended from time to time (or any successor statute thereto).
Collection Account: The custodial account or accounts created
and maintained for the benefit of the Investor Certificateholders and the Credit
Enhancer pursuant to Section 3.02(b). The Collection Account shall be an
Eligible Account.
Collection Period: With respect to any Distribution Date
(other than the first Collection Period) and any Mortgage Loan, the calendar
month preceding such Distribution Date. With respect to the first Distribution
Date, the period from _______________, 199___ through _______________, 199___.
Combined Loan-to-Value Ratio: With respect to any Mortgage
Loan as of any date, the percentage equivalent of the fraction, the numerator of
which is the sum of (i) the Credit Limit and (ii) the outstanding principal
balance as of the date of execution of the related original Credit Line
Agreement (or any subsequent date as of which such outstanding principal balance
may be determined in connection with an increase in the Credit Limit for such
Mortgage Loan) of any mortgage loan or mortgage loans that are senior or equal
in priority to the Mortgage Loan and which is secured by the same Mortgaged
Property and the denominator of which is the Valuation of the related Mortgaged
Property.
Corporate Trust Office: The principal office of the Trustee at
which at any particular time its corporate business shall be administered, which
office on the Closing Date is located at __________________________________,
Attention: _________________.
Credit Enhancement Draw Amount: As to any Distribution Date,
an amount equal to the sum of (x) the amount by which the amount to be
distributed to Investor Certificateholders pursuant to Section 5.01(a)(iii)
exceeds the amount of Investor Interest Collections on deposit in the Collection
Account on the Business Day preceding such Distribution Date that is available
to be applied therefor and the sum of the amount if any deposited in the
Collection Account in respect of such Distribution Date pursuant to Section 4.05
and any amount transferred from the Spread Account to the Collection Account
pursuant to Section 4.03, (y) the Guaranteed Principal Distribution Amount and
(z) any Preference Claim for such Distribution Date.
Credit Enhancer: _______________________________, a
________________________ company, any successor thereto or any replacement
credit enhancer substituted pursuant to Section _____.
Credit Enhancer Default: The failure by the Credit Enhancer to
make a payment required under the Policy in accordance with the terms thereof.
3
<PAGE> 9
Credit Limit: As to any Mortgage Loan, the maximum Asset
Balance permitted under the terms of the related Credit Line Agreement.
Credit Limit Utilization Rate: As to any Mortgage Loan, the
percentage equivalent of a fraction the numerator of which is the Cut-off Date
Asset Balance for such Mortgage Loan and the denominator of which is the related
Credit Limit.
Credit Line Agreement: With respect to any Mortgage Loan, the
related credit line account agreement executed by the related Mortgagor and any
amendment or modification thereof.
Custodial Agreement: Any Custodial Agreement between any
Custodian and the Trustee, which is reasonably acceptable in form and substance
to the Credit Enhancer, relating to the custody of the Mortgage Loans and the
Related Documents.
Custodian: Any custodian appointed by the Trustee under a
Custodial Agreement to maintain all or a portion of the Mortgage Files pursuant
to Section 2.01(b).
Cut-off Date: ______________, 199___.
Cut-off Date Asset Balance: With respect to any Mortgage Loan,
the unpaid principal balance thereof as of the Cut-off Date.
Cut-off Date Pool Balance: The Pool Balance calculated as of
the Cut-off Date.
Defective Mortgage Loan: A Mortgage Loan subject to retransfer
pursuant to Section 2.02, 2.04 or 2.06.
Deficiency Amount: As defined in Section 5.01(d).
Definitive Certificates: As defined in Section 6.02(c).
Delivery Event: As defined in Section 2.01.
Depositor: Morgan Stanley ABS Capital I Inc. or its successor
in interest.
Depository: The initial Depository shall be The Depository
Trust Company, the nominee of which is Cede & Co., as the registered Holder of
Investor Certificates evidencing $______________ in initial aggregate principal
amount of the Investor Certificates. The Depository shall at all times be a
"clearing corporation" as defined in Section 8-102(3) of the UCC of the State of
New York.
Depository Participant: A broker, dealer, bank or other
financial institution or other Person for whom from time to time the Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
Determination Date: With respect to any Distribution Date, the
third Business Day prior to such Distribution Date.
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Distribution Date: The ________th day of each month, or if
such day is not a Business Day, then the next Business Day, beginning in the
month immediately following the month of the initial issuance of the
Certificates.
Draw: With respect to any Mortgage Loan, an additional
borrowing by the Mortgagor subsequent to the Cut-off Date in accordance with the
related Mortgage Note.
Due Date: As to any Mortgage Loan, the fifteenth day of the
month.
Electronic Ledger: The electronic master record of home equity
credit line mortgage loans maintained by the Master Servicer.
Eligible Account: (i) An account that is maintained with a
depository institution whose debt obligations [throughout] the time of any
deposit therein are rated in the highest short-term debt rating category by the
Rating Agencies, (ii) one or more accounts with a depository institution having
a minimum long-term unsecured debt rating of "_______" by ________________ and
"_____" by __________________, which accounts are fully insured by either SAIF
or BIF, (iii) a segregated trust account maintained with the Trustee or an
Affiliate of the Trustee in its fiduciary capacity, or (iv) an account otherwise
acceptable to each Rating Agency and the Credit Enhancer, as evidenced at
closing by delivery of a rating letter by each Rating Agency and thereafter by
delivery of a letter from each Rating Agency and the Credit Enhancer to the
Trustee, within 30 days of receipt of notice of such deposit, to reduce or
withdraw its then-current rating of the Certificates without regard to the
Policy.
Eligible Investments: (i) obligations of the United States or
any agency thereof, provided such obligations are backed by the full faith and
credit of the United States; (ii) general obligations of or obligations
guaranteed by any state of the United States or the District of Columbia
receiving the highest long-term debt rating of each Rating Agency rating the
related Series of Securities, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to the Certificates by
each such Rating Agency; (iii) commercial or finance company paper (including,
without limitation, commercial paper issued by Countrywide Home Loans, Inc. or
any of its Affiliates) which is then receiving the highest commercial or finance
company paper rating of each such Rating Agency, or such lower rating as will
not result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by each such Rating Agency; (iv) certificates of deposit, demand or
time deposits, or bankers' 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 long term
unsecured debt obligations of such depository institution or trust company (or
in the case of the principal depository institution in a holding company system,
the commercial paper or long-term unsecured debt obligations of such holding
company, but only if Moody's is not a Rating Agency) are then rated one of the
two highest long-term and the highest short-term ratings of each such Rating
Agency for such securities, or such lower ratings as will not result in the
downgrading or withdrawal of the rating then assigned to the Certificates by any
such Rating Agency; (iv) demand or time deposits or certificates of deposit
issued by any bank or trust company or savings institution to the extent that
such deposits are fully insured by the FDIC; (v) guaranteed reinvestment
agreements issued by any bank, insurance company or other corporation
containing, at the time of the issuance of such agreements, such terms and
conditions as will not result in the downgrading or withdrawal of the rating
then assigned to the Certificates by any such Rating Agency; (vi) repurchase
obligations with respect to any security described in clauses (i) and (ii)
above, in either case entered into with a depository institution or trust
company (acting as principal) described in clause (iv) above; (vii) securities
(other than stripped bonds, stripped coupons or instruments sold at
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a purchase price in excess of 115% of the face amount thereof) bearing interest
or sold at a discount issued by any corporation incorporated under the laws of
the United States or any state thereof which, at the time of such investment,
have one of the two highest ratings of each Rating Agency (except if the Rating
Agency is Moody's, such rating shall be the highest commercial paper rating of
Moody's for any such securities), or such lower rating as will not result in the
downgrading or withdrawal of the rating then assigned to the Certificates by any
such Rating Agency, as evidenced by a signed writing delivered by each such
Rating Agency; and (viii) such other investments having a specified stated
maturity and bearing interest or sold at a discount acceptable to each Rating
Agency as will not result in the downgrading or withdrawal of the rating then
assigned to the Securities of such Series by any such Rating Agency, as
evidenced by a signed writing delivered by each such Rating Agency; provided
that no such instrument shall be a Permitted Investment if such instrument
evidences the right to receive interest only payments with respect to the
obligations underlying such instrument.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted
by the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Asset Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Asset Balance), not ____ percent more or ____ percent less than the
Transfer Deficiency, if any, relating to such Defective Mortgage Loan; (ii) have
a Loan Rate not less than the Loan Rate of the Defective Mortgage Loan and not
more than ___% in excess of the Loan Rate of such Defective Mortgage Loan; (iii)
have a Loan Rate based on the same Index with adjustments to such Loan Rate made
on the same Interest Rate Adjustment Date as that of the Defective Mortgage
Loan; (iv) have a Gross Margin that is not less than the Gross Margin of the
Defective Mortgage Loan and not more than _____ basis points higher than the
Gross Margin for the Defective Mortgage Loan; (v) have a Mortgage of the same or
higher level of priority as the Mortgage relating to the Defective Mortgage Loan
at the time such Mortgage was transferred to the Trust; (vi) have a remaining
term to maturity not more than ____ months earlier and not more than _____
months later than the remaining term to maturity of the Defective Mortgage Loan;
(vii) comply with each representation and warranty set forth in Section 2.04
(deemed to be made as of the date of substitution); and (viii) have an original
Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan. More than one Eligible Substitute Mortgage Loan may be substituted for a
Defective Mortgage Loan if such Eligible Substitute Mortgage Loans meet the
foregoing attributes in the aggregate and such substitution is approved in
writing in advance by the Credit Enhancer.
Endorsement: As defined in the Policy.
ERISA: Employee Retirement Income Security Act of 1974, as
amended.
Event of Servicing Termination: As defined in Section 8.01.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
Fiscal Agent: As defined in the Policy.
Foreclosure Profit: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Asset Balance (plus accrued and unpaid
interest thereon at the applicable Loan Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
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Gross Margin: As to any Mortgage Loan, the percentage set
forth as the "Gross Margin" for such Mortgage Loan on Exhibit ___ hereto.
Guaranteed Distribution: With respect to any Distribution
Date, the sum of the (i) the Guaranteed Principal Distribution Amount and (ii)
the amount to be distributed to Certificateholders pursuant to Section
5.01(a)(iii) for such Distribution Date.
Guaranteed Principal Distribution Amount: With respect to any
Distribution Date, (i) on any such Distribution Date, other than the
Distribution Date in ___________ 20___, the amount, if any, required to reduce
the Investor Certificate Principal Balance (after giving effect to the
distributions of Interest Collections and Principal Collections that are
allocable to principal on the Investor Certificates on such Distribution Date)
to the Invested Amount immediately following such Distribution Date or (ii) on
the Distribution Date in _____________ 20___, the amount by which the
outstanding Investor Certificate Principal Balance (after giving effect to
Interest Collections allocable and distributable to principal on the Investor
Certificates on such Distribution Date) exceeds the sum of the amounts on
deposit in the Collection Account available to be distributed to the Investor
Certificateholders pursuant to Section 5.01(b) hereof.
Increased Senior Lien Limitation: As defined in Section
3.01(a).
Index: With respect to each Interest Rate Adjustment Date for
a Mortgage Loan, the highest Prime Rate as published in the "Money Rates" table
of The Wall Street Journal as of the first business day of the calendar month.
Insolvency Event: As defined in Section 11.02.
Insurance Agreement: The insurance and indemnity agreement
dated as of ____________, 19___ among the Depositor, the Master Servicer, the
Trustee and the Credit Enhancer, including any amendments and supplements
thereto.
Insurance Proceeds: Proceeds paid by any insurer (other than
the Credit Enhancer) pursuant to any insurance policy covering a Mortgage Loan,
or amounts required to be paid by the Master Servicer pursuant to the last
sentence of Section 3.04, net of any component thereof (i) covering any expenses
incurred by or on behalf of the Master Servicer in connection with obtaining
such proceeds, (ii) that is applied to the restoration or repair of the related
Mortgaged Property, (iii) released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures or (iv) required to be paid to any
holder of a mortgage senior to such Mortgage Loan.
Interest Collections: As to any Distribution Date, the sum of
all payments by or on behalf of Mortgagors and any other amounts constituting
interest (including without limitation such portion of Insurance Proceeds and
Net Liquidation Proceeds as is allocable to interest on the applicable Mortgage
Loan) collected by the Master Servicer under the Mortgage Loans (excluding any
fees (including annual fees) or late charges or similar administrative fees paid
by Mortgagors) during the related Collection Period minus the Servicing Fee
payable to the Master Servicer with respect to the related Collection Period.
The terms of the related Credit Line Agreement shall determine the portion of
each payment in respect of such Mortgage Loan that constitutes principal or
interest.
Interest Period: With respect to any Distribution Date other
than the first Distribution Date, the period beginning on the preceding
Distribution Date and ending on the day preceding such
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Distribution Date, and in the case of the first Distribution Date, the period
beginning on the Closing Date and ending on the day preceding the first
Distribution Date.
Interest Rate Adjustment Date: With respect to each Mortgage
Loan, any date on which the Loan Rate is adjusted in accordance with the related
Credit Line Agreement.
Intervening Assignments: As defined in Section 2.01.
Invested Amount: With respect to any Distribution Date, an
amount equal to the Original Invested Amount minus (i) the amount of Principal
Collections previously distributed to Investor Certificateholders and minus (ii)
the Investor Loss Amounts for prior Distribution Dates.
Investor Certificate: Any certificate executed and
authenticated by the Trustee substantially in the form set forth in Exhibit ___
hereto.
Investor Certificate Distribution Amount: As to any
Distribution Date, the sum of all amounts to be distributed to the Holders of
Investor Certificates pursuant to Article V and Article XI hereof.
Investor Certificate Interest: With respect to any
Distribution Date, interest for the related Interest Period at the applicable
Investor Certificate Rate on the Investor Certificate Principal Balance as of
the first day of such Interest Period (after giving effect to the distributions
made on the first day of such Interest Period).
Investor Certificate Principal Balance: With respect to any
Distribution Date, (a) the Original Investor Certificate Principal Balance less
(b) the aggregate of amounts actually distributed as principal on the Investor
Certificates.
Investor Certificate Rate: The sum of [(a) LIBOR as of the
second LIBOR Business Day prior to the immediately preceding Distribution Date
(or as of two LIBOR Business Days prior to the Closing Date, in the case of the
first Distribution Date) and (b) _____% per annum]; provided, however, that in
no event shall the Investor Certificate Rate with respect to any Interest Period
exceed the Maximum Rate for such Interest Period.
Investor Certificateholder: The Holder of an Investor
Certificate.
Investor Floating Allocation Percentage: With respect to any
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is the Invested Amount at the close of business on the preceding
Distribution Date (or at the Closing Date in the case of the first Distribution
Date) and the denominator of which is the Pool Balance, calculated as of the
beginning of the related Collection Period.
Investor Fixed Allocation Percentage: ____%.
Investor Interest Collections: As to any Distribution Date,
the product of (i) the Interest Collections during the related Collection Period
and (ii) the Investor Floating Allocation Percentage for such Distribution Date.
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Investor Loss Amount: With respect to any Distribution Date,
the amount equal to the product of (i) the Investor Floating Allocation
Percentage for such Distribution Date and (ii) the aggregate of the Liquidation
Loss Amounts for such Distribution Date.
Investor Loss Reduction Amount: With respect to any
Distribution Date, the portion, if any, of the Investor Loss Amount for such
Distribution Date and all prior Distribution Dates that has not been distributed
to Investor Certificateholders on such Distribution Date pursuant to Section
5.01(a)(iv) or 5.01(a)(v) or by way of the Credit Enhancement Draw Amount.
Investor Principal Collections: As to any Distribution Date,
the Investor Fixed Allocation Percentage of Principal Collections in respect of
such Distribution Date.
Investor Servicing Fee: With respect to any Distribution Date,
the product of (i) the Investor Floating Allocation Percentage for such
Distribution Date and (ii) the Servicing Fee for such Distribution Date.
[LIBOR: As to any date, the rate for United States dollar
deposits for one month which appear on the Telerate Screen LIBOR Page 3750 as of
11:00 A.M., London time. If such rate does not appear on such page (or such
other page as may replace that page on that service, or if such service is no
longer offered, such other service for displaying LIBOR or comparable rates as
may be reasonably selected by the Depositor after consultation with the
Trustee), the rate will be the Reference Bank Rate. If no such quotations can be
obtained and no Reference Bank Rate is available, LIBOR will be LIBOR applicable
to the preceding Distribution Date.]
[LIBOR Business Day: Any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the State of New York or
in the city of London, England are required or authorized by law to be closed.]
Lien: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes only)
or comparable law of any jurisdiction to evidence any of the foregoing;
provided, however, that any assignment pursuant to Section 7.02 hereof shall not
be deemed to constitute a Lien.
Lifetime Rate Cap: With respect to each Mortgage Loan with
respect to which the related Mortgage Note provides for a lifetime rate cap, the
maximum Loan Rate permitted over the life of such Mortgage Loan under the terms
of the related Credit Line Agreement, as set forth on Exhibit ___ hereto.
Liquidated Mortgage Loan: As to any Distribution Date, any
Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified herein, as of the end of the
related Collection Period, that all Liquidation Proceeds which it expects to
recover with respect to the disposition of such Mortgage Loan or the related REO
have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of
overhead) which are incurred by the Master Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any insurance policy,
including, without limitation, legal fees and expenses, any unreimbursed amount
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expended pursuant to Section 3.06 (including, without limitation, amounts
advanced to correct defaults on any mortgage loan which is senior to such
Mortgage Loan and amounts advanced to keep current or pay off a mortgage loan
that is senior to such Mortgage Loan) respecting the related Mortgage Loan and
any related and unreimbursed expenditures with respect to real estate property
taxes, water or sewer taxes, condominium association dues, property restoration
or preservation or insurance against casualty, loss or damage.
Liquidation Loss Amount: With respect to any Distribution Date
and any Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Asset Balance thereof at the end of such
Collection Period, after giving effect to the Net Liquidation Proceeds applied
in reduction of such Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds
but not including amounts drawn under the Policy) received in connection with
the liquidation of any Mortgage Loan or related REO, whether through trustee's
sale, foreclosure sale or otherwise.
Loan Rate: With respect to any Mortgage Loan and as of any
day, the per annum rate of interest applicable under the related Credit Line
Agreement to the calculation of interest for such day on the Asset Balance of
such Mortgage Loan.
Loan Rate Cap: With respect to each Mortgage Loan, the lesser
of (i) the Lifetime Rate Cap, if any, or (ii) the applicable state usury
ceiling, if any.
Managed Amortization Period: The period from the Closing Date
to and including the Rapid Amortization Commencement Date.
Master Servicer: [__________________________________] and any
successor thereto and any successor hereunder.
Maximum Principal Payment: With respect to any Distribution
Date, the Investor Fixed Allocation Percentage of the Principal Collections for
such Distribution Date.
Maximum Rate: As to any Interest Period, the Weighted Average
Net Loan Rate for the Collection Period during which such Interest Period begins
(adjusted to an effective rate reflecting accrued interest calculated on the
basis of the actual number of days in the Collection Period commencing in the
month in which such Interest Period commences and a year assumed to consist of
360 days).
Minimum Monthly Payment: With respect to any Mortgage Loan and
any month, the minimum amount required to be paid by the related Mortgagor in
that month.
Minimum Transferor Interest: With respect to any date, an
amount equal to the lesser of (a) ___% of the Pool Balance on such date and (b)
the Transferor Principal Balance as of the Closing Date.
Moody's: Moody's Investors Service, Inc. or its successor in
interest.
Mortgage: The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
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Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule
of Mortgage Loans included in the Trust on such date. The initial schedule of
Mortgage Loans as of the Cut-off Date is the schedule set forth herein as
Exhibit ___, which schedule sets forth as to each Mortgage Loan (i) the Cut-off
Date Asset Balance, (ii) the Credit Limit, (iii) the Gross Margin, (iv) the
Lifetime Rate Cap, (v) the account number, (vi) the current Loan Rate, (vii) the
Combined Loan-to-Value Ratio, (viii) a code specifying the property type, (ix) a
code specifying documentation type and (x) a code specifying lien position. The
Mortgage Loan Schedule will be deemed to be amended from time to time to reflect
Additional Balances.
Mortgage Loans: The mortgage loans, including Additional
Balances with respect thereto, that are transferred and assigned to the Trustee
pursuant to Section 2.01, together with the Related Documents, exclusive of
Mortgage Loans that are retransferred to the Depositor, the Master Servicer or
the Seller from time to time pursuant to Section 2.02, 2.04, [2.05], 2.06,
[2.09] or [3.01] as from time to time are held as a part of the Trust. The
mortgage loans originally so held are identified in the Mortgage Loan Schedule
delivered on the Closing Date. The Mortgage Loans shall also include any
Eligible Substitute Mortgage Loan Substituted by the Seller for a Defective
Mortgage Loan pursuant to Sections 2.02 and 2.04.
Mortgage Note: With respect to a Mortgage Loan, the Credit
Line Agreement pursuant to which the related mortgagor agrees to pay the
indebtedness evidenced thereby and secured by the related Mortgage.
Mortgaged Property: The underlying property, including any
real property and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Credit Line
Agreement.
Net Liquidation Proceeds: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and as to any
day, the Loan Rate less the Servicing Fee Rate, the Premium Fee Rate and the
Trustee Fee Rate.
Officer's Certificate: A certificate (i) signed by the
Chairman of the Board, the Vice Chairman of the Board, the President, a Managing
Director, a Vice President (however denominated), an Assistant Vice President,
the Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor, the Transferor or the Master Servicer, or (ii), if
provided for in this Agreement, signed by a Servicing Officer, as the case may
be, and delivered to the Depositor and the Trustee, as the case may be, as
required by this Agreement.
Opinion of Counsel: A written opinion of counsel acceptable to
the Trustee, who may be in-house counsel for the Depositor, the Seller, the
Master Servicer or the Transferor (except that any opinion pursuant to Section
7.04 or relating to taxation must be an opinion of independent outside counsel)
and who, in the case of opinions delivered to the Credit Enhancer and the Rating
Agency, is reasonably acceptable to it.
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Original Invested Amount: $_____________.
Original Investor Certificate Principal Balance:
$________________.
Overcollateralization Amount: At the time of reference
thereto, the amount, if any, by which the Invested Amount exceeds the Investor
Certificate Principal Balance.
Paying Agent: Any paying agent appointed pursuant to Section
6.06.
Percentage Interest: As to any Investor Certificate, the
percentage obtained by dividing the principal denomination of such Investor
Certificate by the aggregate of the principal denominations of all Investor
Certificates.
Person: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Policy: The financial guaranty insurance policy number
___________, and all endorsements thereto, dated as of the Closing Date, issued
by the Credit Enhancer to the Trustee for the benefit of the Investor
Certificateholders.
Policy Payments Account: As defined in Section 4.02.
Pool Balance: With respect to any date, the aggregate of the
Asset Balances of all Mortgage Loans as of such date.
Pool Factor: With respect to any Distribution Date, the
percentage, carried to seven places, obtained by dividing the Investor
Certificate Principal Balance for such Distribution Date by the Original
Investor Certificate Principal Balance.
Preference Claim: As defined in Section 4.02.
Premium Fee Rate: As described in the Insurance Agreement.
Principal Collections: As to any Distribution Date, the sum of
all payments by or on behalf of Mortgagors and any other amounts constituting
principal (including but not limited to any portion of Insurance Proceeds or Net
Liquidation Proceeds allocable to principal of the applicable Mortgage Loan, and
Transfer Deposit Amounts, but excluding Foreclosure Profits) collected by the
Master Servicer under the Mortgage Loans during the related Collection Period.
The terms of the related Credit Line Agreement shall determine the portion of
each payment in respect of a Mortgage Loan that constitutes principal or
interest.
Publication Date: As defined in Section 11.02(a).
Purchase Agreement: The Mortgage Loan Purchase Agreement,
dated as of the Cut-off Date, between [Countrywide Home Loans, Inc.], as seller,
and the Depositor, as purchaser, with respect to the Mortgage Loans.
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Rapid Amortization Commencement Date: The earlier of (i) the
Distribution Date in ____________ 200__ and (ii) the Distribution Date next
succeeding the Collection Period in which a Rapid Amortization Event is deemed
to occur pursuant to Section 11.01.
Rapid Amortization Event: As defined in Section 11.01.
Rapid Amortization Period: The period following the Managed
Amortization Period until the termination of the Trust pursuant to Section
10.01.
Rating Agency: Any statistical credit rating agency, or its
successor, that rated the Investor Certificates at the request of the Depositor
at the time of the initial issuance of the Certificates. If such agency or a
successor is no longer in existence, "Rating Agency" shall be such statistical
credit rating agency, or other comparable Person, designated by the Depositor
and the Credit Enhancer, notice of which designation shall be given to the
Trustee. References herein to the highest short term unsecured rating category
of a Rating Agency shall mean A-1+ or better in the case of ____________________
and P-1 or better in the case of _______________ and in the case of any other
Rating Agency shall mean the ratings such other Rating Agency deems equivalent
to the foregoing ratings. References herein to the highest long-term rating
category of a Rating Agency shall mean "AAA" in the case of ____________________
and "Aaa" in the case of _______________ and in the case of any other Rating
Agency, the rating such other Rating Agency deems equivalent to the foregoing
ratings.
Record Date: The last day preceding the related Distribution
Date; provided, however, that following the date on which Definitive
Certificates are available pursuant to Section 6.02(c) the Record Date shall be
the last day of the calendar month preceding the month in which the related
Distribution Date occurs.
Reference Bank Rate: As to any Interest Period as follows: the
arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth of
a percent) of the offered rates for United States dollar deposits for one month
which are offered by the Reference Banks as of _____ A.M., London time, on the
second LIBOR Business Day prior to the first day of such Interest Period to
prime banks in the London interbank market for a period of one month in amounts
approximately equal to the Outstanding Investor Certificate Principal Balance;
provided that at least two such Reference Banks provide such rate. If fewer than
two offered rates appear, the Reference Bank Rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by the
Depositor after consultation with the Trustee, as of _____ A.M., New York City
time, on such date for loans in U.S. Dollars to leading European Banks for a
period of one month in amounts approximately equal to the outstanding Investor
Certificate Principal Balance. If no such quotations can be obtained, the
Reference Bank Rate shall be the Reference Bank Rate applicable to the preceding
Interest Period.
Reference Banks: Three major banks that are engaged in the
London interbank market, selected by the Depositor after consultation with the
Trustee.
Related Documents: As defined in Section 2.01.
REO: A Mortgaged Property that is acquired by the Trust in
foreclosure or by deed in lieu of foreclosure.
Required Overcollateralization Amount: As defined in the
Insurance Agreement.
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Responsible Officer: When used with respect to the Trustee,
any officer of the Trustee with direct responsibility for the administration of
this Agreement and also, with respect to a particular matter, any other officer
to whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
Revolving Period: With respect to each Mortgage Loan, the
period specified for such Mortgage Loan in the related Credit Line Agreement,
during which the Mortgagor is permitted to make Draws.
SAIF: The Savings Association Insurance Fund, as from time to
time constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Scheduled Principal Collections Distribution Amount: With
respect to any Distribution Date during the Managed Amortization Period and the
Investor Certificates, an amount equal to the lesser of (i) the Maximum
Principal Payment and (ii) the Alternative Principal Payment. With respect to
any Distribution Date in respect of the Rapid Amortization Period, the Maximum
Principal Payment.
Seller: [_______________________________] and any successor
thereto.
Servicing Certificate: A certificate completed and executed by
a Servicing Officer in accordance with Section 4.01.
Servicing Fee: With respect to any Distribution Date, the
product of (i) the Servicing Fee Rate divided by 12 and (ii) the aggregate Asset
Balance of the Mortgage Loans on the first day of the Collection Period
preceding such Distribution Date (or at the Cut-off Date with respect to the
first Distribution Date).
Servicing Fee Rate: _____% per annum.
Servicing Officer: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Trustee (with a copy to the Credit Enhancer) by the Master
Servicer on the Closing Date, as such list may be amended from time to time.
Spread Account: The account created pursuant to Section 4.03
and maintained pursuant to the Insurance Agreement.
Spread Account Maximum: As defined in the Insurance Agreement.
Telerate Screen LIBO Page 3750: The display designated as page
3750 on the Telerate Service (or such other page as may replace page 3750 on
that service for the purpose of displaying London inter-bank offered rates of
major banks).
Transfer Date: As defined in Section 2.06.
Transfer Deficiency: As defined in Section 2.02.
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Transfer Deposit Amount: As defined in Section 2.02.
Transfer Notice Date: As defined in Section 2.06.
Transferor or Transferor Certificateholders: The Holders of
the Transferor Certificates.
Transferor Certificates: The certificates executed and
authenticated by the Trustee substantially in the form set forth in Exhibit ___
hereto.
Transferor Collections: As to any period, the sum of
Transferor Interest Collections and Transferor Principal Collections for such
period.
Transferor Interest Collections: Interest Collections that are
not Investor Interest Collections, reduced by the Transferor Servicing Fee.
Transferor Principal Balance: As of any date of determination,
the amount equal to (i) the Pool Balance at the end of the day next preceding
such date of determination less (ii) the Invested Amount as of the close of
business on the preceding Distribution Date.
Transferor Principal Collections: On any Distribution Date,
Principal Collections received during the related Collection Period minus the
amount of such Principal Collections required to be distributed to Investor
Certificateholders pursuant to Section 5.01(b).
Transferor Servicing Fee: With respect to any Distribution
Date, the Servicing Fee for such Distribution Date less the Investor Servicing
Fee for such Distribution Date.
Trust: The trust created by this Agreement, the corpus of
which consists of the Mortgage Loans, such other assets as shall from time to
time be identified as deposited in the Collection Account in accordance with
this Agreement, property that secured a Mortgage Loan and that has become REO,
the interest of the Depositor in certain hazard insurance policies maintained by
the Mortgagors or the Master Servicer in respect of the Mortgage Loans, the
Policy, an assignment of the Depositor's rights under the Purchase Agreement and
all proceeds of each of the foregoing (exclusive of payments of accrued interest
on the Mortgage Loans which are due on or prior to the Cut-off Date or due in
the month of ____________).
Trustee: ____________________________ or any successor Trustee
appointed in accordance with this Agreement that has accepted such appointment
in accordance with this Agreement.
Trustee Fee: A fee which is separately agreed to between the
Master Servicer and the Trustee.
Trustee Fee Rate: The per annum rate at which the Trustee Fee
is calculated.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
Unpaid Investor Certificate Interest Shortfall: With respect
to any Distribution Date, the aggregate amount, if any, of Investor Certificate
Interest that was accrued in respect of a prior Distribution Date and has not
been distributed to Investor Certificateholders.
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Valuation: With respect to any Mortgaged Property and time
referred to herein, the lesser of (i) the Appraised Value of the Mortgaged
Property and (ii) in the case of a Mortgaged Property purchased within one year
of the origination of the related Mortgage loan, the purchase price of the
Mortgaged Property.
Weighted Average Net Loan Rate: As to any Collection Period,
the average of the daily Net Loan Rate for each Mortgage Loan for each day
during the related Billing Cycle, weighted on the basis of the daily average of
the related Asset Balances outstanding for each day in such Billing Cycle for
each Mortgage Loan as determined by the Master Servicer in accordance with the
Master Servicer's normal servicing procedures.
Section 1.02. Interest Calculations. All calculations of
interest hereunder that are made in respect of the Asset Balance of a Mortgage
Loan shall be made on a daily basis using a 365-day year. All calculations of
interest on the Investor Certificates shall be made on the basis of the actual
number of days in an Interest Period and a year assumed to consist of 360 days.
The calculation of the Servicing Fee shall be made on the basis of a 360-day
year consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES;
TAX TREATMENT
Section 2.01. Conveyance of Mortgage Loans; Retention of
Obligation to Fund Advances Under Credit Line Agreements. The Depositor,
concurrently with the execution and delivery of this Agreement, does hereby
transfer, assign, set over and otherwise convey to the Trust without recourse
(subject to Sections 2.02 and 2.04) all of its right, title and interest in and
to (i) each Mortgage Loan, including its Asset Balance (including all Additional
Balances) and all collections in respect thereof received on or after the
Cut-off Date (excluding payments in respect of accrued interest due prior to the
Cut-off Date or due in the month of ____________); (ii) property that secured a
Mortgage Loan that is acquired by foreclosure or deed in lieu of foreclosure;
(iii) the Depositor's rights under the Purchase Agreement; (iv) [the Depositor's
rights under the hazard insurance policies,] (v) the Collection Account and the
[Security Account for the Certificates] (excluding net earnings thereon); (vi)
the Policy, (vii) the Spread Account and (viii) all other assets included or to
be included in the Trust for the benefit of Certificateholders; provided,
however, neither the Trustee nor the Trust assumes the obligation under any
Credit Line Agreement that provides for the funding of future advances to the
Mortgagor thereunder, and neither the Trust nor the Trustee shall be obligated
or permitted to fund any such future advances. Additional Balances shall be part
of the related Asset Balance and are hereby transferred to the Trust on the
Closing Date pursuant to this Section 2.01, and therefore part of the Trust
property. In addition, on or prior to the Closing Date, the Depositor shall
cause the Credit Enhancer to deliver the Policy to the Trustee for the benefit
of the Investor Certificateholders. The foregoing transfer, assignment, set-over
and conveyance to the Trust shall be made to the Trustee, on behalf of the
Trust, and each reference in this Agreement to such transfer, assignment,
set-over and conveyance shall be construed accordingly.
The Depositor agrees to take or cause to be taken such actions
and execute such documents (including without limitation the filing of all
necessary continuation statements for the UCC-1 financing statements filed in
the State of __________ (which shall have been filed within 90 days of the
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Closing Date) describing the Cut-off Date Asset Balances and Additional Balances
and naming the Depositor as debtor and the Trustee as secured party and any
amendments to UCC-1 financing statements required to reflect a change in the
name or corporate structure of the Depositor or the filing of any additional
UCC-1 financing statements due to the change in the principal office of the
Depositor (within 90 days of any event necessitating such filing) as are
necessary to perfect and protect the Certificateholders' and Credit Enhancer's
interests in each Cut-off Date Asset Balance and Additional Balances and the
proceeds thereof (other than maintaining possession by the Trustee of the
Mortgage Loans and the Mortgage Files, which possession will, subject to the
terms hereof, be maintained by the Master Servicer as custodian and bailee of
the Trustee).
In connection with such transfer and assignment by the
Depositor, the Master Servicer acknowledges that it is holding as custodian and
bailee for the Trustee the following documents or instruments (the "Related
Documents") with respect to each Mortgage Loan:
(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in
recordable form;
(iii) the original recorded Mortgage or, if, in
connection with any Mortgage Loan, the original recorded Mortgage with
evidence of recording thereon cannot be delivered on or prior to the
Closing Date because of a delay caused by the public recording office
where such original Mortgage has been delivered for recordation or
because such original Mortgage has been lost, the Seller, at the
direction of the Depositor, will deliver or cause to be delivered to
the Custodian, as agent for the Trustee, a true and correct copy of
such Mortgage, together with (i) in the case of a delay caused by the
public recording office, an Officer's Certificate of the Depositor
stating that such original Mortgage has been dispatched to the
appropriate public recording official or (ii) in the case of an
original Mortgage that has been lost, a certificate by the appropriate
county recording office where such Mortgage is recorded;
(iv) if applicable, the original intervening
assignments, if any ("Intervening Assignments"), with evidence of
recording thereon, showing a complete chain of title to the Mortgage
from the originator to the Depositor or, if any such original
Intervening Assignment has not been returned from the applicable
recording office or has been lost, a true and correct copy thereof,
together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Seller stating that such
original Intervening Assignment has been dispatched to the appropriate
public recording official for recordation or (ii) in the case of an
original Intervening Assignment that has been lost, a certificate by
the appropriate county recording office where such Mortgage is
recorded;
(v) either (1) for each Mortgage Loan with a Credit
Limit in excess of $_________, a title policy or (2) for all other
Mortgage Loans, either a title policy, a title search or guaranty of
title with respect to the related Mortgaged Property;
(vi) the original of any guaranty executed in
connection with the Mortgage Note;
(vii) the original of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loan; and
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(viii) any security agreement, chattel mortgage or
equivalent instrument executed in connection with the Mortgage;
provided, however, that as to any Mortgage Loan, if (a) as evidenced by an
Opinion of Counsel delivered to and in form and substance satisfactory to the
Trustee and the Credit Enhancer, (x) an optical image or other representation of
the related documents specified in clauses (i) through (viii) above are
enforceable in the relevant jurisdictions to the same extent as the original of
such document and (y) such optical image or other representation does not impair
the ability of an owner of such Mortgage Loan to transfer its interest in such
Mortgage Loan, and (b) the retention of such documents in such format will not
result in a reduction in the then current rating of the Investor Certificates,
without regard to the Policy, such optical image or other representation may be
held by the Master Servicer, as custodian for the Trustee or assignee in lieu of
the physical documents specified above.
The Depositor hereby confirms to the Trustee that it has
caused the portions of the Electronic Ledgers relating to the Mortgage Loans to
be clearly and unambiguously marked, and has made the appropriate entries in its
general accounting records, to indicate that such Mortgage Loans have been
transferred to the Trust at the direction of the Depositor. The Master Servicer
hereby confirms to the Trustee that it has clearly and unambiguously made
appropriate entries in its general accounting records indicating that such
Mortgage Loans constitute part of the Trust and are serviced by it on behalf of
the Trust in accordance with the terms hereof.
The parties hereto intend that the transaction set forth
herein be a sale by the Depositor to the Trust of all the Depositor's right,
title and interest in and to the Mortgage Loans and other property described
above. In the event the transaction set forth herein is deemed not to be a sale,
the Depositor hereby grants to the Trust a security interest in all of the
Depositor's right, title and interest in, to and under the Mortgage Loans
whether now existing or hereafter created, all monies due or to become due on
the Mortgage Loans and all proceeds of any thereof; and this Agreement shall
constitute a security agreement under applicable law.
Except as hereinafter provided, the Master Servicer shall be
entitled to maintain possession of all of the foregoing documents and
instruments and shall not be required to deliver any of them to the Trustee. In
the event, however, that possession of any of such documents or instruments is
required by any Person (including the Trustee) acting as successor servicer
pursuant to Section 7.04 or 8.02 in order to carry out the duties of Master
Servicer hereunder, then such successor shall be entitled to request delivery,
at the expense of the Master Servicer, of such documents or instruments by the
Master Servicer and to retain such documents or instruments for servicing
purposes; provided that the Trustee or such servicers shall maintain such
documents at such offices as may be required by any regulatory body having
jurisdiction over such Mortgage Loans.
The Master Servicer's right to maintain possession of the
documents enumerated above shall continue so long as the long term unsecured
debt of the Master Servicer is assigned ratings of at least "_______" by
__________________ and "_______" by _______________. At such time as the
condition specified in the preceding sentence is not satisfied, as promptly as
practicable but in no event more than 90 days in the case of clause (i) below
and 60 days in the case of clause (ii) below following the occurrence of such
event (a "Delivery Event"), the Master Servicer shall, at its expense, (i)
either (x) record an assignment of Mortgage in favor of the Trustee (which may
be a blanket assignment if permitted by applicable law) in the appropriate real
property or other records or (y) deliver to the Trustee the assignment of such
Mortgage in favor of the Trustee in form for recordation, together with an
Opinion of Counsel addressed to the Trustee and the Credit Enhancer to the
effect that recording is not
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required to protect the Trustee's right, title and interest in and to the
related Mortgage Loan or, in case a court should recharacterize the sale of the
Mortgage Loans as a financing, to perfect a first priority security interest in
favor of the Trustee in the related Mortgage Loan, which Opinion of Counsel also
shall be reasonably acceptable to each of the Rating Agencies (as evidenced in
writing) and the Credit Enhancer, and (ii) unless an Opinion of Counsel,
reasonably acceptable to the Trustee, the Rating Agencies (as evidenced in
writing) and the Credit Enhancer, is delivered to the Trustee and the Credit
Enhancer to the effect that delivery of the Mortgage Files is not necessary to
protect the Trustee's right, title and interest in the related Mortgage Loans;
provided that the lack of delivery will not result in a reduction in the then
current rating of the Investor Certificates, without regard to the Policy,
deliver the related Mortgage Files to the Trustee or to a custodian located in
the State of ____________ appointed by the Trustee and acceptable to the Rating
Agencies and the Credit Enhancer to be held by the Custodian on behalf of the
Trustee in trust, upon the terms herein set forth, for the use and benefit of
all present and future Certificateholders and the Custodian on behalf of the
Trustee shall retain possession thereof except to the extent the Master Servicer
requires any Mortgage Files for normal servicing as contemplated by Section
3.07. The Trustee is hereby appointed as the attorney-in-fact of the Master
Servicer with the power to prepare, execute and record Assignments of Mortgages
in the event that the Master Servicer fails to do so on a timely basis as
provided in this paragraph.
Within 90 days following delivery, if any, of the Mortgage
Files to the Trustee pursuant to the preceding paragraph, the Trustee shall
review each such Mortgage File to ascertain that all required documents set
forth in this Section 2.01 have been executed and received, and that such
documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule
and in so doing the Trustee may rely on the purported due execution and
genuineness of any signature thereon. If within such 90-day period the Trustee
finds any document constituting a part of a Mortgage File not to have been
executed or received or to be unrelated to the Mortgage Loans identified in said
Mortgage Loan Schedule or, if in the course of its review, the Trustee
determines that such Mortgage File is otherwise defective in any material
respect, the Trustee shall promptly upon the conclusion of its review notify the
Seller and the Credit Enhancer, and the Seller will have a period of 90 days
after such notice within which to correct or cure any such defect.
The Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In reviewing
any Mortgage File pursuant to this Section, the Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except, if applicable, to determine if the Trustee is the assignee or
endorsee), whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be, and, where applicable, that it purports
to be recorded.
Section 2.02. Acceptance by Trustee; Retransfer of Mortgage
Loans. (a) The Trustee hereby acknowledges its receipt of the Policy and the
Mortgage Loans, and declares that the Trustee holds and will hold such
instrument, and to the extent that any documents are delivered to it pursuant to
Section 2.01, will hold such documents, and all amounts received by it
thereunder and hereunder, in trust, upon the terms herein set forth, for the use
and benefit of all present and future Certificateholders and the Credit
Enhancer. If the time to cure any defect in respect of any Mortgage Loan of
which the Trustee has notified the Seller and the Depositor following the review
pursuant to Section 2.01 has expired or if at any time any loss is suffered by
the Trustee on behalf of the Certificateholders or the Credit Enhancer,
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in respect of any Mortgage Loan as a result of (i) a defect in any document
constituting a part of its Mortgage File or (ii) an Assignment of Mortgage to
the Trustee not having been recorded as required by Section 2.01, then on the
next succeeding Business Day upon the deposit to the Collection Account of the
Transfer Deposit Amount, if any, and upon satisfaction of the applicable
conditions described herein, all right, title and interest of the Trust in and
to such Mortgage Loan shall be deemed to be retransferred, reassigned and
otherwise reconveyed, without recourse, representation or warranty, to the
Seller on such Business Day and the Asset Balance of such Mortgage Loan shall be
deducted from the Pool Balance; provided, however, that interest accrued on the
Asset Balance of such Mortgage Loan to the end of the related Collection Period
shall be the property of the Trust. The Trustee shall determine if the reduction
of such Asset Balance from the Pool Balance in accordance with the preceding
sentence would cause the Transferor Principal Balance to be less than the
Minimum Transferor Interest ("Transfer Deficiency"), in which event the Trustee
shall deliver written notice of such deficiency to the Depositor and the Seller,
and within five Business Days after the Business Day of such retransfer the
Seller, pursuant to the Purchase Agreement, shall either (i) substitute an
Eligible Substitute Mortgage Loan or (ii) deposit into the Collection Account an
amount (the "Transfer Deposit Amount") in immediately available funds equal to
the Transfer Deficiency or a combination of both (i) and (ii) above. Such
reduction or substitution and the actual payment of any Transfer Deposit Amount,
if any, shall be deemed to be payment in full for such Mortgage Loan. Upon
receipt of any Eligible Substitute Mortgage Loan or of written notification
signed by a Servicing Officer to the effect that the Transfer Deposit Amount in
respect of a Defective Mortgage Loan has been deposited into the Collection
Account or, if the Transferor Principal Balance is not reduced below the Minimum
Transferor Interest as a result of the deemed retransfer of a Defective Mortgage
Loan, then as promptly as practicable following such deemed transfer, the
Trustee shall execute such documents and instruments of transfer presented by
the Seller, in each case without recourse, representation or warranty, and take
such other actions as shall reasonably be requested by the Seller to effect such
transfer by the Trust of such Defective Mortgage Loan pursuant to this Section.
It is understood and agreed that the obligation of the Seller to accept a
transfer of a Defective Mortgage Loan and to either convey an Eligible
Substitute Mortgage Loan or to make a deposit of any related Transfer Deposit
Amount into the Collection Account shall constitute the sole remedy respecting
such defect available to Certificateholders, the Trustee and the Credit Enhancer
against the Seller.
The Master Servicer, promptly following the transfer of a
Defective Mortgage Loan from or to the Trust pursuant to this Section, shall
amend the Mortgage Loan Schedule and make appropriate entries in its general
account records to reflect such transfer. The Master Servicer shall, following
such retransfer, appropriately mark its records to indicate that it is no longer
servicing such Mortgage Loan on behalf of the Trust. The [Seller], [Depositor]
promptly following such transfer, shall appropriately mark its Electronic Ledger
and make appropriate entries in its general account records to reflect such
transfer.
Notwithstanding any other provision of this Section, a
retransfer of a Defective Mortgage Loan to the Seller pursuant to this Section
that would cause the Transferor Principal Balance to be less than the Minimum
Transferor Interest shall not occur if either the Seller fails to convey an
Eligible Substitute Mortgage Loan or to deposit into the Collection Account any
related Transfer Deposit Amount required by this Section with respect to the
transfer of such Defective Mortgage Loan.
(b) As to any Eligible Substitute Mortgage Loan or Loans,
pursuant to the Purchase Agreement, the Seller shall, if a Delivery Event has
occurred, deliver to the Trustee with respect to such Eligible Substitute
Mortgage Loan or Loans such documents and agreements as are required to be held
by the Trustee in accordance with Section 2.01. For any Collection Period during
which the Seller substitutes one or more Eligible Substitute Mortgage Loans, the
Master Servicer shall determine the
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Transfer Deposit Amount which amount shall be deposited by the Seller in the
Collection Account at the time of substitution. All amounts received in respect
of the Eligible Substitute Mortgage Loan or Loans during the Collection Period
in which the circumstances giving rise to such substitution occur shall not be a
part of the Trust Fund and shall not be deposited by the Master Servicer in the
Collection Account. All amounts received by the Master Servicer during the
Collection Period in which the circumstances giving rise to such substitution
occur in respect of any Defective Mortgage Loan so removed by the Trust Fund
shall be deposited by the Master Servicer in the Collection Account. Upon such
substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to
the terms of this Agreement in all respects, and pursuant to the Purchase
Agreement, the Seller shall be deemed to have made with respect to such Eligible
Substitute Mortgage Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 2.04. The
procedures applied by the Seller in selecting each Eligible Substitute Mortgage
Loan shall not be materially adverse to the interests of the Trustee, the
Certificateholders and the Credit Enhancer.
Section 2.03. Representations and Warranties Regarding the
Master Servicer. The Master Servicer represents and warrants to the Trustee and
the Credit Enhancer that as of the Closing Date:
(i) The Master Servicer is a ______________
corporation, validly existing and in good standing under the laws of
the State of _________________, and has the corporate power to own its
assets and to transact the business in which it is currently engaged.
The Master Servicer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
character of the business transacted by it or any properties owned or
leased by it requires such qualification and in which the failure so to
qualify would have a material adverse effect on the business,
properties, assets, or condition (financial or other) of the Master
Servicer;
(ii) The Master Servicer has the power and authority
to make, execute, deliver and perform this Agreement and all of the
transactions contemplated under the Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of this Agreement. When executed and delivered, this
Agreement will constitute the valid and binding obligation of the
Master Servicer enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies;
(iii) The Master Servicer is not required to obtain
the consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement, except for such consent, license, approval or authorization,
or registration or declaration, as shall have been obtained or filed,
as the case may be, prior to the Closing Date;
(iv) The execution, delivery and performance of this
Agreement by the Master Servicer will not violate any provision of any
existing law or regulation or any order or decree of any court
applicable to the Master Servicer or any provision of the Certificate
of Incorporation or Bylaws of the Master Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement
to which the Master Servicer is a party or by which the Master Servicer
may be bound; and
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(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Master Servicer threatened, against the
Master Servicer or any of its properties or with respect to this
Agreement or the Certificates which in the opinion of the Master
Servicer has a reasonable likelihood of resulting in a material adverse
effect on the transactions contemplated by this Agreement.
The representations and warranties set forth in this Section shall survive the
sale and assignment of the Mortgage Loans to the Trust. Upon discovery of a
breach of any representations and warranties which materially and adversely
affects the interests of the Certificateholders or the Credit Enhancer, the
person discovering such breach shall give prompt written notice to the other
parties and to the Credit Enhancer. Within 90 days of its discovery or its
receipt of notice of breach, or, with the prior written consent of a Responsible
Officer of the Trustee, such longer period specified in such consent, the Master
Servicer shall cure such breach in all material respects.
Section 2.04. Representations and Warranties of the Seller
Regarding the Mortgage Loans; Retransfer of Certain Mortgage Loans. Pursuant to
the Purchase Agreement, the Seller has represented and warranted to the Trustee
and the Credit Enhancer that as of the Cut-off Date, unless otherwise
specifically set forth herein:
(i) As of the Closing Date, this Agreement constitutes a
legal, valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect affecting
the enforcement of creditors' rights generally and by the availability
of equitable remedies;
(ii) As of the Closing Date with respect to the Mortgage Loans
and as of the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, either (A) the Purchase Agreement constitutes
a valid transfer and assignment to the Depositor of all right, title
and interest of the Seller in and to the Cut-off Date Asset Balances
with respect to the applicable Mortgage Loans, all monies due or to
become due with respect thereto (excluding payments in respect of
accrued interest due prior to the Cut-off Date or due in the month of
_________), and all proceeds of such Cut-off Date Asset Balances with
respect to the Mortgage Loans and such funds as are from time to time
deposited in the Collection Account (excluding any investment earnings
thereon) and all other property specified in the definition of "Asset"
as being part of the corpus of the Trust conveyed to the Trust by the
Seller, and upon payment for the Additional Balances, will constitute a
valid transfer and assignment to the Trustee of all right, title and
interest of the Seller in and to the Additional Balances, all monies
due or to become due with respect thereto, and all proceeds of such
Additional Balances and all other property specified in the definition
of "Asset" relating to the Additional Balances or (B) the Purchase
Agreement constitutes a grant of a security interest (as defined in the
UCC as in effect in ____________) in such property to the Trustee on
behalf of the Trust. [If the Purchase Agreement constitutes the grant
of a security interest to the Trust in such property, and if the
Trustee obtains and maintains possession of the Mortgage File for each
Mortgage Loan, the Trust shall have a first priority perfected security
interest in such property, subject to the effect of Section 9-306 of
the UCC with respect to collections on the Mortgage Loans that are
deposited in the Collection Account in accordance with the next to last
paragraph of Section 3.02(b)]; provided, however, that nothing in this
clause (ii) shall be construed to obligate the Master Servicer to
deliver any Mortgage Files other than as set forth in Section 2.01
hereof;
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(iii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan and as of the date any Additional Balance is
created, the information set forth in the Mortgage Loan Schedule for
such Mortgage Loans is true and correct in all material respects;
(iv) The applicable Cut-off Date Asset Balance has not been
assigned or pledged, and the Seller is the sole owner and holder of
such Cut-off Date Asset Balance free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of the applicable Mortgage Loan, to
sell, assign or transfer the same pursuant to the Purchase Agreement;
(v) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, the related Mortgage Note and the Mortgage
with respect to each Mortgage Loan have not been assigned or pledged,
and the Seller is the sole owner and holder of the Mortgage Loan free
and clear of any and all liens, claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any
nature, and has full right and authority, under all governmental and
regulatory bodies having jurisdiction over the ownership of the
applicable Mortgage Loans, to sell and assign the same pursuant to the
Purchase Agreement;
(vi) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, the related Mortgage is a valid and
subsisting first or second lien, as set forth on the Mortgage Loan
Schedule with respect to each related Mortgage Loan, on the property
therein described, and as of the applicable Cut-off Date the related
Mortgaged Property is free and clear of all encumbrances and liens
having priority over the first or second lien, as applicable, of such
Mortgage except for liens for (i) real estate taxes and special
assessments not yet delinquent; (ii) any first mortgage loan secured by
such Mortgaged Property and specified on the Mortgage Loan Schedule;
(iii) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording that are
acceptable to mortgage lending institutions generally; and (iv) other
matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage;
(vii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, there is no valid offset, defense or
counterclaim of any obligor under any Credit Line Agreement or
Mortgage;
(viii) To the best knowledge of the Seller, as of the Closing
Date with respect to the Mortgage Loans and the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loan, there is no
delinquent recording or other tax or fee or assessment lien against any
related Mortgaged Property;
(ix) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, there is no proceeding pending or, to the
best knowledge of the Seller, threatened for the total or partial
condemnation of the related Mortgaged Property, and such property is
free of material damage;
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(x) To the best knowledge of the Seller, as of the Closing
Date with respect to the Mortgage Loans and the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loan, there are
no mechanics' or similar liens or claims which have been filed for
work, labor or material affecting the related Mortgaged Property which
are, or may be, liens prior or equal to the lien of the related
Mortgage, except liens which are fully insured against by the title
insurance policy referred to in clause (xiv);
(xi) No Minimum Monthly Payment is more than 89 days
delinquent (measured on a contractual basis); and with respect to the
Mortgage Loans no more than _____% (by Cut-off Date Pool Balance) were
30-59 days delinquent (measured on a contractual basis) and no more
than _____% (by Cut-off Date Pool Balance) were 60-89 days delinquent
(measured on a contractual basis);
(xii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, for each Mortgage Loan, the related Mortgage
File contains each of the documents and instruments specified to be
included therein;
(xiii) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan;
(xiv) Either a lender's title insurance policy or binder was
issued on the date of origination of the Mortgage Loan and each such
policy is valid and remains in full force and effect, or a title search
or guaranty of title customary in the relevant jurisdiction was
obtained with respect to a Mortgage Loan as to which no title insurance
policy or binder was issued;
(xv) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, none of the Mortgaged Properties is a mobile
home or a manufactured housing unit that is not considered or
classified as part of the real estate under the laws of the
jurisdiction in which it is located;
(xvi) As of the Cut-off Date for the Mortgage Loans no more
than _____% of such Mortgage Loans, by aggregate principal balance, are
secured by Mortgaged Properties located in one United States postal zip
code;
(xvii) The Combined Loan-to-Value Ratio for each Mortgage Loan
was not in excess of 100%;
(xviii) No selection procedure reasonably believed by the
Seller to be adverse to the interests of the Certificateholders or the
Credit Enhancer was utilized in selecting the Mortgage Loans;
(xix) The Seller has not transferred the Mortgage Loans to the
Trust with any intent to hinder, delay or defraud any of its creditors;
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(xx) The Minimum Monthly Payment with respect to any Mortgage
Loan is not less than the interest accrued at the applicable Loan Rate
on the average daily Asset Balance during the interest period relating
to the date on which such Minimum Monthly Payment is due;
(xxi) Within 90 days of the Closing Date with respect to the
Mortgage Loans and, to the extent not already included in such filing
with respect to the Mortgage Loans, the applicable Transfer Date with
respect to any Eligible Substitute Mortgage Loan, the Seller will file
UCC-1 financing statements with respect to the Mortgage Loans;
(xxii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, each Credit Line Agreement and each Mortgage
Loan is an enforceable obligation of the related Mortgagor, except as
the enforceability thereof may be limited by the bankruptcy, insolvency
or similar laws affecting creditors' rights generally;
(xxiii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, the Seller has not received a notice of
default of any senior mortgage loan related to a Mortgaged Property
that has not been cured by a party other than the Master Servicer;
(xxiv) The definition of Prime Rate in each Credit Line
Agreement relating to a Mortgage Loan does not differ materially from
the definition in the form of Credit Line Agreement in Exhibit ____;
(xxv) The weighted average remaining term to maturity of the
Mortgage Loans on a contractual basis as of the Cut-off Date for the
Mortgage Loans is approximately ___ months. On each date that the Loan
Rates have been adjusted, interest rate adjustments on the Mortgage
Loans were made in compliance with the related Mortgage and Mortgage
Note and applicable law. Over the term of each Mortgage Loan, the Loan
Rate may not exceed the related Loan Rate Cap, if any. The Loan Rate
Caps range between ____% and ____%. The Margins range between ____% and
____% and the weighted average Margin is approximately ____% as of the
Cut-off Date for the Mortgage Loans. The Loan Rates on such Mortgage
Loans range between ____% and _____% and the weighted average Loan Rate
is approximately _____%.
(xxvi) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, each Mortgaged Property consists of a single
parcel of real property with a one-to-four unit single family residence
erected thereon, or an individual condominium unit, planned unit
development unit or townhouse;
(xxvii) No more than _____% (by Cut-off Date Pool Balance) of
the Mortgage Loans are secured by real property improved by individual
condominium units, planned development units, townhouses or two-to-four
family residences erected thereon, and at least _____% (by Cut-off Date
Pool Balance) of the Mortgage Loans are secured by real property with a
detached one-family residence erected thereon;
(xxviii) The Credit Limits on the Mortgage Loans range between
$________ and $__________ with an average of $_________. As of the
Cut-off Date for the Mortgage Loans, no Mortgage Loan had a principal
balance in excess of approximately $__________ and the average
principal balance of the Mortgage Loans is equal to approximately
$_________; and
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(xxix) Approximately ____% and _____% of the Mortgage Loans,
by aggregate principal balance as of the Cut-off Date for the Mortgage
Loans, are first and second liens, respectively.
With respect to the representations and warranties set forth
in this Section 2.04 that have been made to the best of the Seller's knowledge
or as to which the Seller has no knowledge, if it is discovered by the Seller,
the Depositor, the Master Servicer or a Responsible Officer of the Trustee that
the substance of such representation and warranty is inaccurate and such
inaccuracy materially and adversely affects the value of the related Mortgage
Loan then, notwithstanding the Seller's lack of knowledge with respect to the
substance of such representation and warranty being inaccurate at the time the
representation or warranty was made, the Purchase Agreement will provide that
such inaccuracy shall be deemed a breach of the applicable representation or
warranty.
(b) It is understood and agreed that the representations and
warranties described in this Section 2.04 will survive delivery of the
respective Mortgage Files to the Trustee pursuant to Section 2.01 and the
termination of the rights and obligations of the Master Servicer pursuant to
Section 7.04 or 8.02. Upon discovery by the Seller, the Depositor, the Master
Servicer, the Credit Enhancer or a Responsible Officer of the Trustee of a
breach of any of the foregoing representations and warranties (other than the
representation and warranty set forth in Section 2.04(a)(iv) above), without
regard to any limitation set forth therein concerning the knowledge of the
Seller as to the facts stated therein, which materially and adversely affects
the interests of the Trust or the Investor Certificateholders or the Credit
Enhancer in the related Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties and the Credit Enhancer. Within
90 days of its discovery or its receipt of notice of such breach, the Seller
pursuant to the Purchase Agreement shall use all reasonable efforts to cure such
breach in all material respects or shall, not later than the Business Day next
preceding the Distribution Date in the month following the Collection Period in
which any such cure period expired (or such later date that is acceptable to the
Trustee and the Credit Enhancer as evidenced by their written consents), either
(a) accept a transfer of such Mortgage Loan from the Trust or (b) substitute an
Eligible Substitute Mortgage Loan in the same manner and subject to the same
conditions as set forth in Section 2.02; provided, however, that the cure for
any breach of a representation and warranty relating to the characteristics of
the Mortgage Loans in the aggregate shall be a repurchase of or substitution for
only the Mortgage Loans necessary to cause such characteristics to be in
compliance with the related representation and warranty. Upon accepting such
transfer and making any required deposit into the Collection Account or
substitution of an Eligible Substitute Mortgage Loan, as the case may be, the
Seller shall be entitled to receive an instrument of assignment or transfer from
the Trustee to the same extent as set forth in Section 2.02 with respect to the
transfer of Mortgage Loans under that Section.
It is understood and agreed that the obligation of the Seller
to accept a transfer of a Mortgage Loan as to which a breach has occurred and is
continuing and to make any required deposit in the Collection Account or to
substitute an Eligible Substitute Mortgage Loan, as the case may be, shall
constitute the sole remedy against the Seller respecting such breach available
to Investor Certificateholders, the Trustee on behalf of Investor
Certificateholders and the Credit Enhancer; provided, however, that the Seller
shall defend and indemnify the Trustee, the Credit Enhancer and the Investor
Certificateholders against all reasonable costs and expenses, and all losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and the amount of any settlement entered into with the consent of the
Seller (such consent not to be unreasonably withheld), which may be asserted
against or incurred by any of them as a result of any third-party action arising
out of any breach of any such representation and warranty. Notwithstanding the
foregoing, with regard to any breach of the representation and warranty set
forth in Section 2.04(a)(iv), the sale and assignment of the affected
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Mortgage Loans to the Trust shall be deemed void and the Seller pursuant to the
Purchase Agreement shall pay to the Trust the sum of (i) the amount of the
related Asset Balances, plus unpaid accrued interest on each such Asset Balance
at the applicable Loan Rate to the date of payment and (ii) the amount of any
loss suffered by Certificateholders or the Credit Enhancer with respect to the
affected Mortgage Loans.
Section 2.05. Covenants of the Depositor. The Depositor
hereby covenants that:
(a) Security Interests. Except for the transfer hereunder, the
Depositor will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien on any Mortgage Loan,
whether now existing or hereafter created, or any interest therein; the
Depositor will notify the Trustee of the existence of any Lien on any Mortgage
Loan immediately upon discovery thereof; and the Depositor will defend the
right, title and interest of the Trust in, to and under the Mortgage Loans,
whether now existing or hereafter created, against all claims of third parties
claiming through or under the Depositor; provided, however, that nothing in this
Section 2.05(a) shall prevent or be deemed to prohibit the Depositor from
suffering to exist upon any of the Mortgage Loans any Liens for municipal or
other local taxes and other governmental charges if such taxes or governmental
charges shall not at the time be due and payable or if the Depositor shall
currently be contesting the validity thereof in good faith by appropriate
proceedings and shall have set aside on its books adequate reserves with respect
thereto.
(b) Negative Pledge. The Depositor hereby agrees not to
transfer, assign, exchange, pledge, finance, hypothecate, grant a security
interest in or otherwise convey the Transferor Certificates except in accordance
with Sections 6.05 and 7.02.
(c) Additional Indebtedness. So long as the Investor
Certificates are outstanding the Depositor will not incur any debt other than
debt that (i) is non-recourse to the assets of the Depositor other than the
Mortgage Loans specifically pledged as security for such debt, or (ii) is
subordinated in right of payment to the rights of the Investor
Certificateholders or (iii) is assigned a rating by each of the Rating Agencies
that is the same as the then current rating of the Investor Certificates.
(d) Downgrading. The Depositor will not engage in any activity
which would result in a downgrading of the Investor Certificates.
(e) Amendment to Certificate of Incorporation. The Depositor
will not amend its Certificate of Incorporation without prior written notice to
the Rating Agencies and the Credit Enhancer.
(f) Principal Place of Business. The Depositor's principal
place of business is in California and it will not change its principal place of
business without prior written notice to the Rating Agencies.
Section 2.06. Retransfers of Mortgage Loans at Election of
Transferor. Subject to the conditions set forth below, the Transferor may, but
shall not be obligated to, require the retransfer of Mortgage Loans from the
Trust to the Seller as of the close of business on a Distribution Date (the
"Transfer Date"). On the fifth Business Day (the "Transfer Notice Date") prior
to the Transfer Date designated in such notice, the Transferor shall give the
Trustee and the Master Servicer a notice of the proposed retransfer that
contains a list of the Mortgage Loans to be retransferred. Such retransfers of
Mortgage Loans shall be permitted upon satisfaction of the following conditions:
(i) No Rapid Amortization Event has occurred;
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(ii) On the Transfer Notice Date the Transferor
Principal Balance (after giving effect to the removal from the Trust of
the Mortgage Loans proposed to be retransferred) is at least equal to
the Minimum Transferor Interest;
(iii) The transfer of any Mortgage Loans on any
Transfer Date during the Managed Amortization Period shall not, in the
reasonable belief of the Transferor, cause a Rapid Amortization Event
to occur or an event which with notice or lapse of time or both would
constitute a Rapid Amortization Event;
(iv) On or before the Transfer Date, the Transferor
shall have delivered to the Trustee a revised Mortgage Loan Schedule,
reflecting the proposed transfer and the Transfer Date, and the Master
Servicer shall have marked the Electronic Ledger to show that the
Mortgages Loans transferred to the Transferor are no longer owned by
the Trust;
(v) The Transferor shall represent and warrant that
no selection procedures reasonably believed by the Transferor to be
adverse to the interests of the Investor Certificateholders or the
Credit Enhancer were utilized in selecting the Mortgage Loans to be
removed from the Trust;
(vi) In connection with first retransfer of Mortgage
Loans pursuant to this Section, each Rating Agency shall have received
on or prior to the related Transfer Notice Date notice of such proposed
retransfer of Mortgage Loans and, prior to the Transfer Date, shall
have notified the Trustee in writing that such retransfer of Mortgage
Loans would not result in a reduction or withdrawal of its then current
rating of the Investor Certificates without regard to the Policy;
(vii) The Transferor shall have delivered to the
Trustee and the Credit Enhancer an Officer's Certificate certifying
that the items set forth in subparagraphs (i) through (vi), inclusive,
have been performed or are true and correct, as the case may be. The
Trustee may conclusively rely on such Officer's Certificate, shall have
no duty to make inquiries with regard to the matters set forth therein
and shall incur no liability in so relying.
Upon receiving the requisite information from the Transferor, the Master
Servicer shall perform in a timely manner those acts required of it, as
specified above. Upon satisfaction of the above conditions, on the Transfer Date
the Trustee shall deliver, or cause to be delivered, to the Transferor the
Mortgage File for each Mortgage Loan being so transferred, and the Trustee shall
execute and deliver to the Transferor such other documents prepared by the
Transferor as shall be reasonably necessary to transfer such Mortgage Loans to
the Transferor. Any such transfer of the Trust's right, title and interest in
and to Mortgage Loans shall be without recourse, representation or warranty by
or of the Trustee or the Trust to the Transferor.
Section 2.07. Execution and Authentication of Certificates.
The Trustee, on behalf of the Trust, has caused to be executed, authenticated
and delivered to or upon the order of the Depositor, in exchange for the Trust,
concurrently with the sale, assignment and conveyance to the Trustee of the
Trust, Investor Certificates in authorized denominations and the Transferor
Certificates, together evidencing the ownership of the entire Trust.
Section 2.08. Tax Treatment. It is the intention of the
Depositor, the Transferor and the Investor Certificateholders that the Investor
Certificates will be indebtedness of the Transferor for
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federal, state and local income and franchise tax purposes and for purposes of
any other tax imposed on or measured by income. The Transferor, the Depositor,
the Trustee and each Investor Certificateholder (or Certificate Owner) by
acceptance of its Investor Certificate (or, in the case of a Certificate Owner,
by virtue of such Certificate Owner's acquisition of a beneficial interest
therein) agrees to treat the Investor Certificates (or beneficial interest
therein), for purposes of federal, state and local income or franchise taxes and
any other tax imposed on or measured by income, as indebtedness of the
Transferor secured by the assets of the Trust and to report the transactions
contemplated by this Agreement on all applicable tax returns in a manner
consistent with such treatment. Each Investor Certificateholder agrees that it
will cause any Certificate Owner acquiring an interest in an Investor
Certificate through it to comply with this Agreement as to treatment of the
Investor Certificates as indebtedness for federal, state and local income and
franchise tax purposes and for purposes of any other tax imposed on or measured
by income. The Trustee will prepare and file all tax reports required hereunder.
Section 2.09. Representations and Warranties of the Depositor.
The Depositor represents and warrants to the Trustee on behalf of the
Certificateholders and the Credit Enhancer as follows:
(i) This Agreement constitutes a valid and binding
obligation of the Depositor, enforceable against the Depositor in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be
limited by general principles of equity (whether considered in a
proceeding at law or in equity);
(ii) Immediately prior to the sale and assignment by
the Depositor to the Trustee of each Mortgage Loan, the Depositor was
the sole beneficial owner of each Mortgage Loan (insofar as such title
was conveyed to it by the Seller) subject to no prior lien, claim,
participation interest, mortgage, security interest, pledge, charge or
other encumbrance or other interest of any nature;
(iii) As of the Closing Date, the Depositor has
transferred all right, title and interest in the Mortgage Loans to the
Trustee; and
(iv) The Depositor has not transferred the Mortgage
Loans to the Trustee with any intent to hinder, delay or defraud any of
its creditors.
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. The Master Servicer. (a) The Master Servicer
shall service and administer the Mortgage Loans in a manner consistent with the
terms of this Agreement and with general industry practice and shall have full
power and authority, acting alone or through a subservicer, to do any and all
things in connection with such servicing and administration which it may deem
necessary or desirable, it being understood, however, that the Master Servicer
shall at all times remain responsible to the Trustee, the Certificateholders and
the Credit Enhancer for the performance of its duties and obligations hereunder
in accordance with the terms hereof. Any amounts received by any subservicer in
respect of a Mortgage Loan shall be deemed to have been received by the Master
Servicer whether or not actually received by it. Without limiting the generality
of the foregoing, the Master Servicer shall continue, and
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is hereby authorized and empowered by the Trustee, to execute and deliver, on
behalf of itself, the Certificateholders and the Trustee, or any of them, any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Mortgage Loans and with respect to the Mortgaged Properties. The Trustee shall,
upon the written request of a Servicing Officer, furnish the Master Servicer
with any powers of attorney and other documents necessary or appropriate to
enable the Master Servicer to carry out its servicing and administrative duties
hereunder. The Master Servicer in such capacity may also consent to the placing
of a lien senior to that of any Mortgage on the related Mortgaged Property,
provided that
(x) such Mortgage succeeded to a first lien position
after the related Mortgage Loan was conveyed to the Trust and,
immediately following the placement of such senior lien, such
Mortgage is in a second lien position and the outstanding
principal amount of the mortgage loan secured by such
subsequent senior lien is no greater than the outstanding
principal amount of the senior mortgage loan secured by the
Mortgaged Property as of the date the related Mortgage Loan
was originated; or
(y) the Mortgage relating to such Mortgage Loan was
in a second lien position as of the Cut-off Date and the new
senior lien secures a mortgage loan that refinances an
existing first mortgage loan and the outstanding principal
amount of the replacement first mortgage loan immediately
following such refinancing is not greater than the outstanding
principal amount of such existing first mortgage loan at the
date of origination of such Mortgage Loan;
provided, further, that such senior lien does not secure a note that provides
for negative amortization. Notwithstanding the foregoing, the Master Servicer
can consent to the placing of liens senior to that of a Mortgage on the related
Mortgaged Property which have a principal balance in excess of the principal
balance of the senior lien it replaces on Mortgage Loans having in the aggregate
Asset Balances not in excess of ___% of the Cut-off Date Pool Balance; provided,
however, that, with respect to Mortgage Loans which as of the Cut-off Date had
combined Loan-to-Value Ratios in excess of ___%, the aggregate Asset Balance of
such Mortgage Loans with respect to which the senior lien may be so modified
shall not exceed _____% of the Cut-off Date Pool Balance (such ___% and _____%
herein referred to as the "Increased Senior Lien Limitation"). Any such increase
to the principal balance of the senior lien shall not exceed the greater of
$_______ and _____% of the principal balance of the senior lien prior to such
increase.
The Master Servicer may also, without prior approval from the
Rating Agencies or the Credit Enhancer, increase the Credit Limits on Mortgage
Loans provided that (i) new appraisals are obtained and the Combined
Loan-to-Value Ratios of the Mortgage Loans after giving effect to such increase
are less than or equal to the Combined Loan-to-Value Ratios or the Mortgage
Loans as of the Cut-off Date and (ii) such increases are consistent with the
Master Servicer's underwriting policies. In addition, the Master Servicer may
increase the Credit Limits on Mortgage Loans having aggregate balances of up to
____% of the aggregate Cut-off Date Pool Balance, without obtaining new
appraisals provided that (i) the increase in the Credit Limit does not cause the
Combined Loan-to-Value Ratios of the Mortgage Loans to exceed _____% and (ii)
the increase is consistent with the Master Servicer's underwriting policies.
Furthermore, the Master Servicer may, without prior approval
from the Rating Agencies and the Credit Enhancer solicit Mortgagors for a
reduction in Loan Rates; provided that the Master Servicer can only reduce such
Loan Rates on up to ____% of the Mortgage Loans by Cut-off Date Pool
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Balance. Any such solicitations shall not result in a reduction in the weighted
average Gross Margin of the Mortgage Loans in the pool by more than ____ basis
points taking into account any such prior reductions.
In addition, the Master Servicer may agree to changes in the
terms of a Mortgage Loan at the request of the Mortgagor provided that such
changes (i) do not materially and adversely affect the interests of
Certificateholders or the Credit Enhancer and (ii) are consistent with prudent
and customary business practice as evidenced by a certificate signed by a
Servicing Officer delivered to the Trustee and the Credit Enhancer.
In addition to the foregoing, the Master Servicer may solicit
Mortgagors to change any other terms of the related Mortgage Loans, provided
that such changes (i) do not materially and adversely affect the interest of
Certificateholders or the Credit Enhancer and (ii) are consistent with prudent
and customary business practice as evidenced by a certificate signed by a
Servicing Officer delivered to the Trustee and the Credit Enhancer. Nothing
herein shall limit the right of the Master Servicer to solicit Mortgagors with
respect to new loans (including mortgage loans) that are not Mortgage Loans.
The relationship of the Master Servicer (and of any successor
to the Master Servicer as servicer under this Agreement) to the Trustee under
this Agreement is intended by the parties to be that of an independent
contractor and not that of a joint venturer, partner or agent.
(b) In the event that the rights, duties and obligations of
the Master Servicer are terminated hereunder, any successor to the Master
Servicer in its sole discretion may, to the extent permitted by applicable law,
terminate the existing subservicer arrangements with any subservicer or assume
the terminated Master Servicer's rights under such subservicing arrangements
which termination or assumption will not violate the terms of such arrangements.
Section 3.02. Collection of Certain Mortgage Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement, follow such
collection procedures as it follows with respect to mortgage loans in its
servicing portfolio comparable to the Mortgage Loans. Consistent with the
foregoing, and without limiting the generality of the foregoing, the Master
Servicer may in its discretion (i) waive any late payment charge or any
assumption fees or other fees which may be collected in the ordinary course of
servicing such Mortgage Loan and (ii) arrange with a Mortgagor a schedule for
the payment of interest due and unpaid; provided that such arrangement is
consistent with the Master Servicer's policies with respect to the mortgage
loans it owns or services; provided, further, that notwithstanding such
arrangement such Mortgage Loans will be included in the information regarding
delinquent Mortgage Loans set forth in the Servicing Certificate and monthly
statement to Certificateholders pursuant to Section 5.03.
(b) The Master Servicer shall establish and maintain a trust
account (the "Collection Account") titled "___________________________, as
Trustee, in trust for the registered holders of Home Equity Loan Asset Backed
Certificates, Series 199__-__ and _____________________." The Collection Account
shall be an Eligible Account. The Master Servicer shall on the Closing Date
deposit any amounts representing payments on, and any collections in respect of,
the Mortgage Loans received after the Cut-off Date and prior to the Closing Date
(exclusive of payments in respect of accrued interest due on or prior to the
Cut-off Date or due in the month of _________), and thereafter the Master
Servicer shall deposit within two Business Days following receipt thereof the
following payments and collections received or made by it (without duplication):
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(i) all collections on and in respect of the Mortgage
Loans;
(ii) the amounts, if any, deposited to the Collection
Account pursuant to Section 4.05;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) Insurance Proceeds (including, for this purpose,
any amount required to be credited by the Master Servicer pursuant to
the last sentence of Section 3.04 and excluding the portion thereof, if
any, that has been applied to the restoration or repair of the related
Mortgaged Property or released to the related Mortgagor in accordance
with the normal servicing procedures of the Master Servicer); and
(v) any amounts required to be deposited therein
pursuant to Section 10.01;
provided, however, that with respect to each Collection Period, the Master
Servicer shall be permitted to retain from payments in respect of interest on
the Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Master Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties
payable by Mortgagors, or amounts received by the Master Servicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments, excess pay off amounts and similar items. The Master
Servicer shall remit all Foreclosure Profits to the Seller.
The Trustee shall hold amounts deposited in the Collection
Account as trustee for the Certificateholders and for the Credit Enhancer. In
addition, the Master Servicer shall notify the Trustee and the Credit Enhancer
in writing on each Determination Date of the amount of payments and collections
in the Collection Account allocable to Interest Collections and Principal
Collections for the related Distribution Date. Following such notification, the
Master Servicer shall be entitled to withdraw from the Collection Account and
retain any amounts that constitute income and gain realized from the investment
of such payments and collections.
All income and gain realized from any investment in Eligible
Investments of funds in the Collection Account shall be for the benefit of the
Master Servicer and shall be subject to its withdrawal from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Master Servicer
out of its own funds immediately as realized.
Section 3.03. Withdrawals from the Collection Account. From
time to time, withdrawals may be made from the Collection Account by the Master
Servicer for the following purposes:
(i) To the Master Servicer as payment for its Servicing Fee
pursuant to Section 3.08;
(ii) To pay to the Master Servicer amounts on deposit in the
Collection Account that are not to be included in the distributions and
payments pursuant to Section 5.01 to the extent provided by the second
to the last and the last paragraph of Section 3.02(b);
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(iii) To make or to permit the Paying Agent to make
distributions and payments pursuant to Section 5.01; and
(iv) Prior to the Collection Period preceding the Rapid
Amortization Commencement Date, to pay to the Seller, the amount of any
Additional Balances as and when created during the related Collection
Period, provided, that the aggregate amount so paid to the Seller in
respect of Additional Balances at any time during any Collection Period
shall not exceed the amount of Principal Collections theretofore
received for such Collection Period minus the amount determined
pursuant to clause (x) of the definition of "Alternative Principal
Payment".
If the Master Servicer deposits in the Collection Account any
amount not required to be deposited therein or any amount in respect of payments
by Mortgagors made by checks subsequently returned for insufficient funds or
other reason for non-payment it may at any time withdraw such amount from the
Collection Account, and any such amounts shall not be included in the amounts to
be deposited in the Collection Account pursuant to Section 3.02(b), any
provision herein to the contrary notwithstanding.
Section 3.04. Maintenance of Hazard Insurance; Property
Protection Expenses. The Master Servicer shall cause to be maintained for each
Mortgage Loan hazard insurance naming the Master Servicer or the related
subservicer as loss payee thereunder providing extended coverage in an amount
which is at least equal to the lesser of (i) the maximum insurable value of the
improvements securing such Mortgage Loan from time to time or (ii) the combined
principal balance owing on such Mortgage Loan and any mortgage loan senior to
such Mortgage Loan from time to time. The Master Servicer shall also maintain on
property acquired upon foreclosure, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of (i) the maximum insurable value from time to time of the improvements
which are a part of such property or (ii) the combined principal balance owing
on such Mortgage Loan and any mortgage loan senior to such Mortgage Loan at the
time of such foreclosure or deed in lieu of foreclosure plus accrued interest
and the good-faith estimate of the Master Servicer of related Liquidation
Expenses to be incurred in connection therewith. Amounts collected by the Master
Servicer under any such policies shall be deposited in the Collection Account to
the extent called for by Section 3.02. In cases in which any Mortgaged Property
is located in a federally designated flood area, the hazard insurance to be
maintained for the related Mortgage Loan shall include flood insurance. All such
flood insurance shall be in such amounts as are required under applicable
guidelines of the Federal Flood Emergency Act. The Master Servicer shall be
under no obligation to require that any Mortgagor maintain earthquake or other
additional insurance and shall be under no obligation itself to maintain any
such additional insurance on property acquired in respect of a Mortgage Loan,
other than pursuant to such applicable laws and regulations as shall at any time
be in force and as shall require such additional insurance. If the Master
Servicer shall obtain and maintain a blanket policy consistent with prudent
industry standards insuring against hazard losses on all of the Mortgage Loans
in an aggregate amount prudent under industry standards, it shall conclusively
be deemed to have satisfied its obligations as set forth in the first sentence
of this Section 3.04 and there shall have been a loss which would have been
covered by such policy, deposit in the Collection Account, as the case may be,
the amount not otherwise payable under the blanket policy because of such
deductible clause.
Section 3.05. Assumption and Modification Agreements. In any
case in which a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall exercise its right to accelerate the
maturity of such Mortgage Loan consistent with the then current practice of the
Master Servicer and without regard to the inclusion of such Mortgage Loan in the
Trust. If it elects not to enforce its right to accelerate or if it is prevented
from doing so by applicable law, the
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Master Servicer (so long as such action conforms with the underwriting standards
generally acceptable in the industry at the time for new origination) 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 Credit Line
Agreement and, to the extent permitted by applicable law, the Mortgagor remains
liable thereon. The Master Servicer shall notify the Trustee that any assumption
and modification agreement has been completed by delivering to the Trustee an
Officer's Certificate certifying that such agreement is in compliance with this
Section 3.05 and by forwarding to the applicable Custodian, as agent for the
Trustee, the original copy of such assumption and modification agreement. Any
such assumption and modification agreement shall, for all purposes, be
considered a part of the related Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. No change in the terms of
the related Credit Line Agreement may be made by the Master Servicer in
connection with any such assumption to the extent that such change would not be
permitted to be made in respect of the original Credit Line Agreement pursuant
to the fourth paragraph of Section 3.01(a). Any fee collected by the Master
Servicer for entering into any such agreement will be retained by the Master
Servicer as additional servicing compensation.
Section 3.06. Realization Upon Defaulted Mortgage Loans;
Repurchase of Certain Mortgage Loans. The Master Servicer shall foreclose upon
or otherwise comparably convert to ownership Mortgaged Properties securing such
of the Mortgage Loans as come into and continue in default when, in the opinion
of the Master Servicer based upon the practices and procedures referred to in
the following sentence, no satisfactory arrangements can be made for collection
of delinquent payments pursuant to Section 3.02; provided that if the Master
Servicer has actual knowledge or reasonably believes that any Mortgaged Property
is affected by hazardous or toxic wastes or substances and that the acquisition
of such Mortgaged Property would not be commercially reasonable, then the Master
Servicer will not cause the Trust to acquire title to such Mortgaged Property in
a foreclosure or similar proceeding. In connection with such foreclosure or
other conversion, the Master Servicer shall follow such practices (including, in
the case of any default on a related senior mortgage loan, the advancing of
funds to correct such default) and procedures as it shall deem necessary or
advisable and as shall be normal and usual in its general mortgage servicing
activities. The foregoing is subject to the proviso that the Master Servicer
shall not be required to expend its own funds in connection with any foreclosure
or towards the correction of any default on a related senior mortgage loan or
restoration of any property unless it shall determine that such expenditure will
increase Net Liquidation Proceeds.
In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure, the deed or certificate of
sale shall be issued to the Trustee, or to its nominee on behalf of
Certificateholders.
The Master Servicer, in its sole discretion, shall have the
right to purchase for its own account from the Trust any Mortgage Loan which is
91 days or more delinquent at a price equal to the purchase price described
below. The price for any Mortgage Loan purchased hereunder (which shall be
calculated in the same manner set forth in Section 2.02) shall be deposited in
the Collection Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit ___ hereto, shall release or cause to be
released to the Master Servicer the related Mortgage File and shall execute and
deliver such instruments of transfer or assignment prepared by the Master
Servicer, in each case without recourse, as shall be necessary to vest in the
purchaser of such Mortgage Loan any Mortgage Loan released pursuant hereto and
the Master Servicer shall succeed to all the Trustee's right, title and interest
in and to such Mortgage Loan and all security and documents related thereto.
Such assignment shall be an assignment outright and not for security. The Master
Servicer shall thereupon own such Mortgage
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Loan, and all security and documents, free of any further obligation to the
Trustee, the Credit Enhancer or the Certificateholders with respect thereto.
Section 3.07. Trustee to Cooperate. On or before each
Distribution Date, the Master Servicer will notify the Trustee of the payment in
full of the Asset Balance of any Mortgage Loan during the preceding Collection
Period, which notification shall be by a certification (which certification
shall include a statement to the effect that all amounts received in connection
with such payment which are required to be deposited in the Collection Account
pursuant to Section 3.02 have been so deposited or credited) of a Servicing
Officer. Upon any such payment in full, the Master Servicer is authorized to
execute, pursuant to the authorization contained in Section 3.01, if the
assignments of Mortgage have been recorded as required hereunder, an instrument
of satisfaction regarding the related Mortgage, which instrument of satisfaction
shall be recorded by the Master Servicer if required by applicable law and be
delivered to the Person entitled thereto. It is understood and agreed that no
expenses incurred in connection with such instrument of satisfaction or transfer
shall be reimbursed from amounts deposited in the Collection Account. If the
Trustee is holding the Mortgage Files, from time to time and as appropriate for
the servicing or foreclosure of any Mortgage Loan, or in connection with the
payment in full of the Asset Balance of any Mortgage Loan, the Trustee shall,
upon request of the Master Servicer and delivery to the Trustee of a Request for
Release substantially in the form attached hereto as Exhibit ___ signed by a
Servicing Officer, release the related Mortgage File to the Master Servicer and
the Trustee shall execute such documents, in the forms provided by the Master
Servicer, as shall be necessary to the prosecution of any such proceedings or
the taking of other servicing actions. Such trust receipt shall obligate the
Master Servicer to return the Mortgage File to the Trustee when the need
therefor by the Master Servicer no longer unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of a certificate of a Servicing Officer
similar to that hereinabove specified, the trust receipt shall be released by
the Trustee or such Custodian to the Master Servicer.
In order to facilitate the foreclosure of the Mortgage
securing any Mortgage Loan that is in default following recordation of the
assignments of Mortgage in accordance with the provisions hereof, the Trustee
shall, if so requested in writing by the Master Servicer, execute an appropriate
assignment in the form provided to the Trustee by the Master Servicer to assign
such Mortgage Loan for the purpose of collection to the Master Servicer or to
the related subservicer (any such assignment shall unambiguously indicate that
the assignment is for the purpose of collection only), and, upon such
assignment, the Master Servicer will thereupon bring all required actions in its
own name and otherwise enforce the terms of the Mortgage Loan and deposit the
Net Liquidation Proceeds, exclusive of Foreclosure Profits, received with
respect thereto in the Collection Account. In the event that all delinquent
payments due under any such Mortgage Loan are paid by the Mortgagor and any
other defaults are cured, then the Master Servicer shall promptly reassign such
Mortgage Loan to the Trustee and return the related Mortgage File to the place
where it was being maintained.
Section 3.08. Servicing Compensation; Payment of Certain
Expenses by Master Servicer. The Master Servicer shall be entitled to receive
the Servicing Fee pursuant to Section 3.03 as compensation for its services in
connection with servicing the Mortgage Loans. Moreover, additional servicing
compensation in the form of late payment charges or other receipts not required
to be deposited in the Collection Account (other than Foreclosure Profits) shall
be retained by the Master Servicer. The Master Servicer shall be required to pay
all expenses incurred by it in connection with its activities hereunder
(including payment of all other fees and expenses not expressly stated hereunder
to be for the account of the Certificateholders) and shall not be entitled to
reimbursement therefor except as specifically provided herein. Liquidation
Expenses are reimbursable to the Master Servicer solely from related Liquidation
Proceeds.
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Section 3.09. Annual Statement as to Compliance. (a) The
Master Servicer will deliver to the Trustee, the Credit Enhancer and the Rating
Agencies, on or before _______ of each year, beginning _____________, 19___, an
Officer's Certificate stating that (i) a review of the activities of the Master
Servicer during the preceding fiscal year (or such shorter period as is
applicable in the case of the first report) and of its performance under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Master Servicer has
fulfilled all of its material obligations under this Agreement throughout such
fiscal 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.
(b) The Master Servicer shall deliver to the Trustee, the
Credit Enhancer and each of the Rating Agencies, promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice by means of an Officer's Certificate of any event which with the
giving of notice or the lapse of time or both, would become an Event of
Servicing Termination.
Section 3.10. Annual Servicing Report. On or before _________
of each year, beginning ____________, 19___, the Master Servicer, at its
expense, shall cause a firm of nationally recognized independent public
accountants (who may also render other services to the Master Servicer) to
furnish a report to the Trustee, the Credit Enhancer and each Rating Agency to
the effect that such firm has examined certain documents and records relating to
the servicing of mortgage loans during the most recent fiscal year then ended
under pooling and servicing agreements (substantially similar to this Agreement,
including this Agreement) that such examination, was conducted substantially in
compliance with the audit guide for audits of non-supervised mortgagees approved
by the Department of Housing and Urban Development for use by independent public
accountants (to the extent that the procedures in such audit guide are
applicable to the servicing obligations set forth in such agreements) and that
such examination has disclosed no items of noncompliance with the provisions of
this Agreement which, in the opinion of such firm, are material, except for such
items of noncompliance as shall be set forth in such report.
Section 3.11. Annual Opinion of Counsel. On or before
_________ of each year, beginning _____________, 19___, each of the Transferor
and the Depositor, at its expense, shall deliver to the Trustee and the Credit
Enhancer the applicable Opinion of Counsel specified in Exhibit E hereto.
Section 3.12. Access to Certain Documentation and Information
Regarding the Mortgage Loans. (a) The Master Servicer shall provide to the
Trustee, the Credit Enhancer, any Investor Certificateholders that are federally
insured savings and loan associations, the Office of Thrift Supervision,
successor to the Federal Home Loan Bank Board, the FDIC and the supervisory
agents and examiners of the Office of Thrift Supervision access to the
documentation regarding the Mortgage Loans required by applicable regulations of
the Office of Thrift Supervision and the FDIC (acting as operator of the SAIF or
the BIF), such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer.
Nothing in this Section 3.12 shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer to provide
access as provided in this Section 3.12 as a result of such obligation shall not
constitute a breach of this Section 3.12.
(b) The Master Servicer shall supply information in such form
as the Trustee shall reasonably request to the Trustee and the Paying Agent, on
or before the start of the Determination Date preceding the related Distribution
Date, as is required in the Trustee's reasonable judgment to enable the
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Paying Agent or the Trustee, as the case may be, to make required distributions
and to furnish the required reports to Certificateholders and to make any claim
under the Policy.
Section 3.13. Maintenance of Certain Servicing Insurance
Policies. The Master Servicer shall during the term of its service as servicer
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as master servicer hereunder and
(ii) a fidelity bond in respect of its officers, employees or agents. Each such
policy or policies and bond together shall comply with the requirements from
time to time of the Federal National Mortgage Association for persons performing
servicing for mortgage loans purchased by such Association.
Section 3.14. Reports to the Securities and Exchange
Commission. The Trustee shall, on behalf of the Trust, cause to be filed with
the Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Master Servicer, the Depositor and the
Transferor shall cooperate with the Trustee in the preparation of any such
report and shall provide to the Trustee in a timely manner all such information
or documentation as the Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section.
Section 3.15. Tax Returns. In accordance with Section 2.08
hereof, the Trustee shall prepare and file any Federal, State or local income
and franchise tax return for the Trust as well as any other applicable return
and apply for a taxpayer identification number on behalf of the Trust. The
Transferor shall treat the Mortgage Loans as its property for all Federal, State
or local tax purposes and shall report all income earned thereon (including
amounts payable as fees to the Master Servicer) as its income for income tax
purposes. In the event the Trust shall be required pursuant to an audit or
administrative proceeding or change in applicable regulations to file Federal,
State or local tax returns, the Trustee shall prepare and file or shall cause to
be prepared and filed any tax returns required to be filed by the Trust; the
Trustee shall promptly sign such returns and deliver such returns after
signature to the Master Servicer and such returns shall be filed by the Master
Servicer. The Trustee shall also prepare or shall cause to be prepared all tax
information required by law to be distributed to Investor Certificateholders. In
no event shall the Trustee or the Master Servicer be liable for any liabilities,
costs or expenses of the Trust, the Investor Certificateholders, the Transferor
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation Federal, state or local income and franchise or
excise taxes or any other tax imposed on or measured by income (or any interest
or penalty with respect thereto or arising from a failure to comply therewith).
Section 3.16. Information Required by the Internal Revenue
Service Generally and Reports of Foreclosures and Abandonments of Mortgaged
Property. The Master Servicer shall prepare and deliver all federal and state
information reports when and as required by all applicable state and federal
income tax laws. In particular, with respect to the requirement under Section
6050J of the Code to the effect that the Master Servicer shall make reports of
foreclosures and abandonments of any mortgaged property for each year beginning
in 1997, the Master Servicer shall file reports relating to each instance
occurring during the previous calendar year in which the Master Servicer (i) on
behalf of the Trustee acquires an interest in any Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of a
Mortgage Loan, or (ii) knows or has reason to know that any Mortgaged Property
has been abandoned. The reports from the Master Servicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section
6050J.
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ARTICLE IV
SERVICING CERTIFICATE
Section 4.01. Servicing Certificate. Not later than each
Determination Date, the Master Servicer shall deliver (a) to the Trustee, the
Statement to Certificateholders required to be prepared pursuant to Section 5.03
and (b) to the Trustee, the Seller, the Depositor, the Paying Agent, the Credit
Enhancer and each Rating Agency a Servicing Certificate (in written form or the
form of computer readable media or such other form as may be agreed to by the
Trustee and the Master Servicer), together with an Officer's Certificate to the
effect that such Servicing Certificate is true and correct in all material
respects, stating the related Collection Period, Distribution Date, the series
number of the Certificates, the date of this Agreement, and:
(i) the aggregate amount of collections received on
the Mortgage Loans on or prior to the Determination Date in respect of
such Collection Period;
(ii) the aggregate amount of (a) Interest Collections
and (b) Principal Collections for such Collection Period;
(iii) the Investor Floating Allocation Percentage and
the Investor Fixed Allocation Percentage for such Collection Period;
(iv) the Investor Interest Collections and Investor
Principal Collections for such Collection Period;
(v) the Transferor Interest Collections and
Transferor Principal Collections for such Collection Period;
(vi) Investor Certificate Interest and the Investor
Certificate Rate for the related Interest Period;
(vii) the amount, if any, of such Investor
Certificate Interest that is not payable on account of insufficient
Investor Interest Collections;
(viii) the portion of the Unpaid Investor Certificate
Interest Shortfall, if any, the amount of interest on such shortfall at
the Certificate Rate applicable from time to time (separately stated)
to be distributed on such Distribution Date;
(ix) the Unpaid Investor Certificate Interest
Shortfall, if any, to remain after the distribution on such
Distribution Date;
(x) the Accelerated Principal Distribution Amount and
the portion thereof that will be distributed pursuant to Section
5.01(a)(vii);
(xi) the Scheduled Principal Collections Distribution
Amount, separately stating the components thereof;
(xii) the amount of any Transfer Deposit Amount paid
by the Seller or the Depositor pursuant to Section 2.02 or 2.04;
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(xiii) any accrued and unpaid Servicing Fees for
previous Collection Periods and the Servicing Fee for such Collection
Period;
(xiv) the Investor Loss Amount for such Collection
Period;
(xv) the aggregate amount, if any, of Investor Loss
Reduction Amounts for previous Distribution Dates that have not been
previously reimbursed to Investor Certificateholders pursuant to
5.01(a)(v);
(xvi) the aggregate Asset Balance of the Mortgage
Loans as of the end of the preceding Collection Period and as of the
end of the second preceding Collection Period;
(xvii) the Pool Balance as of the end of the
preceding Collection Period and as of the end of the second preceding
Collection Period;
(xviii) the Invested Amount as of the end of the
preceding Collection Period;
(xix) the Investor Certificate Principal Balance and
Pool Factor after giving effect to the distribution on such
Distribution Date and to any reduction on account of the Investor Loss
Amount;
(xx) the Transferor Principal Balance after giving
effect to the distribution on such Distribution Date;
(xxi) the aggregate amount of Additional Balances
created during the previous Collection Period;
(xxii) the number and aggregate Asset Balances of
Mortgage Loans (x) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days and 90 or more days, respectively
and (y) that have become REO, in each case as of the end of the
preceding Collection Period;
(xxiii) whether a Rapid Amortization Event has
occurred since the prior Determination Date, specifying each such Rapid
Amortization Event if one has occurred; and
(xxiv) whether an Event of Servicing Termination has
occurred since the prior Determination Date, specifying each such Event
of Servicing Termination if one has occurred;
(xxv) the amount to be distributed to the Credit
Enhancer pursuant to Section 5.01(a)(vi) and Section 5.01(a)(viii)(y),
stated separately;
(xxvi) the amount to be distributed to the Spread
Account pursuant to Section 5.01(a)(viii)(x);
(xxvii) the Guaranteed Principal Distribution Amount
for such Distribution Date;
(xxviii) the Credit Enhancement Draw Amount, if any,
for such Distribution Date;
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(xxix) the amount to be distributed to the Transferor
pursuant to Section 5.01(a)(x);
(xxx) the amount to be paid to the Master Servicer
pursuant to Section 5.01(a)(ix);
(xxxi) the Maximum Rate for the related Collection
Period and the Weighted Average Net Loan Rate;
(xxxii) the total amount of funds on deposit in the
Spread Account and the applicable Spread Account Maximum;
(xxxiii) the expected amount of any optional advances
pursuant to Section 4.05 hereof by the Master Servicer included in the
distribution on such Distribution Date and the aggregate expected
amount of optional advances pursuant to Section 4.05 hereof by the
Master Servicer outstanding as of the close of business on such
Distribution Date;
(xxxiv) the Overcollateralization Amount after giving
effect to the distribution to be made on such Distribution; and
(xxxv) the number and principal balances of any
Mortgage Loans retransferred to the Transferor pursuant to Section
2.06.
The Trustee shall conclusively rely upon the information contained in a
Servicing Certificate for purposes of making distributions pursuant to Section
5.01, shall have no duty to inquire into such information and shall have no
liability in so relying. The format and content of the Servicing Certificate may
be modified by the mutual agreement of the Master Servicer, the Trustee and the
Credit Enhancer. The Master Servicer shall give notice of any such change to the
Rating Agencies.
Section 4.02. Claims upon the Policy; Policy Payments Account.
(a) If, by the close of business on the third Business Day
prior to a Distribution Date, the sum of the funds then on deposit in the
Collection Account for the related Collection Period which are payable to the
Investor Certificateholders pursuant to Sections 5.01(a), (b) and (g) (after
giving effect to the distribution of the Trustee Fee and the Premium), the
amounts on deposit in the Spread Account and the amount, if any, deposited into
the Collection Account pursuant to Section 4.05 are insufficient to pay the
Guaranteed Distribution on such Distribution Date, then the Trustee shall give
notice to the Credit Enhancer by telephone or telecopy of the amount equal to
the Credit Enhancement Draw Amount. Such notice of such sum shall be confirmed
in writing in the form set forth as Exhibit ___ to the Endorsement of the
Policy, to the Credit Enhancer and the Fiscal Agent, if any, at or before 10:00
a.m., New York City time, on the second Business Day prior to such Distribution
Date. Following receipt by the Credit Enhancer of such notice in such form, the
Credit Enhancer or the Fiscal Agent will pay any amount payable under the Policy
on the later to occur of (i) 12:00 noon, New York City time, on the Business Day
following such receipt and (ii) 12:00 noon, New York City time, on the
Distribution Date to which such deficiency relates, as provided in the
Endorsement to the Policy.
(b) The Trustee shall establish a separate special purpose
trust account, which account shall be an Eligible Account, for the benefit of
Holders of the Investor Certificates and the Credit Enhancer referred to herein
as the "Policy Payments Account" over which the Trustee shall have
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exclusive control and sole right of withdrawal. The Trustee shall deposit any
amount paid under the Policy in the Policy Payments Account and distribute such
amount only for purposes of payment to Holders of the Investor Certificates of
the Guaranteed Distribution for which a claim was made and such amount may not
be applied to satisfy any costs, expenses or liabilities of the Master Servicer,
the Trustee or the Trust Fund. Amounts paid under the Policy shall be
transferred to the Collection Account in accordance with the next succeeding
paragraph and disbursed by the Trustee to Holders of Investor Certificates in
accordance with Section 5.01. It shall not be necessary for such payments to be
made by checks or wire transfers separate from the checks or wire transfers used
to pay the Guaranteed Distribution with other funds available to make such
payment. However, the amount of any payment of principal of or interest on the
Investor Certificates to be paid from funds transferred from the Policy Payments
Account shall be noted as provided in paragraph (c) below in the Certificate
Register and in the statement to be furnished to Holders of the Investor
Certificates pursuant to Section 5.03. Funds held in the Policy Payments Account
shall not be invested.
On any Distribution Date with respect to which a claim has
been made under the Policy, the amount of any funds received by the Trustee as a
result of any claim under the Policy, to the extent required to make the
Guaranteed Distribution on such Distribution Date, shall be withdrawn from the
Policy Payments Account and deposited in the Collection Account and applied by
the Trustee, together with the other funds to be withdrawn from the Collection
Account pursuant to Section 5.01 directly to the payment in full of the
Guaranteed Distribution due on the Investor Certificates. Any funds received by
the Trustee shall be used solely for payment to the Holders of Investor
Certificates and may not be applied to satisfy any costs, expenses or
liabilities of the Master Servicer, the Trustee or the Trust. Any funds
remaining in the Policy Payments Account on the first Business Day following a
Distribution Date shall be remitted to the Credit Enhancer, pursuant to the
instructions of the Credit Enhancer, by the end of such Business Day.
(c) The Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of any Investor Certificate
from moneys received under the Policy. The Credit Enhancer shall have the right
to inspect such records at reasonable times during normal business hours upon
one Business Day's prior notice to the Trustee.
(d) The Trustee shall promptly notify the Credit Enhancer and
Fiscal Agent of any proceeding or the institution of any action, of which a
Responsible Officer of the Trustee has actual knowledge, seeking the avoidance
as a preferential transfer under applicable bankruptcy, insolvency, receivership
or similar law (a "Preference Claim") of any distribution made with respect to
the Investor Certificates. Each Investor Certificateholder, by its purchase of
Investor Certificates, the Master Servicer and the Trustee hereby agree that,
the Credit Enhancer (so long as no Credit Enhancer Default exists) may at any
time during the continuation of any proceeding relating to a Preference Claim
direct all matters relating to such Preference Claim, including, without
limitation, (i) the direction of any appeal of any order relating to such
Preference Claim and (ii) the posting of any surety, supersedeas or performance
bond pending any such appeal. In addition and without limitation of the
foregoing, the Credit Enhancer shall be subrogated to the rights of the Master
Servicer, the Trustee and each Investor Certificateholder in the conduct of any
such Preference Claim, including, without limitation, all rights of any party to
an adversary proceeding action with respect to any court order issued in
connection with any such Preference Claim.
Section 4.03. Spread Account. (a) The Trustee shall establish
and maintain a separate trust account (the "Spread Account") titled
"________________________, as Trustee, in trust for the registered holders of
Revolving Home Equity Loan Asset Backed Certificates, Series 199__-__ and
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_____________________." The Spread Account shall be an Eligible Account. Amounts
on deposit in the Spread Account will, at the direction of the Transferor, be
invested in either Eligible Investments maturing no later than the day before
the next Distribution Date or in the commercial paper (maturing no later than
the day before the next Distribution Date) of
[__________________________________], or any of its Affiliates, provided that
such commercial paper's short-term rating is no lower than "___" and ____ and
the long-term unsecured debt of [____________________________] is rated at least
"____" by _______________, or such lower rating as is agreed to by the Rating
Agencies as evidenced by a letter from each such Rating Agency.
All income and gain realized from any investment of funds in
the Spread Account shall be for the benefit of the Transferor and shall be
subject to its withdrawal from time to time. The amount of any losses incurred
in respect of the principal amount of any such investments shall be deposited in
the Spread Account by the Transferor out of its own funds immediately as
realized.
(b) On each Determination Date the Trustee shall determine (i)
the extent to which Investor Interest Collections and the amounts, if any,
deposited into the Collection Account pursuant to Section 4.05 applied in the
order specified in Section 5.01(a) are insufficient to make distributions as
provided in clauses (iii) and (iv) of Section 5.01(a) and (ii) the Guaranteed
Principal Distribution Amount for the related Distribution Date. On each
Distribution Date the Trustee shall withdraw from the Spread Account and deposit
into the Collection Account the lesser of the amount on deposit in the Spread
Account and an amount equal to the sum of the amounts, if any, determined in
clauses (i) and (ii) of the preceding sentence.
(c) Following the termination of the Trust pursuant to Section
10.01 or 11.02 hereof, the Trustee shall withdraw all amounts then on deposit in
the Spread Account and distribute such amounts first to any amounts due and
owing to the Credit Enhancer and then to the Transferor. If on any Distribution
Date the amount on deposit in the Spread Account exceeds the Spread Account
Maximum, the Trustee shall withdraw such excess and distribute it to the
Transferor.
Section 4.04. Effect of Payments by the Credit Enhancer;
Subrogation. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on any of the Investor Certificates which is
made with moneys received pursuant to the terms of the Policy shall not be
considered payment of such Investor Certificates from the Trust and shall not
result in the payment of or the provision for the payment of the principal of or
interest on such Investor Certificates within the meaning of Section 5.01. The
Depositor, the Master Servicer and the Trustee acknowledge, and each Holder by
its acceptance of an Investor Certificate agrees, that without the need for any
further action on the part of the Credit Enhancer, the Depositor, the Master
Servicer, the Trustee or the Certificate Registrar (a) to the extent the Credit
Enhancer makes payments, directly or indirectly, on account of principal of or
interest on any Investor Certificates to the Holders of such Certificates, the
Credit Enhancer will be fully subrogated to the rights of such Holders to
receive such principal and interest from the Trust and (b) the Credit Enhancer
shall be paid such principal and interest but only from the sources and in the
manner provided herein for the payment of such principal and interest.
The Trustee and the Master Servicer shall cooperate in all
respects with any reasonable request by the Credit Enhancer for action to
preserve or enforce the Credit Enhancer's rights or interests under this
Agreement without limiting the rights or affecting the interests of the Holders
as otherwise set forth herein.
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Section 4.05. Optional Advances of the Master Servicer. The
Master Servicer, in its sole discretion, may advance the interest component of
any delinquent Minimum Monthly Payment (or any portion thereof) by depositing
such amount into the Collection Account on or prior to the Determination Date.
ARTICLE V
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS; RIGHTS OF CERTIFICATEHOLDERS
Section 5.01. Distributions.
(a) Distributions of Investor Interest Collections and
Investment Proceeds. Subject to Section 11.02(b), on each Distribution Date, the
Trustee or the Paying Agent, as the case may be, shall distribute out of the
Collection Account to the extent of Investor Interest Collections collected
during the related Collection Period and the amounts transferred from the Spread
Account as determined pursuant to Section 4.03(b) and the amount, if any,
deposited into the Collection Account pursuant to Section 4.05, the following
amounts and in the following order of priority to the following Persons (based
on the information set forth in the Servicing Certificate):
(i) the Trustee Fee for such Distribution Date to the
Trustee;
(ii) the premium pursuant to the Insurance Agreement
to the Credit Enhancer;
(iii) the Investor Certificate Interest for such
Distribution Date to the Investor Certificateholders and the Unpaid
Investor Certificate Interest Shortfall, if any, for such Distribution
Date to the Investor Certificateholders plus, to the extent legally
permissible, interest thereon at the Investor Certificate Rate;
(iv) the Investor Loss Amount for such Collection
Period to the Investor Certificateholders as principal in reduction of
the Investor Certificate Principal Balance;
(v) to Investor Certificateholders as principal in
reduction of the Investor Certificate Principal Balance the aggregate
amount of the Investor Loss Reduction Amounts, if any, for previous
Distribution Dates that have not been previously reimbursed to Investor
Certificateholders pursuant to this clause (v);
(vi) to reimburse the Credit Enhancer for previously
unreimbursed Credit Enhancement Draw Amounts together with interest
thereon at the applicable rate set forth in the Insurance Agreement;
(vii) the Accelerated Principal Distribution Amount,
if any, to the Investor Certificateholders;
(viii) (x) to the Trustee to deposit to the Spread
Account up to the Spread Account Maximum and (y) to the Credit Enhancer
for any amounts owed to the Credit Enhancer pursuant to the Insurance
Agreement;
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(ix) any amount required to be paid to the Master
Servicer pursuant to Section 7.03 which has not been previously paid to
the Master Servicer; and
(x) any remaining amount to the Transferor.
(b) Distribution of Principal Collections. Subject to Section
11.02(b) and except on the Distribution Date in __________ 20___, on each
Distribution Date, the Trustee shall distribute out of the Collection Account to
the Investor Certificateholders the Principal Collections (including amounts
transferred thereto from the Spread Account pursuant to Section 4.03(b) in
respect of the amount determined pursuant to Section 4.03(b)(ii) up to the
Scheduled Principal Collections Distribution Amount but not in excess of the
Investor Certificate Principal Balance. On the Distribution Date in ____________
20___, the Trustee shall distribute to Investor Certificateholders Principal
Collections up to the Investor Certificate Principal Balance.
(c) Reserved.
(d) Distribution of the Credit Enhancement Draw Amount: With
respect to any Distribution Date, to the extent that Investor Interest
Collections and amounts transferred from the Spread Account on the related
Distribution Date in respect of the amount determined pursuant to Section
4.03(b)(i) and any amounts, if any, deposited to the Collection Account pursuant
to Section 4.05 applied in the order specified in Section 5.01(a) are
insufficient to make distributions as provided in clause (iii) of Section
5.01(a) above, the Trustee will make such payments (the "Deficiency Amount")
from the amount drawn under the Policy for such Distribution Date pursuant to
Section 4.02. For any Distribution Date as to which there is a Guaranteed
Principal Distribution Amount, the Trustee shall distribute the Guaranteed
Principal Distribution Amount to Certificateholders from the amount drawn under
the Policy for such Distribution Date pursuant to Section 4.02.
The aggregate amount of principal distributed to the Investor
Certificateholders under this Agreement shall not exceed the Original Investor
Certificate Principal Balance.
(e) Method of Distribution. The Trustee shall make
distributions in respect of a Distribution Date to each Investor
Certificateholder of record on the related Record Date (other than as provided
in Section 10.01 respecting the final distribution) by check or money order
mailed to such Investor Certificateholder at the address appearing in the
Certificate Register, or upon written request by an Investor Certificateholder
delivered to the Trustee at least five Business Days prior to such Record Date,
by wire transfer (but only if such Certificateholder is the Depository or such
Certificateholder owns of record one or more Investor Certificates having
principal denominations aggregating at least $______________), or by such other
means of payment as such Investor Certificateholder and the Trustee shall agree.
Distributions among Investor Certificateholders shall be made in proportion to
the Percentage Interests evidenced by the Investor Certificates held by such
Investor Certificateholders.
(f) Distributions on Book-Entry Certificates. Each
distribution with respect to a Book-Entry Certificate shall be paid to the
Depository, which shall credit the amount of such distribution to the accounts
of its Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. All such credits and disbursements
with respect to a Book-Entry Certificate are to be made by the Depository and
the Depository Participants in accordance with the provisions of
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the Investor Certificates. None of the Trustee, the Paying Agent, the
Certificate Registrar, the Depositor, the Credit Enhancer or the Master Servicer
shall have any responsibility therefor except as otherwise provided by
applicable law.
(g) Distributions to Holders of Transferor Certificates. On
each Distribution Date, the Trustee shall, based upon the information set forth
in the Servicing Certificate for such Distribution Date, distribute to the
Transferor (i) the Transferor Interest Collections for the related Collection
Period and (ii) the portion, if any, of Transferor Principal Collections for the
related Collection Period in excess of Additional Balances created during such
Collection Period; provided that collections allocable to the Transferor
Certificates will be distributed to the Transferor only to the extent that such
distribution will not reduce the amount of the Transferor Principal Balance as
of the related Distribution Date below the Minimum Transferor Interest. Amounts
not distributed to the Transferor because of such limitations will be retained
in the Collection Account until the Transferor Principal Balance exceeds the
Minimum Transferor Interest, at which time such excess shall be released to the
Transferor. If any such amounts are still retained in the Collection Account
upon the commencement of the Rapid Amortization Period, such amounts will be
paid to the Investor Certificateholders as a reduction of the Investor
Certificate Principal Balance.
Section 5.02. Calculation of the Investor Certificate Rate. On
the [second LIBOR Business Day immediately preceding each Distribution Date, the
Trustee shall determine LIBOR] for the Interest Period commencing on such
Distribution Date and inform the Master Servicer (at the facsimile number given
to the Trustee in writing) of such rates. On each Determination Date, the
Trustee shall determine the applicable Investor Certificate Rate for the related
Distribution Date.
Section 5.03. Statements to Certificateholders. Concurrently
with each distribution to Investor Certificateholders, the Trustee shall forward
to each Investor Certificateholder, the Master Servicer and each Rating Agency a
statement prepared by the Master Servicer pursuant to Section 4.01 with respect
to such distribution setting forth:
(i) the Investor Floating Allocation Percentage for
the preceding Collection Period;
(ii) the Investor Certificate Distribution Amount;
(iii) the amount of Investor Certificate Interest in
such distribution and the related Investor Certificate Rate;
(iv) the amount, if any, of any Unpaid Investor
Certificate Interest Shortfall in such distribution;
(v) the amount, if any, of the remaining Unpaid
Investor Certificate Interest Shortfall after giving effect to such
distribution;
(vi) the amount, if any, of principal in such
distribution, separately stating the components thereof;
(vii) the amount, if any, of the reimbursement of
previous Investor Loss Reduction Amounts in such distribution;
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(viii) the amount, if any, of the aggregate of
unreimbursed Investor Loss Reduction Amounts after giving effect to
such distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount, the Investor Certificate
Principal Balance and the Pool Factor, each after giving effect to such
distribution;
(xi) the Pool Balance as of the end of the preceding
Collection Period and the aggregate of the Asset Balances of the
Mortgage Loans at the close of business on the last day of the related
Collection Period;
(xii) the Credit Enhancement Draw Amount, if any;
(xiii) the number and aggregate Asset Balances of
Mortgage Loans as to which the Minimum Monthly Payment is delinquent
for 30-59 days, 60-89 days and 90 or more days, respectively, as of the
end of the preceding Collection Period;
(xiv) the book value (within the meaning of 12 C.F.R.
ss. 571.13 or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xv) the amount of any optional advances pursuant to
Section 4.05 hereof by the Master Services included in the distribution
on such Distribution Date and the aggregate amount of optional advances
pursuant to Section 4.05 hereof by the Master Services outstanding as
of the close of business on such Distribution Date;
(xvi) the Investor Certificate Rate applicable to the
distribution on the following Distribution Date;
(xvii) the number and principal balances of any
Mortgage Loans retransferred to the Transferor pursuant to (a) Section
2.04 and (b) Section 2.06.
In the case of information furnished pursuant to clauses (ii)
and (iii) in respect of Investor Certificate Interest, (iv) and (viii) above,
the amounts shall be expressed as a dollar amount per Investor Certificate with
a $1,000 denomination.
Within 60 days after the end of each calendar year, the Master
Servicer shall prepare or cause to be prepared and shall forward to the Trustee
the information set forth in clauses (iii) and (vi) above aggregated for such
calendar year. Such obligation of the Master Servicer shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or a Paying Agent pursuant to any requirements
of the Code.
The Trustee shall prepare or cause to be prepared (in a manner
consistent with the treatment of the Investor Certificates as indebtedness of
the Transferor, or as may be otherwise required by Section 3.15) Internal
Revenue Service Form 1099 (or any successor form) and any other tax forms
required to be filed or furnished to Certificateholders in respect of
distributions by the Trustee (or the Paying Agent) on the Investor Certificates
and shall file and distribute such forms as required by law.
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Section 5.04. Rights of Certificateholders. The Investor
Certificates shall represent fractional undivided interests in the Trust,
including the benefits of the Collection Account and the right to receive
Investor Interest Collections, Principal Collections and other amounts at the
times and in the amounts specified in this Agreement; the Transferor
Certificates shall represent the remaining interest in the Trust.
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates. The Investor Certificates and
Transferor Certificates shall be substantially in the forms set forth in
Exhibits A and B, respectively, and shall, on original issue, be executed,
authenticated and delivered by the Trustee to or upon the order of the Depositor
concurrently with the sale and assignment to the Trustee of the Trust. The
Investor Certificates shall be initially evidenced by one or more certificates
representing the entire Original Investor Certificate Principal Balance and
shall be held in minimum dollar denominations of $1,000 and integral dollar
multiples in excess thereof, except that one Investor Certificate may be in a
different denomination of less than $1,000 so that the sum of the denominations
of all outstanding Investor Certificates shall equal the Original Investor
Certificate Principal Balance. The sum of the denominations of all outstanding
Investor Certificates shall equal the Original Investor Certificate Principal
Balance. The Transferor Certificates shall be issuable as one or more
certificates representing the entire interest in the assets of the Trust other
than that represented by the Investor Certificates and shall initially be issued
to the Seller.
The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee by an authorized officer under its seal
imprinted thereon. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures were affixed, authorized
to sign on behalf of the Trustee shall bind the Trust, notwithstanding that such
individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Transferor Certificates or did not hold such
offices at the date of such Transferor Certificate. No Certificate shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless such Certificate shall have been manually authenticated by the Trustee
substantially in the form provided for herein, and such authentication upon any
Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication. Subject to Section
6.02(c), the Investor Certificates shall be Book-Entry Certificates. The
Transferor Certificates shall not be Book-Entry Certificates.
Section 6.02. Registration of Transfer and Exchange of
Investor Certificates; Appointment of Registrar. (a) The Certificate Registrar
shall cause to be kept at the Corporate Trust Office a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the
Certificate Registrar shall provide for the registration of Investor
Certificates and of transfers and exchanges of Investor Certificates as herein
provided. The Trustee shall initially serve as Certificate Registrar for the
purpose of registering Investor Certificates and transfers and exchanges of
Investor Certificates as herein provided.
Upon surrender for registration of transfer of any Investor
Certificate at any office or agency of the Certificate Registrar maintained for
such purpose pursuant to the foregoing paragraph, the Trustee on behalf of the
Trust shall execute, authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Investor Certificates of the same
aggregate Percentage Interest.
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At the option of the Investor Certificateholders, Investor
Certificates may be exchanged for other Investor Certificates in authorized
denominations and the same aggregate Percentage Interests, upon surrender of the
Investor Certificates to be exchanged at any such office or agency. Whenever any
Investor Certificates are so surrendered for exchange, the Trustee shall execute
and authenticate and deliver the Investor Certificates which the Investor
Certificateholder making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for transfer or exchange shall (if so
required by the Trustee or the Certificate Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by, the Holder thereof or
his attorney duly authorized in writing.
(b) Except as provided in paragraph (c) below, the BookEntry
Certificates shall at all times remain registered in the name of the Depository
or its nominee and at all times: (i) registration of the Investor Certificates
may not be transferred by the Trustee except to another Depository; (ii) the
Depository shall maintain book-entry records with respect to the Certificate
Owners and with respect to ownership and transfers of such Investor
Certificates; (iii) ownership and transfers of registration of the Investor
Certificates on the books of the Depository shall be governed by applicable
rules established by the Depository; (iv) the Depository may collect its usual
and customary fees, charges and expenses from its Depository Participants; (v)
the Trustee shall deal with the Depository as representative of the Certificate
Owners of the Investor Certificates for purposes of exercising the rights of
Holders under this Agreement, and requests and directions for and votes of such
representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; and (vi) the Trustee may rely and shall
be fully protected in relying upon information furnished by the Depository with
respect to its Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and Persons shown on
the books of such indirect participating firms as direct or indirect Certificate
Owners.
All transfers by Certificate Owners of Book-Entry Certificates
shall be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owners. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners that it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures. The parties hereto
are hereby authorized to execute a Letter of Representations with the Depository
or take such other action as may be necessary or desirable to register a
Book-Entry Certificate to the Depository. In the event of any conflict between
the terms of any such Letter of Representation and this Agreement the terms of
this Agreement shall control.
(c) If (i)(x) the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as Depository, and (y) the Trustee or the
Depositor is unable to locate a qualified successor, (ii) the Depositor, at its
sole option, with the consent of the Trustee, elects to terminate the book-entry
system through the Depository or (iii) after the occurrence of an Event of
Servicing Termination, the Depository, at the direction of Certificate Owners
representing Percentage Interests aggregating not less than 51% advises the
Trustee in writing that the continuation of a book-entry system through the
Depository to the exclusion of definitive, fully registered Investor
Certificates (the "Definitive Certificates") to Certificate Owners is no longer
in the best interests of the Certificate Owners. Upon surrender to the
Certificate Registrar of the Investor Certificates by the Depository,
accompanied by registration instructions from the Depository for registration,
the Trustee shall execute and authenticate the Definitive Certificates. Neither
the Depositor nor the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Certificates, all references
herein to obligations imposed upon or to be performed by the Depository shall be
deemed
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to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates, and the Trustee, the Certificate
Registrar, the Master Servicer and the Depositor shall recognize the Holders of
the Definitive Certificates as Certificateholders hereunder.
No service charge shall be made for any registration of
transfer or exchange of Investor Certificates, but the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
All Investor Certificates surrendered for registration of
transfer or exchange shall be cancelled by the Certificate Registrar and
disposed of pursuant to its standard procedures.
Section 6.03. Mutilated, Destroyed, Lost or Stolen
Certificates. If (i) any mutilated Certificate is surrendered to the Certificate
Registrar or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Trustee, the Depositor and the Certificate Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and Percentage Interest. Upon the issuance of any new Certificate under
this Section 6.03, the Trustee or the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee and the Certificate Registrar) connected therewith.
Any duplicate Certificate issued pursuant to this Section 6.03, shall constitute
complete and indefeasible evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation
of a Certificate for registration of transfer, the Master Servicer, the
Depositor, the Trustee, the Certificate Registrar, any Paying Agent and any
agent of the Master Servicer, the Depositor, the Trustee, any Paying Agent or
the Certificate Registrar may treat the Person, including a Depository, in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving distributions pursuant to Section 5.01 and for all other
purposes whatsoever, and none of the Master Servicer, the Depositor, the
Trustee, the Certificate Registrar, any Paying Agent or any agent of any of them
shall be affected by notice to the contrary.
Section 6.05. Restrictions on Transfer of Transferor
Certificates. (a) The Transferor Certificates shall be assigned, transferred,
exchanged, pledged, financed, hypothecated or otherwise conveyed (collectively,
for purposes of this Section 6.05 and any other Section referring to the
Transferor Certificates, "transferred" or a "transfer") only in accordance with
this Section 6.05.
(b) No transfer of a Transferor Certificate shall be made
unless such transfer is exempt from the registration requirements of the
Securities Act of 1933, as amended, and any applicable state securities laws or
is made in accordance with said Act and laws. Except for the initial issuance of
the Transferor Certificate to the Transferor, the Trustee shall require (i) the
transferee to execute an investment letter acceptable to and in form and
substance satisfactory to the Trustee certifying to the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee or (ii) if the investment letter is not delivered, a written Opinion
of Counsel acceptable to and in form and substance satisfactory to the Trustee
and the Depositor that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from said Act or is
being made
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pursuant to said Act, which Opinion of Counsel shall not be an expense of the
Trustee or the Depositor. The Holder of a Transferor Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Transferor
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.
(c) The Transferor Certificates and any interest therein shall
not be transferred except upon satisfaction of the following conditions
precedent: (i) the Person that acquires a Transferor Certificate shall (A) be
organized and existing under the laws of the United States of America or any
state or the District of Columbia thereof, (B) expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, the performance of
every covenant and obligation of the Transferor hereunder and (C) as part of its
acquisition of a Transferor Certificate, acquire all rights of the Transferor or
any transferee under this Section 6.05(c) to amounts payable to such Transferor
or such transferee under Sections 5.01(a)(x) and 5.01(g); (ii) the Holder of the
Transferor Certificates shall deliver to the Trustee an Officer's Certificate
stating that such transfer and such supplemental agreement comply with this
Section 6.05(c) and that all conditions precedent provided by this subsection
6.05(c) have been complied with and an Opinion of Counsel stating that all
conditions precedent provided by this subsection 6.05(c) have been complied
with, and the Trustee may conclusively rely on such Officer's Certificate, shall
have no duty to make inquiries with regard to the matters set forth therein and
shall incur no liability in so relying; (iii) the Holder of the Transferor
Certificates shall deliver to the Trustee a letter from each Rating Agency
confirming that its rating of the Investor Certificates, after giving effect to
such transfer, will not be reduced or withdrawn without regard to the Policy;
(iv) the transferee of the Transferor Certificates shall deliver to the Trustee
an Opinion of Counsel to the effect that (a) such transfer will not adversely
affect the treatment of the Investor Certificates after such transfer as debt
for federal and applicable state income tax purposes, (b) such transfer will not
result in the Trust being subject to tax at the entity level for federal or
applicable state tax purposes, (c) such transfer will not have any material
adverse impact on the federal or applicable state income taxation of an Investor
Certificateholder or any Certificate Owner and (d) such transfer will not result
in the arrangement created by this Agreement or any "portion" of the Trust,
being treated as a taxable mortgage pool as defined in Section 7701(i) of the
Code; (v) all filings and other actions necessary to continue the perfection of
the interest of the Trust in the Mortgage Loans and the other property conveyed
hereunder shall have been taken or made and (vi) the transferee shall have
assumed the obligations of the Transferor pursuant to Section 7.07 hereof.
Notwithstanding the foregoing, the requirement set forth in subclause (i)(A) of
this Section 6.05(c) shall not apply in the event the Trustee shall have
received a letter from each Rating Agency confirming that its rating of the
Investor Certificates, after giving effect to a proposed transfer to a Person
that does not meet the requirement set forth in subclause (i)(A), shall not be
reduced or withdrawn. Notwithstanding the foregoing, the requirements set forth
in this paragraph (c) shall not apply to the initial issuance of the Transferor
Certificates to the Transferor.
(d) Except for the initial issuance of the Transferor
Certificate to the Transferor, no transfer of a Transferor Certificate shall be
made unless the Trustee shall have received either (i) a representation letter
from the transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA, nor a Person acting on
behalf of any such plan, which representation letter shall not be an expense of
the Trustee, (ii) if the purchaser is an insurance company, a representation
that the purchaser is an insurance company which is purchasing such Certificates
with funds contained in an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE
95-60")) and that the purchase and holding of such Certificates are covered
under PTCE 95-60, or (iii) in the case of any Transferor Certificate presented
for registration in the name of an employee benefit plan subject to ERISA, and
Section 4975 of the Code (or comparable
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provisions of any subsequent enactments), or a trustee of any such plan, an
Opinion of Counsel to the effect that the purchase or holding of such
Certificate will not result in the assets of the Trust being deemed to be "plan
assets" and subject to the prohibited transaction provisions of ERISA and the
Code and will not subject the Trustee to any obligation in addition to those
undertaken in this Agreement, which Opinion of Counsel shall not be an expense
of the Trustee or the Depositor.
Section 6.06. Appointment of Paying Agent. (a) The Paying
Agent shall make distributions to Investor Certificateholders from the
Collection Account pursuant to Section 5.01 and shall report the amounts of such
distributions to the Trustee. The duties of the Paying Agent may include the
obligation (i) to withdraw funds from the Collection Account pursuant to Section
3.03 and for the purpose of making the distributions referred to above and (ii)
to distribute statements and provide information to Certificateholders as
required hereunder. The Paying Agent hereunder shall at all times be a
corporation duly incorporated and validly existing under the laws of the United
States of America or any state thereof, authorized under such laws to exercise
corporate trust powers and subject to supervision or examination by federal or
state authorities. The Paying Agent shall initially be the Trustee. The Trustee
may appoint a successor to act as Paying Agent, which appointment shall be
reasonably satisfactory to the Depositor.
(b) The Trustee shall cause the Paying Agent (if other than
the Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent shall hold all
sums, if any, held by it for payment to the Investor Certificateholders in trust
for the benefit of the Investor Certificateholders entitled thereto until such
sums shall be paid to such Certificateholders and shall agree that it shall
comply with all requirements of the Code regarding the withholding of payments
in respect of Federal income taxes due from Certificate Owners and otherwise
comply with the provisions of this Agreement applicable to it.
Section 6.07. Acceptance of Obligations. The Transferor, by
its acceptance of the Transferor Certificates, agrees to be bound by and to
perform all the duties of the Transferor set forth in this Agreement.
ARTICLE VII
THE MASTER SERVICER AND THE DEPOSITOR
Section 7.01. Liability of the Master Servicer and the
Depositor. The Master Servicer shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Master Servicer herein. The Depositor shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Depositor.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor. Any corporation into which
the Master Servicer or the Depositor may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Master Servicer or the Depositor shall be a party, or any corporation succeeding
to the business of the Master Servicer or the Depositor, shall be the successor
of the Master Servicer or the Depositor, as the case may be, hereunder, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding.
Section 7.03. Limitation on Liability of the Master Servicer
and Others. Neither the Master Servicer nor any of the directors or officers or
employees or agents of the Master Servicer shall be under any liability to the
Trust or the Certificateholders for any action taken or for refraining from
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the taking of any action by the Master Servicer in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Master Servicer or any such Person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties of the Master Servicer or by
reason of reckless disregard of obligations and duties of the Master Servicer
hereunder. The Master Servicer and any director or officer or employee or agent
of the Master Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Master Servicer and any director or officer or employee
or agent of the Master Servicer shall be indemnified by the Trust and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of its willful misfeasance, bad faith or gross negligence in
the performance of duties hereunder or by reason of its reckless disregard of
obligations and duties hereunder. The Master Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to duties to service the Mortgage Loans in accordance with this
Agreement, and which in its opinion may involve it in any expense or liability;
provided, however, that the Master Servicer may in its sole discretion undertake
any such action which it may deem necessary or desirable in respect of this
Agreement, and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In such event, the reasonable legal expenses
and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust and the Master Servicer shall only
be entitled to be reimbursed therefor pursuant to Section 5.01(a)(ix). The
Master Servicer's right to indemnity or reimbursement pursuant to this Section
7.03 shall survive any resignation or termination of the Master Servicer
pursuant to Section 7.04 or 8.01 with respect to any losses, expenses, costs or
liabilities arising prior to such resignation or termination (or arising from
events that occurred prior to such resignation or termination).
Section 7.04. Master Servicer Not to Resign. Subject to the
provisions of Section 7.02, the Master Servicer shall not resign from the
obligations and duties hereby imposed on it except (i) upon determination that
the performance of its obligations or duties hereunder are no longer permissible
under applicable law or are in material conflict by reason of applicable law
with any other activities carried on by it or its subsidiaries or Affiliates,
the other activities of the Master Servicer so causing such a conflict being of
a type and nature carried on by the Master Servicer or its subsidiaries or
Affiliates at the date of this Agreement or (ii) upon satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor servicer
to the Trustee in writing and such proposed successor servicer is reasonably
acceptable to the Trustee; (b) each Rating Agency shall have delivered a letter
to the Trustee prior to the appointment of the successor servicer stating that
the proposed appointment of such successor servicer as Master Servicer hereunder
will not result in the reduction or withdrawal of the then current rating of the
Investor Certificates without regard to the Policy; and (c) such proposed
successor servicer is reasonably acceptable to the Credit Enhancer, as evidenced
by a letter to the Trustee; provided, however, that no such resignation by the
Master Servicer shall become effective until the Trustee or successor servicer
designated by the Master Servicer as provided above shall have assumed the
Master Servicer's responsibilities and obligations hereunder or the Trustee
shall have designated a successor servicer in accordance with Section 8.02. Any
such resignation shall not relieve the Master Servicer of responsibility for any
of the obligations specified in Sections 8.01 and 8.02 as obligations that
survive the resignation or termination of the Master Servicer. Any such
determination permitting the resignation of the Master Servicer pursuant to
clause (i) above shall be evidenced by an Opinion of Counsel to such effect
delivered to the Trustee and the Credit Enhancer. The Master Servicer shall have
no claim (whether by
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subrogation or otherwise) or other action against any Certificateholder or the
Credit Enhancer for any amounts paid by the Master Servicer pursuant to any
provision of this Agreement.
Section 7.05. Delegation of Duties. In the ordinary course of
business, the Master Servicer at any time may delegate any of its duties
hereunder to any Person, including any of its Affiliates, or any subservicer
referred to in Section 3.01, who agrees to conduct such duties in accordance
with standards comparable to those with which the Master Servicer complies
pursuant to Section 3.01. Such delegation shall not relieve the Master Servicer
of its liabilities and responsibilities with respect to such duties and shall
not constitute a resignation within the meaning of Section 7.04.
Section 7.06. Indemnification of the Trust by the Master
Servicer. The Master Servicer shall indemnify and hold harmless the Trust and
the Trustee from and against any loss, liability, expense, damage or injury
suffered or sustained by reason of the Master Servicer's activities or omissions
in servicing or administering the Mortgage Loans that are not in accordance with
this Agreement, including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim. Any
such indemnification shall not be payable from the assets of the Trust. The
provisions of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof. The provisions of this Section
7.06 shall survive termination of this Agreement.
Section 7.07. Indemnification of the Trust by the Transferor.
Notwithstanding anything to the contrary contained herein, the Transferor (i)
agrees to be liable directly to the injured party for the entire amount of any
losses, claims, damages, liabilities and expenses of the Trust (other than those
attributable to an Investor Certificateholder in the capacity as an investor in
the Investor Certificates as a result of defaults on the Mortgage Loans) to the
extent that the Transferor would be liable if the Trust were a partnership under
the Delaware Revised Uniform Limited Partnership Act in which the Transferor was
a general partner and (ii) shall indemnify and hold harmless the Trust and the
Trustee from and against any loss, liability, expense, damage, claim or injury
(other than those attributable to an Investor Certificateholder in the capacity
as an investor in the Investor Certificates as a result of defaults on the
Mortgage Loans) arising out of or based on this Agreement by reason of any acts,
omissions, or alleged acts or omissions arising out of activities of the Trust
or the Trustee, or the actions of the Master Servicer including, but not limited
to, amounts payable to the Master Servicer pursuant to Section 7.03, any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided that the Transferor shall not indemnify
the Trustee (but shall indemnify any other injured party) if such loss,
liability, expense, damage or injury is due to the Trustee's willful
malfeasance, bad faith or gross negligence or by reason of the Trustee's
reckless disregard of its obligations hereunder. The provisions of this
indemnity shall run directly to and be enforceable by an injured party subject
to the limitations hereof.
Section 7.08. Limitation on Liability of the Transferor. None
of the directors or officers or employees or agents of the Transferor shall be
under any liability to the Trust, the Trustee or the Certificateholders, it
being expressly understood that all such liability is expressly waived and
released as a condition of, and as consideration for, the execution of this
Agreement and the issuance of the Certificates; provided, however, that this
provision shall not protect any such Person against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of the duties hereunder. Except as provided in
Section 7.07, the Transferor shall not be under any liability to the Trust, the
Trustee or the Certificateholders for any action taken or for refraining from
the taking of any action in its capacity as Transferor pursuant to this
Agreement whether arising
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from express or implied duties under this Agreement; provided, however, that
this provision shall not protect the Transferor against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties hereunder. The Transferor and any director or
officer or employee or agent of the Transferor may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder.
ARTICLE VIII
SERVICING TERMINATION
Section 8.01. Events of Servicing Termination. If any one of
the following events ("Events of Servicing Termination") shall occur and be
continuing:
(i) Any failure by the Master Servicer to deposit in
the Collection Account any deposit required to be made under the terms
of this Agreement which continues unremedied for a period of five
Business Days after the date upon which written notice of such failure
shall have been given to the Master Servicer by the Trustee or to the
Master Servicer and the Trustee by the Credit Enhancer or Holders of
Investor Certificates evidencing Percentage Interests aggregating not
less than 25%; or
(ii) Failure on the part of the Master Servicer duly
to observe or perform in any material respect any other covenants or
agreements of the Master Servicer set forth in the Certificates or in
this Agreement, which failure continues unremedied for a period of 60
days after the date on which written notice of such failure, requiring
the same to be remedied, and stating that such notice is a "Notice of
Default" hereunder, shall have been given to the Master Servicer by the
Trustee or to the Master Servicer and the Trustee by the Credit
Enhancer or the Holders of Investor Certificates evidencing Percentage
Interests aggregating not less than 25%; or
(iii) The entry against the Master Servicer of a
decree or order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days; or
(iv) The consent by the Master Servicer to the
appointment of a trustee, conservator, receiver or liquidator in any
insolvency, conservatorship, receivership, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to substantially all
of its property; or the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations;
then, and in each and every such case, so long as an Event of Servicing
Termination shall not have been remedied by the Master Servicer, with respect to
an Event of Servicing Termination specified in (i) - (iv), above, either the
Trustee, the Credit Enhancer or the Holders of Investor Certificates evidencing
Percentage Interests aggregating not less than 51%, by notice then given in
writing to the Master Servicer
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(and to the Trustee if given by the Credit Enhancer or the Holders of Investor
Certificates) may terminate all of the rights and obligations of the Master
Servicer as servicer under this Agreement. Any such notice to the Master
Servicer shall also be given to each Rating Agency and the Credit Enhancer. On
or after the receipt by the Master Servicer of such written notice, all
authority and power of the Master Servicer under this Agreement, whether with
respect to the Certificates or the Mortgage Loans or otherwise, shall pass to
and be vested in the Trustee pursuant to and under this Section 8.01; and,
without limitation, the Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Mortgage
Loan and related documents, or otherwise. The Master Servicer agrees to
cooperate with the Trustee in effecting the termination of the responsibilities
and rights of the Master Servicer hereunder, including, without limitation, the
transfer to the Trustee for the administration by it of all cash amounts that
shall at the time be held by the Master Servicer and to be deposited by it in
the Collection Account, or that have been deposited by the Master Servicer in
the Collection Account or thereafter received by the Master Servicer with
respect to the Mortgage Loans. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with transferring the Mortgage Files to
the successor Master Servicer and amending this Agreement to reflect such
succession as Master Servicer pursuant to this Section 8.01 shall be paid by the
predecessor Master Servicer (or if the predecessor Master Servicer is the
Trustee, the initial Master Servicer) upon presentation of reasonable
documentation of such costs and expenses.
Notwithstanding the foregoing, a delay in or failure of
performance under Section 8.01(i) for a period of ten Business Days or under
Section 8.01(ii) for a period of 60 Business Days, shall not constitute an Event
of Servicing Termination if such delay or failure could not be prevented by the
exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God or the public enemy, acts of declared or
undeclared war, public disorder, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Master Servicer from using its best
efforts to perform its respective obligations in a timely manner in accordance
with the terms of this Agreement and the Master Servicer shall provide the
Trustee, the Transferor, the Credit Enhancer and the Investor Certificateholders
with an Officers' Certificate giving prompt notice of such failure or delay by
it, together with a description of its efforts to so perform its obligations.
The Master Servicer shall immediately notify the Trustee in writing of any
Events of Servicing Termination.
Section 8.02. Trustee to Act; Appointment of Successor. (a) On
and after the time the Master Servicer receives a notice of termination pursuant
to Section 8.01 or 7.04, the Trustee shall be the successor in all respects to
the Master Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer by the terms and provisions hereof. Notwithstanding the above, if the
Trustee becomes the Master Servicer hereunder, it shall have no responsibility
or obligation (i) of repurchase or substitution with respect to any Mortgage
Loan, (ii) with respect to any representation or warranty of the Master
Servicer, and (iii) for any act or omission of either a predecessor or successor
Master Servicer other than the Trustee. As compensation therefor, the Trustee
shall be entitled to such compensation as the Master Servicer would have been
entitled to hereunder if no such notice of termination had been given. In
addition, the Trustee will be entitled to compensation with respect to its
expenses in connection with conversion of certain information, documents and
record keeping, as provided in Section 7.04(b). Notwithstanding the above, (i)
if the Trustee is unwilling to act as successor Master Servicer, or (ii) if the
Trustee is legally unable so to act, the Trustee may (in the situation described
in clause (i)) or shall (in the situation described in clause (ii))
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appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan or
home equity loan servicer having a net worth of not less than $______________ as
the successor to the Master Servicer hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the Master Servicer
hereunder; provided that any such successor Master Servicer shall be acceptable
to the Credit Enhancer, as evidenced by the Credit Enhancer's prior written
consent, which consent shall not be unreasonably withheld; and provided further
that the appointment of any such successor Master Servicer will not result in
the qualification, reduction or withdrawal of the ratings assigned to the
Certificates by the Rating Agencies without regard to the Policy. Pending
appointment of a successor to the Master Servicer hereunder, unless the Trustee
is prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Mortgage
Loans in an amount equal to the compensation which the Master Servicer would
otherwise have received pursuant to Section 3.08 (or such lesser compensation as
the Trustee and such successor shall agree). The Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Trustee, to the Master
Servicer as servicer shall during the term of its service as servicer (i)
continue to service and administer the Mortgage Loans for the benefit of
Certificateholders and the Credit Enhancer and (ii) maintain in force a policy
or policies of insurance covering errors and omissions in the performance of its
obligations as Master Servicer hereunder and a fidelity bond in respect of its
officers, employees and agents to the same extent as the Master Servicer is so
required pursuant to Section 3.12. The appointment of a successor Master
Servicer shall not affect any liability of the predecessor Master Servicer which
may have arisen under this Agreement prior to its termination as Master Servicer
(including, without limitation, any deductible under an insurance policy
pursuant to Section 3.04), nor shall any successor Master Servicer be liable for
any acts or omissions of the predecessor Master Servicer or for any breach by
such Master Servicer of any of their representations or warranties contained
herein.
Section 8.03. Notification to Certificateholders. Upon any
termination or appointment of a successor to the Master Servicer pursuant to
this Article VIII or Section 7.04, the Trustee shall give prompt written notice
thereof to the Certificateholders at their respective addresses appearing in the
Certificate Register, the Credit Enhancer and each Rating Agency.
ARTICLE IX
THE TRUSTEE
Section 9.01. Duties of Trustee. The Trustee, prior to the
occurrence of an Event of Servicing Termination and after the curing or waiver
of all Events of Servicing Termination which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Servicing Termination has occurred (which has not been
cured or waived) of which a Responsible Officer has knowledge, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
provided, however, that if the Trustee is acting as Master Servicer it shall use
the same degree of care and skill as is required of the Master Servicer under
this Agreement.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be
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furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Servicing
Termination of which a Responsible Officer of the Trustee has
knowledge, and after the curing or waiver of all such Events of
Servicing Termination which may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except
for the performance of such duties and obligations as are specifically
set forth in this Agreement, no implied covenants or obligations shall
be read into this Agreement against the Trustee and, in the absence of
bad faith on the part of the Trustee, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished
to the Trustee and conforming to the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for
an error of judgment made in good faith by a Responsible Officer of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining or investigating the facts related thereto;
(iii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the consent or direction of the Credit
Enhancer or in accordance with the direction of the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than
51% relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Agreement; and
(iv) the Trustee shall not be charged with knowledge
of any failure by the Master Servicer to comply with the obligations of
the Master Servicer referred to in clauses (i) and (ii) of Section 8.01
or of the occurrence of a Rapid Amortization Event unless a Responsible
Officer of the Trustee at the Corporate Trust Office obtains actual
knowledge of such failure or the Trustee receives written notice of
such failure from the Master Servicer, the Credit Enhancer or the
Holders of Investor Certificates evidencing Percentage Interests
aggregating not less than 51%.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it. None
of the provisions contained in this Agreement shall in any event require the
Trustee to perform, or be responsible for the manner of performance of, any of
the obligations of the Master Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Master Servicer in accordance with
the terms of this Agreement and in no event shall it be required to perform or
accept responsibility for the obligations of the Depositor, the Seller or the
Transferor.
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Section 9.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 9.01:
(i) the Trustee may request and rely upon, and shall
be protected in acting or refraining from acting upon, any resolution,
Officer's Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document reasonably
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(ii) the Trustee may consult with counsel and any
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken or suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
(iii) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement, or
to institute, conduct or defend any litigation hereunder or in relation
hereto, at the request, order or direction of any of the
Certificateholders or the Credit Enhancer, pursuant to the provisions
of this Agreement, unless such Certificateholders or the Credit
Enhancer shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby; the right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be construed
as a duty, and the Trustee shall not be answerable for other than its
negligence or wilful misconduct in the performance of any such act;
nothing contained herein shall, however, relieve the Trustee of the
obligations, upon the occurrence of an Event of Servicing Termination
(which has not been cured or waived) of which a Responsible Officer has
knowledge, to exercise such of the rights and powers vested in it by
this Agreement, and to use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs, unless it is acting as Master
Servicer;
(iv) the Trustee shall not be personally liable for
any action taken, suffered or omitted by it in good faith and believed
by it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(v) prior to the occurrence of an Event of Servicing
Termination and after the curing or waiver of all Events of Servicing
Termination which may have occurred, the Trustee shall not be bound to
make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond or other paper or
documents, unless requested in writing to do so by Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than
51%; provided, however, that if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded
to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such cost, expense or liability as a
condition to such proceeding. The reasonable expense of every such
examination shall be paid by the Master Servicer or, if paid by the
Trustee, shall be reimbursed by the Master Servicer upon demand.
Nothing in this clause (v) shall derogate from the obligation of the
Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors;
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(vi) the Trustee shall not be accountable, shall have
no liability and makes no representation as to any acts or omissions
hereunder of the Master Servicer until such time as the Trustee may be
required to act as Master Servicer pursuant to Section 8.02; and
(vii) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through an Affiliate, agents or attorneys or a custodian.
Section 9.03. Trustee Not Liable for Certificates or Mortgage
Loans. The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement or of the Certificates (other than the
signature and authentication of the Trustee on the Certificates) or of any
Mortgage Loan or Related Document. The Trustee shall not be accountable for the
use or application by the Depositor of any of the Certificates or of the
proceeds of such Certificates, or for the use or application of any funds paid
to the Depositor or the Master Servicer in respect of the Mortgage Loans or
deposited in or withdrawn from the Collection Account by the Master Servicer.
The Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any Mortgage or any
Mortgage Loan, or the perfection and priority of any Mortgage or the maintenance
of any such perfection and priority, or for or with respect to the sufficiency
of the Trust or its ability to generate the payments to be distributed to
Certificateholders under this Agreement, including, without limitation: the
existence, condition and ownership of any Mortgaged Property; the existence and
enforceability of any hazard insurance thereon (other than if the Trustee shall
assume the duties of the Master Servicer pursuant to Section 8.02); the validity
of the assignment of any Mortgage Loan to the Trustee or of any intervening
assignment; the completeness of any Mortgage Loan; the performance or
enforcement of any Mortgage Loan (other than if the Trustee shall assume the
duties of the Master Servicer pursuant to Section 8.02); the compliance by the
Depositor, the Seller or the Master Servicer with any warranty or representation
made under the Purchase Agreement, this Agreement or in any related document or
the accuracy of any such warranty or representation prior to the Trustee's
receipt of notice or other discovery of any non-compliance therewith or any
breach thereof; any investment of monies by or at the direction of the Master
Servicer or any loss resulting therefrom, it being understood that the Trustee
shall remain responsible for any Trust property that it may hold in its
individual capacity; the acts or omissions of any of the Depositor, the Master
Servicer (other than if the Trustee shall assume the duties of the Master
Servicer pursuant to Section 8.02), any subservicer or any Mortgagor; any action
of the Master Servicer (other than if the Trustee shall assume the duties of the
Master Servicer pursuant to Section 8.02), or any subservicer taken in the name
of the Trustee; the failure of the Master Servicer or any subservicer to act or
perform any duties required of it as agent of the Trustee hereunder; or any
action by the Trustee taken at the instruction of the Master Servicer (other
than if the Trustee shall assume the duties of the Master Servicer pursuant to
Section 8.02); provided, however, that the foregoing shall not relieve the
Trustee of its obligation to perform its duties under this Agreement. The
Trustee shall have no responsibility for filing any financing or continuation
statement in any public office at any time or to otherwise perfect or maintain
the perfection of any security interest or lien granted to it hereunder (unless
the Trustee shall have become the successor Master Servicer) or to prepare or
file any Securities and Exchange Commission filing for the Trust or to record
this Agreement.
Section 9.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights as it would have if it were not Trustee and may transact
any banking and trust business with the Seller, the Master Servicer, the Credit
Enhancer or the Depositor.
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Section 9.05. Master Servicer to Pay Trustee's Fees and
Expenses; Master Servicer to Indemnify. The Master Servicer covenants and agrees
to pay to the Trustee from time to time, and the Trustee shall be entitled to,
reasonable compensation (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) for all services
rendered by it in the execution of the trusts hereby created and in the exercise
and performance of any of the powers and duties hereunder of the Trustee, and
the Master Servicer will pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith or which is the
responsibility of Certificateholders hereunder. The Master Servicer covenants
and agrees to indemnify the Trustee from, and hold it harmless against, any and
all losses, liabilities, damages, claims or expenses other than those resulting
from the negligence or bad faith of the Trustee. This section shall survive
termination of this Agreement or the resignation or removal of any Trustee
hereunder.
Section 9.06. Eligibility Requirements for Trustee. The
Trustee hereunder shall at all times be a corporation duly incorporated and
validly existing under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $____________, subject to supervision
or examination by federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.06, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The principal office of the Trustee (other
than the initial Trustee) shall be in a state with respect to which an Opinion
of Counsel has been delivered to such Trustee at the time such Trustee is
appointed Trustee to the effect that the Trust will not be a taxable entity
under the laws of such state. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.07.
Section 9.07. Resignation or Removal of Trustee. The Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Transferor, the Depositor, the Master
Servicer, the Credit Enhancer and each Rating Agency. Upon receiving such notice
of resignation, the Transferor shall promptly appoint a successor Trustee
(approved in writing by the Credit Enhancer, so long as such approval is not
unreasonably withheld) by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee (who shall deliver a copy
to the Master Servicer) and one copy to the successor Trustee; provided,
however, that any such successor Trustee shall be subject to the prior written
approval of the Transferor. If no successor Trustee shall have been so appointed
and have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.06 and shall fail to resign after
written request therefor by the Transferor or the Credit Enhancer, or if at any
time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if a tax is imposed or threatened with respect to the Trust Fund
by any state in which the Trustee or the Trust Fund is located (which tax cannot
be vacated by the appointment of a co-Trustee or separate trustee pursuant to
Section 9.10), then the Transferor or the Credit Enhancer
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may remove the Trustee. If the Transferor or the Credit Enhancer removes the
Trustee under the authority of the immediately preceding sentence, the
Transferor shall promptly appoint a successor Trustee (approved in writing by
the Credit Enhancer, which approval shall not be unreasonably withheld) by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
The Holders of Investor Certificates evidencing Percentage
Interests aggregating over ____% of all Investor Certificates may at any time
remove the Trustee by written instrument or instruments delivered to the Master
Servicer, the Transferor and the Trustee; the Transferor shall thereupon use its
best efforts to appoint a successor trustee in accordance with this Section.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.07 shall
not become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Section 9.08. Successor Trustee. Any successor Trustee
appointed as provided in Section 9.07 shall execute, acknowledge and deliver to
the Transferor, the Depositor, the Master Servicer, the Credit Enhancer and to
its predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The Transferor, the Depositor, the Master Servicer and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties and
obligations.
No successor Trustee shall accept appointment as provided in
this Section 9.08 unless at the time of such acceptance such successor Trustee
shall be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor Trustee as
provided in this Section 9.08, the successor Trustee shall mail notice of the
succession of such Trustee hereunder to all Holders of Certificates at their
addresses as shown in the Certificate Register and to each Rating Agency. If the
Master Servicer fails to mail such notice within 30 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Master Servicer.
Section 9.09. Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all of the business of the Trustee, shall be the successor
of the Trustee hereunder, provided such Person shall be eligible under the
provisions of Section 9.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property may at the time be located, the
Transferor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments necessary to appoint one or more Persons approved by
the Credit Enhancer to act as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the
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Certificateholders, such title to the Trust, or any part thereof, and, subject
to the other provisions of this Section 9.10, such powers, duties, obligations,
rights and trusts as the Transferor and the Trustee may consider necessary or
desirable. Any such co-trustee or separate trustee shall be subject to the
written approval of the Master Servicer. If the Transferor shall not have joined
in such appointment within 15 days after the receipt by it of a request so to
do, or in the case an Event of Servicing Termination shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 9.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 9.08. The Master Servicer shall be responsible
for the fees of any co-trustee or separate trustee appointed hereunder.
Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Trustee joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to the Master
Servicer hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) no trustee hereunder shall be held personally
liable by reason of any act or omission of any other trustee hereunder;
and
(iii) the Master Servicer and the Trustee acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee except that following the occurrence of
an Event of Servicing Termination, the Trustee acting alone may accept
the resignation or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article IX. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee and a
copy thereof given to the Transferor and the Master Servicer.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor Trustee.
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Section 9.11. Limitation of Liability. The Certificates are
executed by the Trustee, not in its individual capacity but solely as Trustee of
the Trust, in the exercise of the powers and authority conferred and vested in
it by the Trust Agreement. Each of the undertakings and agreements made on the
part of the Trustee in the Certificates is made and intended not as a personal
undertaking or agreement by the Trustee but is made and intended for the purpose
of binding only the Trust.
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and such proceeding instituted by the Trustee shall
be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursement and advances of the Trustee, its agents and counsel, be
for the ratable benefit or the Certificateholders in respect of which such
judgment has been recovered.
Section 9.13. Suits for Enforcement. In case an Event of
Servicing Termination or other default by the Master Servicer, the Transferor or
the Depositor hereunder shall occur and be continuing, the Trustee, in its
discretion, may proceed to protect and enforce its rights and the rights of the
Investor Certificateholders under this Agreement by a suit, action or proceeding
in equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution of
any power granted in this Agreement or for the enforcement of any other legal,
equitable or other remedy, as the Trustee, being advised by counsel, shall deem
most effectual to protect and enforce any of the rights of the Trustee and the
Certificateholders.
ARTICLE X
TERMINATION
Section 10.01. Termination. (a) The respective obligations and
responsibilities of the Master Servicer, the Depositor, the Transferor and the
Trustee created hereby (other than the obligation of the Trustee to make certain
payments to Certificateholders after the final Distribution Date and the
obligation of the Master Servicer to send certain notices as hereinafter set
forth) shall terminate upon the last action required to be taken by the Trustee
on the final Distribution Date pursuant to this Article X following the later of
(A) payment in full of all amounts owing to the Credit Enhancer and (B) the
earliest of (i) the transfer, under the conditions specified in Section
10.01(b), to the Transferor of the Investor Certificateholders' interest in each
Mortgage Loan and all property acquired in respect of any Mortgage Loan
remaining in the Trust for an amount equal to the sum of (w) the Investor
Certificate Principal Balance, (x) accrued and unpaid Investor Certificate
Interest through the day preceding the final Distribution Date, and (y) interest
accrued on any Unpaid Investor Certificate Interest Shortfall, to the extent
legally permissible, (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Investor
Certificate Principal Balance to zero, (iii) the final payment or other
liquidation of the last Mortgage Loan remaining in the Trust (including without
limitation the disposition of the Mortgage Loans pursuant to Section 10.02) or
the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan (iv) the Distribution Date in ____________
20___; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the date of the last survivor
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof. Upon termination in
accordance with clause (i) or (ii) of this Section 10.01, the Trustee shall
execute such documents and instruments of transfer presented by the Transferor,
in each case without
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recourse, representation or warranty, and take such other actions as the
Transferor may reasonably request to effect the transfer of the Mortgage Loans
to the Transferor.
(b) The Transferor shall have the right to exercise the option
to effect the transfer to the Transferor of each Mortgage Loan pursuant to
Section 10.01(a) above on any Distribution Date on or after the Distribution
Date immediately prior to which the Investor Certificate Principal Balance is
less than _____ percent (____%) of the Original Investor Certificate Principal
Balance and all amounts due and owing to the Credit Enhancer for unpaid premiums
and unreimbursed draws on the Policy, together with interest thereon as provided
under the Insurance Agreement, have been paid.
(c) Notice of any termination, specifying the Distribution
Date (which shall be a date that would otherwise be a Distribution Date) upon
which the Investor Certificateholders may surrender their Investor Certificates
to the Trustee for payment of the final distribution and cancellation, shall be
given promptly by the Trustee (upon receipt of written directions from the
Transferor, if the Transferor is exercising its right to transfer of the
Mortgage Loans, given not later than the first day of the month preceding the
month of such final distribution) to the Credit Enhancer and to the Master
Servicer by letter to Investor Certificateholders mailed not earlier than the
15th day and not later than the 25th day of the month next preceding the month
of such final distribution specifying (i) the Distribution Date upon which final
distribution of the Investor Certificates will be made upon presentation and
surrender of Investor Certificates at the office or agency of the Trustee
therein designated, (ii) the amount of any such final distribution and (iii)
that the Record Date otherwise applicable to such Distribution Date is not
applicable, distributions being made only upon presentation and surrender of the
Investor Certificates at the office or agency of the Trustee therein specified.
In the event written directions are delivered by the Transferor to the Trustee
as described in the preceding sentence, the Transferor shall deposit in the
Collection Account on or before the Distribution Date for such final
distribution in immediately available funds an amount which, when added to the
funds on deposit in the Collection Account that are payable to the Investor
Certificateholders, will be equal to the retransfer amount for the Mortgage
Loans computed as above provided.
(d) Upon presentation and surrender of the Investor
Certificates, the Trustee shall cause to be distributed to the Holders of
Investor Certificates on the Distribution Date for such final distribution, in
proportion to the Percentage Interests of their respective Investor Certificates
and to the extent that funds are available for such purpose, an amount equal to
(i) if such final distribution is not being made pursuant to the transfer to the
Transferor pursuant to Section 10.01(a)(i), the amount required to be
distributed to Investor Certificateholders pursuant to Section 5.01 for such
Distribution Date and (ii) if such final distribution is being made pursuant to
such retransfer, the amount specified in Section 10.01(a)(i). The distribution
on such final Distribution Date pursuant to a retransfer pursuant to Section
10.01(a)(i) shall be in lieu of the distribution otherwise required to be made
on such Distribution Date in respect of the Certificates. On the final
Distribution Date prior to having made the distributions called for above, the
Trustee shall, based upon the information set forth in the Servicing Certificate
for such Distribution Date, withdraw from the Collection Account and remit to
the Credit Enhancer the lesser of (x) the amount available for distribution on
such final Distribution Date, net of any portion thereof necessary to pay the
amounts described in clauses (d)(i) and (ii) above and (y) the unpaid amounts
due and owing to the Credit Enhancer for unpaid premiums and unreimbursed draws
on the Policy, together with interest thereon as provided under the Insurance
Agreement.
(e) In the event that all of the Investor Certificateholders
shall not surrender their Investor Certificates for final payment and
cancellation on or before such final Distribution Date, the Trustee shall on
such date cause all funds in the Collection Account not distributed in final
distribution
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to Investor Certificateholders to be withdrawn therefrom and credited to the
remaining Investor Certificateholders by depositing such funds in a separate
escrow account for the benefit of such Investor Certificateholders and the
Transferor (if the Transferor has exercised its right to transfer the Mortgage
Loans) or the Trustee (in any other case) shall give a second written notice to
the remaining Investor Certificateholders to surrender their Investor
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Investor
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Investor Certificateholders concerning surrender of their
Investor Certificates, and the cost thereof shall be paid out of the funds on
deposit in such escrow account.
ARTICLE XI
RAPID AMORTIZATION EVENTS
Section 11.01. Rapid Amortization Events. If any one of the
following events shall occur during the Managed Amortization Period:
(a) failure on the part of the Seller (i) to make any payment
or deposit required by the terms of this Agreement, on or before the
date occurring three Business Days after the date such payment or
deposit is required to be made herein or (ii) duly to observe or
perform in any material respect any other covenants or agreements of
the Seller set forth in the Purchase Agreement, which failure, in each
case, materially and adversely affects the interests of the
Certificateholders or the Credit Enhancer and which, in the case of
clause (ii), continues unremedied and continues to affect materially
and adversely the interests of the Certificateholders for a period of
60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Seller
by the Trustee, or to the Seller and the Trustee by the Holders of
Investor Certificates evidencing Percentage Interests aggregating not
less than 51%;
(b) any representation or warranty made by the Seller in the
Purchase Agreement or the Depositor in this Agreement shall prove to
have been incorrect in any material respect when made, as a result of
which the interests of the Investor Certificateholders or the Credit
Enhancer are materially and adversely affected and which continues to
be incorrect in any material respect and continues to affect materially
and adversely the interests of the Certificateholders or the Credit
Enhancer for a period of 60 days after the date on which written notice
of such failure, requiring the same to be remedied, shall have been
given to the Seller or the Depositor, as the case may be, by the
Trustee, or to the Seller, the Depositor and the Trustee by either the
Credit Enhancer or the Holders of Investor Certificates evidencing
Percentage Interests aggregating not less than 51%; provided, however,
that a Rapid Amortization Event pursuant to this subparagraph (b) shall
not be deemed to have occurred hereunder if the Transferor has accepted
retransfer of the related Mortgage Loan or Mortgage Loans during such
period (or such longer period (not to exceed an additional 60 days) as
the Trustee may specify) in accordance with the provisions hereof;
(c) the Transferor or the Depositor shall voluntarily go into
liquidation, consent to the appointment of a conservator or receiver or
liquidator or similar person in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or
relating to the Transferor or the Depositor, or of or relating to all
or substantially all of such Person's
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property, or a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver, liquidator or similar person in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Transferor or the Depositor and such
decree or order shall have remained in force undischarged or unstayed
for a period of 30 days; or the Transferor or the Depositor shall admit
in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its
creditors or voluntarily suspend payment of its obligations; or
(d) the Trust shall become subject to registration as an
"investment company" under the Investment Company Act of 1940, as
amended;
then, in the case of any event described in subparagraph (a) or (b) after the
applicable grace period, if any, set forth in such subparagraphs, either the
Trustee, the Credit Enhancer or the Holders of Investor Certificates evidencing
Percentage Interests aggregating more than 51%, by notice given in writing to
the Transferor, the Depositor and the Master Servicer (and to the Trustee if
given by either the Credit Enhancer or the Investor Certificateholders) may
declare that an early amortization event (a "Rapid Amortization Event") has
occurred as of the date of such notice, and in the case of any event described
in subparagraph (c) or (d), a Rapid Amortization Event shall occur without any
notice or other action on the part of the Trustee, the Credit Enhancer or the
Investor Certificateholders, immediately upon the occurrence of such event.
Section 11.02. Additional Rights Upon the Occurrence of
Certain Events.
(a) If the Transferor voluntarily goes into liquidation or
consents to the appointment of a conservator or receiver or liquidator or
similar person in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings of or relating to the Transferor or of or
relating to all or substantially all its property, or a decree or order of a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a conservator or receiver or liquidator or similar person in
any insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Transferor and such decree shall have remained in
force undischarged or unstayed for a period of 30 days; or the Transferor shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors or voluntarily
suspend payment of its obligations (such voluntary liquidation, appointment,
entering of such decree, admission, filing, making, suspension or violation or
other event described above, an "Insolvency Event"), the Transferor shall on the
day of such appointment, voluntary liquidation, entering of such decree,
admission, filing, making, suspension or inability, as the case may be (the
"Appointment Day"), promptly give notice to the Trustee, the Master Servicer and
the Credit Enhancer of such Insolvency Event. Within 15 days of the receipt by
the Trustee of the Transferor's notice of an Insolvency Event, the Trustee shall
(i) publish a notice in Authorized Newspapers that an Insolvency Event has
occurred and that the Trustee intends to direct the Master Servicer to sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner and (ii) send written notice to the Investor
Certificateholders describing the provisions of this Section 11.02, which notice
shall inform Investor Certificateholders that unless more than _____% of all
Investor Certificateholders advise the Trustee in writing that they wish the
Trustee to instruct the Master Servicer not to sell, dispose of or otherwise
liquidate the Mortgage Loans within 90 days from the day notice pursuant to
clause (i) above is first published (the "Publication Date"), the Trustee shall
instruct
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the Master Servicer to proceed to sell, dispose of, or otherwise liquidate the
Mortgage Loans in a commercially reasonable manner and on commercially
reasonable terms, which shall include the solicitation of competitive bids, and
shall proceed to consummate the sale, liquidation or disposition of the Mortgage
Loans as provided above with the highest bidder for the Mortgage Loans. The
Transferor shall be permitted to bid for the Mortgage Loans. The Trustee may
obtain a prior determination from such conservator or receiver that the terms
and manner of any proposed sale, disposition or liquidation are commercially
reasonable. The provisions of Sections 11.01 and 11.02 shall not be deemed to be
mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of
the Mortgage Loans pursuant to Section 11.02(a) above shall be treated as
collections on the Mortgage Loans received during the Rapid Amortization Period;
provided, however, that such proceeds will, based on amounts specified in
writing by the Master Servicer to the Trustee, first be paid to the Credit
Enhancer to reimburse the Credit Enhancer for previously unreimbursed Credit
Enhancement Draw Amounts and other amounts owing under the Insurance Agreement;
and provided, further, that the Certificateholders' Fixed Allocation Percentage
of such remaining proceeds shall be paid to Investor Certificateholders in the
following amounts and order of priority:
(i) all accrued and unpaid interest on the Investor
Certificate Principal Balance through the Interest Period immediately
preceding the Distribution Date on which such proceeds are distributed
to the Investor Certificateholders; and
(ii) an amount of principal up to the Investor
Certificate Principal Balance.
The Policy shall cover any shortfall in the event such proceeds are insufficient
to make the distributions to Investor Certificateholders pursuant to Section
11.02(b). On the day following the Distribution Date on which such proceeds are
distributed to the Investor Certificateholders, the Trust shall terminate.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Amendment. This Agreement may be amended from
time to time by the Master Servicer, the Depositor and the Trustee, in each case
without the consent of any of the Certificateholders, but only with the consent
of the Credit Enhancer (which consent shall not be unreasonably withheld), (i)
to cure any ambiguity, (ii) to correct any defective provisions or to correct or
supplement any provisions herein that may be inconsistent with any other
provisions herein, (iii) to add to the duties of the Transferor or the Master
Servicer, (iv) to add any other provisions with respect to matters or questions
arising under this Agreement or the Policy, as the case may be, which shall not
be inconsistent with the provisions of this Agreement, (v) to add or amend any
provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating organization in order to maintain or
improve any rating of the Investor Certificates (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Trustee, the
Depositor nor the Master Servicer is obligated to obtain, maintain or improve
any such rating), (vi) to add or amend any provisions of this Agreement to
correct or cure any defective provision or ambiguity as a result of a transfer
of the Transferor Certificates pursuant to Section 6.05, (vii) to comply with
any requirement imposed by the Code or (viii) to increase the Increased Senior
Lien Limitation; provided, however, that such action shall not, as evidenced by
an Opinion of Counsel, materially and adversely affect the interests of any
Certificateholder or the Credit Enhancer; and provided, further, that the
amendment shall not be
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deemed to adversely affect in any material respect the interests of the
Certificateholders and no opinion referred to in the preceding proviso shall be
required to be delivered if the Person requesting the amendment obtains a letter
from each Rating Agency stating that the amendment would not result in the
downgrading or withdrawal of the respective ratings then assigned to the
Investor Certificates without regard to the Policy. Notwithstanding the
foregoing, any amendment pursuant to clause (viii) above shall be permissible
only upon receipt of a letter from each Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Investor Certificateholders without regard to the Policy.
This Agreement also may be amended from time to time by the
Master Servicer, the Depositor and the Trustee, and the Master Servicer and the
Credit Enhancer, may from time to time consent to the amendment of the Policy
with the consent of the Holders of the Investor Certificates evidencing
Percentage Interests aggregating not less than 51%, and in the case of an
amendment to this Agreement, with the consent of the Credit Enhancer for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments on the
Certificates or distributions or payments under the Policy which are required to
be made on any Certificate without the consent of the Holder of such Certificate
or (ii) reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the Holders of all Certificates then
outstanding or (iii) adversely effect in any material respect the interests of
the Credit Enhancer.
Notwithstanding the foregoing, the Agreement may not be
amended unless, in connection with such amendment, an Opinion of Counsel is
furnished to the Trustee that such amendment will not (i) adversely affect the
status of the Investor Certificates as debt; (ii) result in the Trust being
taxable at the entity level; or (iii) result in the Trust being classified as a
taxable mortgage pool (as defined in Section 7701(i) of the Code).
Following the execution and delivery of any such amendment
hereto or to the Policy to which the Credit Enhancer was required to consent,
either the Transferor, if the Transferor requested the amendment, or the Master
Servicer, if the Master Servicer requested the amendment, shall reimburse the
Credit Enhancer for the reasonable out-of-pocket costs and expenses incurred by
the Credit Enhancer in connection with such amendment.
Prior to the execution of any such amendment, the party hereto
requesting any such amendment shall furnish written notification of the
substance of such amendment to each Rating Agency. In addition, promptly after
the execution of any such amendment made with the consent of the Investor
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Investor Certificateholder and fully
executed original counterparts of the instruments effecting such amendment to
the Credit Enhancer.
It shall not be necessary for the consent of Investor
Certificateholders under this Section 12.01 to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents and
of evidencing the authorization of the execution thereof by Certificateholders
shall be subject to such reasonable requirements as the Trustee may prescribe.
In executing any amendment permitted by this Section 12.01,
the Trustee shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that such
68
<PAGE> 74
amendment is authorized or permitted hereby and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Trustee
may, but shall not be obligated to, enter into any such amendment which affects
the Trustee's own rights, duties or immunities under this Agreement or
otherwise.
Section 12.02. Recordation of Agreement. This Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Trustee, but only upon direction of Investor Certificateholders
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of Investor
Certificateholders. The Investor Certificateholders requesting such recordation
shall bear all costs and expenses of such recordation. The Trustee shall have no
obligation to ascertain whether such recordation so affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
Section 12.03. Limitation on Rights of Certificateholders. The
death or incapacity of any Investor Certificateholder shall not operate to
terminate this Agreement or the Trust, nor entitle such Investor
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
provided in Sections 8.01, 9.01, 9.02, 11.01 and 12.01) or in any manner
otherwise control the operation and management of the Trust, or the obligations
of the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association;
nor shall any Investor Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
No Certificateholder shall have any right by virtue or by
availing itself of any provisions of this Agreement to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of Investor Certificates evidencing
Percentage Interests aggregating not less than 51% shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder, or to enforce
any right under this Agreement, except in the manner herein provided and for the
equal,
69
<PAGE> 75
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 12.03, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
By accepting its Investor Certificate, each Investor
Certificateholder agrees that unless a Credit Enhancer Default exists, the
Credit Enhancer shall have the right to exercise all rights of the Investor
Certificateholders under this Agreement without any further consent of the
Investor Certificateholders.
Section 12.04. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 12.05. Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by certified mail, return
receipt requested, to (a) in the case of the Depositor, 1585 Broadway, New York,
New York 10036, Attention: ____________________, (b) in the case of the Master
Servicer, [________________________________________________________, Attention:
____________________], (c) in the case of the Trustee, at the Corporate Trust
Office, (d) in the case of the Credit Enhancer,
_________________________________, Attention: ____________________ (telecopy
number ____________________), (e) in the case of [each Rating Agency],
___________________________________________________, and (f) in the case of
____________________, __________________________, or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party. [In each case in which a notice or other communication to the
Credit Enhancer refers to an Event of Servicing Termination or a claim under the
Policy or with respect to which failure on the part of the Credit Enhancer to
respond shall be deemed to constitute consent or acceptance, then a copy of such
notice or other communication should also be sent to the attention of the
______________ and the _____________________ and shall be marked to indicate
"URGENT MATERIAL ENCLOSED."] Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice. Any notice or other document required to be delivered or mailed by
the Trustee to any Rating Agency shall be given on a best efforts basis and only
as a matter of courtesy and accommodation and the Trustee shall have no
liability for failure to deliver such notice or document to any Rating Agency.
Section 12.06. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
Section 12.07. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 6.05, 7.02 and 7.04,
this Agreement may not be assigned by the Depositor or the Master Servicer
without the prior written consent of the Credit Enhancer and Holders of the
Investor Certificates evidencing Percentage Interests aggregating not less than
____%.
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<PAGE> 76
Section 12.08. Certificates Nonassessable and Fully Paid. The
parties agree that the Investor Certificateholders shall not be personally
liable for obligations of the Trust, that the beneficial ownership interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust or for any reason whatsoever, and that the Certificates
upon execution, authentication and delivery thereof by the Trustee pursuant to
Section 2.08 or 6.02 are and shall be deemed fully paid.
Section 12.09. Third-Party Beneficiaries. This Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Certificateholders, the Certificate Owners, the Credit Enhancer and their
respective successors and permitted assigns. Except as otherwise provided in
this Agreement, no other Person will have any right or obligation hereunder.
Section 12.10. Counterparts. This instrument may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and the
same instrument.
Section 12.11. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 12.12. Insurance Agreement. The Trustee is authorized
and directed to execute and deliver the Insurance Agreement and to perform the
obligations of the Trustee thereunder.
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<PAGE> 77
IN WITNESS WHEREOF, the Depositor, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers all as of the day and year first above written.
MORGAN STANLEY ABS CAPITAL I INC.,
as Depositor
By:
---------------------------
Name:
Title:
[----------------------------],
as Master Servicer
By:
---------------------------
Name:
Title:
[---------------------------],
as Trustee
By:
---------------------------
Name:
Title:
72
<PAGE> 78
State of )
) ss.:
County of )
On the __th day of __________, 199_ before me, a notary public
in and for the State of ________, personally appeared _____________________,
known to me who, being by me duly sworn, did depose and say that he resides at
_________________, ____________, ________ _____; that he is the ______________
of _____________________________, a [New York] corporation, one of the parties
that executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that he signed his name thereto by like order.
-----------------------
Notary Public
[Notarial Seal]
73
<PAGE> 79
State of )
) ss.:
County of )
On the __th day of __________, 199_ before me, a notary public
in and for the State of ________, personally appeared _____________________,
known to me who, being by me duly sworn, did depose and say that he resides at
_________________, ____________, ________ _____; that he is the ______________
of _____________________________, a national banking association, one of the
parties that executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that he signed his name thereto by like order.
-----------------------------
Notary Public
[Notarial Seal]
74
<PAGE> 80
State of )
) ss.:
County of )
On the __th day of ______________, 199_ before me, a notary
public in and for the State of ________, personally appeared _________________,
known to me who, being by me duly sworn, did depose and say that he resides at
_______________, _______________ _____; that he is the _____________ of ________
____, a _____________ banking corporation, one of the parties that executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
--------------------------
Notary Public
[Notarial Seal]
75
<PAGE> 1
Exhibit 4.2
Subject to Completion
Morgan Stanley ABS Capital I Inc.
Depositor
[_____________________]
Master Servicer
and
[_____________________]
Trustee
POOLING AND SERVICING AGREEMENT
Dated as of _________, 199_
ASSET BACKED CERTIFICATES, Series 199_-_
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
Section 2.01. Conveyance of Mortgage Loans......................................... 29
Section 2.02. Acceptance by Trustee of the Mortgage Loans.......................... 31
Section 2.03. Representations, Warranties and Covenants of the Master Servicer..... 32
Section 2.04. Representations and Warranties of the Depositor as to the Mortgage
Loans.............................................................. 34
Section 2.05. Delivery of Opinion of Counsel in Connection with Substitutions...... 35
Section 2.06. Execution and Delivery of Certificates............................... 35
Section 2.07. REMIC Matters........................................................ 35
Section 2.08. Covenants of the Master Servicer..................................... 35
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. Master Servicer to Service Mortgage Loans............................ 36
Section 3.02. Subservicing; Enforcement of the Obligations of Servicers............ 37
Section 3.03. Rights of the Depositor and the Trustee in Respect of the Master
Servicer........................................................... 37
Section 3.04. Trustee to Act as Master Servicer.................................... 37
Section 3.05. Collection of Mortgage Loan Payments; Certificate Account;
Distribution Account................................................. 38
Section 3.06. Collection of Taxes, Assessments and Similar Items; Escrow Accounts.. 40
Section 3.07. Access to Certain Documentation and Information Regarding the
Mortgage Loans..................................................... 41
Section 3.08. Permitted Withdrawals from the Certificate Account and Distribution
Account............................................................ 41
Section 3.09. Maintenance of Hazard Insurance; Maintenance of Primary Insurance
Policies............................................................. 43
Section 3.10. Enforcement of Due-on-Sale Clauses; Assumption Agreements............ 44
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 3.11. Realization Upon Defaulted Mortgage Loans; Repurchase of Certain
Mortgage Loans....................................................... 45
Section 3.12. Trustee to Cooperate; Release of Mortgage Files...................... 47
Section 3.13. Documents Records and Funds in Possession of Master Servicer to be
Held for the Trustee................................................. 48
Section 3.14. Servicing Compensation............................................... 48
Section 3.15. Access to Certain Documentation...................................... 49
Section 3.16. Annual Statement as to Compliance.................................... 49
Section 3.17. Annual Independent Public Accountants' Servicing Statement;
Financial Statements................................................. 49
Section 3.18. Errors and Omissions Insurance; Fidelity Bonds....................... 50
ARTICLE IV
DISTRIBUTIONS AND
ADVANCES BY THE MASTER SERVICER
Section 4.01. Advances............................................................. 50
Section 4.02. Priorities of Distribution........................................... 51
Section 4.03. Allocation of Realized Losses........................................ 55
Section 4.04. Monthly Statements to Certificateholders............................. 56
[Section 4.05.Determination of Pass-Through Rates for COFI Certificates............ 57
[Section 4.06.Determination of Pass-Through Rates for LIBOR Certificates........... 59
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates..................................................... 61
Section 5.02. Certificate Register; Registration of Transfer and Exchange of
Certificates....................................................... 61
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.................... 66
Section 5.04. Persons Deemed Owners................................................ 66
Section 5.05. Access to List of Certificateholders' Names and Addresses............ 66
Section 5.06. Maintenance of Office or Agency...................................... 66
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
Section 6.01. Respective Liabilities of the Depositor and the Master Servicer...... 67
Section 6.02. Merger or Consolidation of the Depositor or the Master Servicer...... 67
Section 6.03. Limitation on Liability of the Depositor, the Master Servicer and
Others............................................................. 67
Section 6.04. Limitation on Resignation of Master Servicer......................... 68
ARTICLE VII
DEFAULT
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 7.01. Events of Default.................................................... 68
Section 7.02. Trustee to Act; Appointment of Successor............................. 70
Section 7.03. Notification to Certificateholders................................... 71
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee.................................................... 71
Section 8.02. Certain Matters Affecting the Trustee................................ 72
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans................ 73
Section 8.04. Trustee May Own Certificates......................................... 73
Section 8.05. Trustee's Fees and Expenses.......................................... 73
Section 8.06. Eligibility Requirements for Trustee................................. 74
Section 8.07. Resignation and Removal of Trustee................................... 74
Section 8.08. Successor Trustee.................................................... 75
Section 8.09. Merger or Consolidation of Trustee................................... 75
Section 8.10. Appointment of Co-Trustee or Separate Trustee........................ 75
Section 8.11. Tax Matters.......................................................... 77
Section 8.12. Periodic Filings..................................................... 78
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Liquidation or Purchase of all Mortgage Loans....... 79
Section 9.02. Final Distribution on the Certificates............................... 79
Section 9.03. Additional Termination Requirements.................................. 80
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01.Amendment............................................................ 81
Section 10.02.Recordation of Agreement; Counterparts............................... 82
Section 10.03.Governing Law........................................................ 83
Section 10.04.Intention of Parties................................................. 83
Section 10.05.Notices.............................................................. 83
Section 10.06.Severability of Provisions........................................... 84
Section 10.07.Assignment........................................................... 84
Section 10.08.Limitation on Rights of Certificateholders........................... 84
Section 10.09.Inspection and Audit Rights.......................................... 85
Section 10.10.Certificates Nonassessable and Fully Paid............................ 85
</TABLE>
iii
<PAGE> 5
SCHEDULES
Schedule I: Mortgage Loan Schedule
Schedule II: Representations and Warranties of the
Master Servicer
Schedule III: Representations and Warranties as to
the Mortgage Loans
Schedule IV: Principal Balance Schedules
Schedule V: Form of Monthly Master Servicer Report
EXHIBITS
Exhibit A: Form of Senior Certificate
(excluding Notional Amount Certificates)
Exhibit B: Form of Subordinated Certificate
Exhibit C: Form of Class A-R Certificate
Exhibit D: Form of Notional Amount Certificate
Exhibit E: Form of Reverse of Certificates
Exhibit F: [Reserved]
Exhibit G: Form of Initial Certificates
Exhibit H: Form of Final Certification of Trustee
Exhibit I: Transfer Affidavit
Exhibit J: Form of Transferor Certificate
Exhibit K: Form of Investment Letter [Non-Rule 144A]
Exhibit L: Form of Rule 144A Letter
Exhibit M: Request for Release (for Trustee)
Exhibit N: Request for Release (Mortgage Loan)
Paid in Full, Repurchased and Replaced)
iv
<PAGE> 6
THIS POOLING AND SERVICING AGREEMENT, dated as of _______ __,
199_, among Morgan Stanley ABS Capital I Inc., a Delaware corporation, as
depositor (the "Depositor"), __________, a _______________ corporation, as
master servicer (the "Master Servicer"), and _____________, a _______________
organized under the laws of ____________, as trustee (the "Trustee").
WITNESSETH THAT
In consideration of the mutual agreements herein contained, the
parties hereto agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby
conveyed to the Trustee in return for the Certificates. The Trust Fund for
federal income tax purposes will consist of a single REMIC. The Certificates
will represent the entire beneficial ownership interest in the Trust Fund. The
Regular Certificates will represent the "regular interests" in the Trust Fund
and the Residual Certificates will represent as the single "residual interest"
in the Trust Fund. The "latest possible maturity date" for federal income tax
purposes of all interests created hereby will be the Latest Possible Maturity
Date.
<PAGE> 7
The following table sets forth characteristics of the
Certificates, together with the minimum denominations and integral multiples in
excess thereof in which such Classes shall be issuable (except that one
Certificate of each Class of Certificates may be issued in a different amount
and, in addition, one Residual Certificate representing the Tax Matters Person
Certificate may be issued in a different amount):
<TABLE>
<CAPTION>
============================================================================
Integral
Initial Class Multiples
Certificate Pass-Through Minimum In Excess of
Balance Rate Denomination Minimum
============================================================================
<S> <C> <C> <C> <C>
Class A-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class A-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class A-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class A-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class A-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class A-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class A-_ $_______ (4) $_______ $_______
- ----------------------------------------------------------------------------
Class PO $_______ (1) $_______ $_______
- ----------------------------------------------------------------------------
Class X (2) (3) $_______ $_______(5)
- ----------------------------------------------------------------------------
Class A-R $_______ ____% $_______ N/A
- ----------------------------------------------------------------------------
Class B-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class B-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class B-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class B-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class B-_ $_______ ____% $_______ $_______
- ----------------------------------------------------------------------------
Class B-_ $_______ ____% $_______ $_______
============================================================================
</TABLE>
- ----------------------
(1) The Class PO Certificates will be Principal Only Certificates and will
not bear interest.
(2) The Class X Certificates will be Notional Amount Certificates, will have
no principal balance and will bear interest on their Notional Amount
(initially, $________________).
(3) The Pass-Through Rate for the Class X Certificates for any Distribution
Date will be equal to the excess of (a) the average of the Net Mortgage
Rates of the Non-Discount Mortgage Loans, weighted on the basis of their
respective Stated Principal Balances over (b) ____% per annum. The
Pass-Through Rate of the Class X Certificates for the first Distribution
Date is _______%.
(4) The Class A-_ Certificates will be comprised of multiple payment
components. The Pass-Through Rate for any Distribution Date will equal
the weighted average of the Pass-Through Rates of the various
Components. The Pass-Through Rate for the first Distribution Date is
_____%.
(5) Minimum Denomination is based on the Notional Amount of such Class.
2
<PAGE> 8
Set forth below are designations of Classes of Certificates to
the categories used herein:
<TABLE>
<S> <C>
Accretion Directed Certificates Class A-_ Certificates and Class A-_-_ Certificates.
Accrual Certificates........... Class A-_-_ Certificates.
Book-Entry Certificates........ All Classes of Certificates other than the Physical
Certificates.
Component Certificates......... Class A-_ Certificates.
Components..................... For purposes of calculating distributions, the
Component Certificates will be comprised of multiple
payment components having the designations, Initial
Component Balances and Pass-Through Rates set forth
below:
Initial
Component
Designation Balance Pass-Through Rate
Class A-_-_ Notional ____%
Class A-_-_ Notional ____%
Class A-_-_ Notional ____%
Class A-_-_ $____________ ____%
Class A-_-_ $____________ ____%
Class A-_- $____________ ____%
The Class A-_-_, Class A-_-_ and
Class A-_-_ Components will have no
Component Balances and will bear
interest on their respective Notional
Amounts. The Notional Amount for the
Class A-_-_ Component will equal the
outstanding Class Certificate Balance
of the Class A-_ Certificate. The
Notional Amount for the Class A-_-_
Component will equal the outstanding
Class Certificate Balance of the
Class A- _ Certificate. The Notional
Amount for the Class A-_-_ Component
will equal the outstanding Class
Certificate Balance of the Class A-_
Certificate.
Delay Certificates..................... All interest-bearing Classes of Certificates other than
the Non-Delay Certificates, if any.
</TABLE>
3
<PAGE> 9
<TABLE>
<S> <C>
ERISA-Restricted Certificates..... Class PO and Class X Certificates, Residual
Certificates and Subordinated Certificates.
Floating Rate Certificates........ [Class ____ Certificates.]
Inverse Floating Rate Certificates [Class ____ Certificates.]
COFI Certificates................. [Class ____ Certificates.]
LIBOR Certificates................ [Class ____ Certificates.]
Non-Delay Certificates............ [Class ____ Certificates.]
Notional Amount Certificates...... Class X Certificates and the Class A-_-_, Class A-_-_
and Class A-_-_ Components.
Offered Certificates.............. All Classes of Certificates other than the Private
Certificates.
Physical Certificates............. Residual Certificates, Class PO Certificates, Class X
Certificates, Class A-_ Certificates and the
Subordinated Certificates.
Planned Principal Classes......... Class A-_ and Class A-_ Certificates and the Class
A-_-_ and Class A-_-_ Components.
Primary Planned Principal Classes. [Class ____ Certificates.]
Principal Only Certificates....... Class PO Certificates.
Private Certificates.............. Class A-_, Class B-_, Class B-_ and Class B-_
Certificates.
Rating Agencies................... ___________ and __________.
Regular Certificates.............. All Classes of Certificates, other than the Residual
Certificates.
Residual Certificates............. Class A-R Certificates.
Scheduled Principal Classes....... [Class ____ Certificates.]
Secondary Planned Principal Class. [Class ____ Certificates.]
Senior Certificates............... Class A-_, Class A-_, Class A-_, Class A-_, Class
A-_, Class A-_, Class A-_, Class PO, Class X and Class A-R Certificates.
Subordinated Certificates......... Class B-_, Class B-_, Class B-_, Class B-_, Class B-_
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
and Class B-_ Certificates.
Support Classes................... Class A-_ and Class A-_ Certificates and the Class
A-_-_ Component.
Targeted Principal Classes........ Class A-_ Certificates and the Class A-_-_, Class
A-_-_ and Class A-_-_ Components.
</TABLE>
With respect to any of the foregoing designations as to which the
corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to statistical rating agencies not designated
above as Rating Agencies shall be of no force or effect.
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
Accretion Directed Certificates: As specified in the Preliminary
Statement.
Accrual Amount: With respect to any Class of Accrual Certificates
and any Distribution Date prior to the Accrual Termination Date, the amount
allocable to interest on each such Class of Accrual Certificates with respect to
such Distribution Date pursuant to Section 4.02(a)(i).
Accrual Certificates: As specified in the Preliminary Statement.
Accrual Termination Date: The earlier to occur of (i) the first
Distribution Date following the Distribution Date on which the Component Balance
of the Class A-_-_ Component is reduced to zero, and (ii) the Senior Credit
Support Depletion Date.
Adjusted Mortgage Rate: As to each Mortgage Loan, and at any
time, the per annum rate equal to the Mortgage Rate less the Master Servicing
Fee Rate.
Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any
time, the per annum rate equal to the Mortgage Rate less the related Expense
Rate. For purposes of determining whether any Substitute Mortgage Loan is a
Discount Mortgage Loan or a Non-Discount Mortgage Loan and for purposes of
calculating the applicable PO Percentage and applicable Non-PO Percentage, each
Substitute Mortgage Loan shall be deemed to have an Adjusted Net Mortgage Rate
equal to the Adjusted Net Mortgage Rate of the Deleted Mortgage Loan for which
it is substituted.
Advance: The payment required to be made by the Master Servicer
with respect to any Distribution Date pursuant to Section 4.01, the amount of
any such payment being equal to the aggregate of payments of principal and
interest (net of the Master Servicing Fee and net of any net income in the case
of any REO Property) on the Mortgage Loans that were due on the related Due
5
<PAGE> 11
Date and not received as of the close of business on the related Determination
Date, less the aggregate amount of any such delinquent payments that the Master
Servicer has determined would constitute a Nonrecoverable Advance if advanced.
Agreement: This Pooling and Servicing Agreement and all
amendments or supplements hereto.
Allocable Share: As to any Distribution Date and any Mortgage
Loan (i) with respect to the Class X Certificates, (a) the ratio that (x) the
excess, if any, of the Adjusted Net Mortgage Rate with respect to such Mortgage
Loan over the Required Coupon bears to (y) such Adjusted Net Mortgage Rate or
(b) if the Adjusted Net Mortgage Rate with respect to such Mortgage Loan does
not exceed the Required Coupon, zero, (ii) with respect to the Class PO
Certificates, zero and (iii) with respect to each other Class of Certificates
the product of (a) the lesser of (I) the ratio that the Required Coupon bears to
such Adjusted Net Mortgage Rate and (II) one, multiplied by (b), the ratio that
the amount calculated with respect to such Distribution Date for such Class
pursuant to clause (i) of the definition of Class Optimal Interest Distribution
Amount (without giving effect to any reduction of such amount pursuant to
Section 4.02(d)) bears to the amount calculated with respect to such
Distribution Date for each Class of Certificates pursuant to clause (i) of the
definition of Class Optimal Interest Distribution Amount (in each case without
giving effect to any reduction of such amounts pursuant to Section 4.02(d)).
Amount Available for Senior Principal: As to any Distribution
Date, Available Funds for such Distribution Date reduced by the aggregate amount
distributable (or allocable to the Accrual Amount, if applicable) on such
Distribution Date in respect of interest on the Senior Certificates pursuant to
Section 4.02(a)(i).
Amount Held for Future Distribution: As to any Distribution Date,
the aggregate amount held in the Certificate Account at the close of business on
the related Determination Date on account of (i) Principal Prepayments received
during the related Prepayment Period and Liquidation Proceeds received in the
month of such Distribution Date and (ii) all Scheduled Payments due after the
related Due Date.
Applicable Credit Support Percentage: As defined in Section
4.02(e).
Appraised Value: With respect to any Mortgage Loan, the Appraised
Value of the related Mortgaged Property shall be: (i) with respect to a Mortgage
Loan other than a Refinancing Mortgage Loan, the lesser of (a) the value of the
Mortgaged Property based upon the appraisal made at the time of the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged Property at the
time of the origination of such Mortgage Loan; (ii) with respect to a
Refinancing Mortgage Loan other than a [Streamlined Documentation Mortgage
Loan], the value of the Mortgaged Property based upon the appraisal made at the
time of the origination of such Refinancing Mortgage Loan; and (iii) with
respect to a [Streamlined Documentation Mortgage Loan], (a) if the loan-to-value
ratio with respect to the Original Mortgage Loan at the time of the origination
thereof was __% or less, the value of the Mortgaged Property based upon the
appraisal made at the time of the origination of the Original Mortgage Loan and
(b) if the loan-to-value ratio with respect to the Original Mortgage Loan at the
time of the origination thereof was greater than __%, the value of the Mortgaged
Property based upon the appraisal (which may be a drive-by appraisal) made at
the time of the origination of such [Streamlined Documentation Mortgage Loan].
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Available Funds: As to any Distribution Date, the sum of (a) the
aggregate amount held in the Certificate Account at the close of business on the
related Determination Date net of the Amount Held for Future Distribution and
net of amounts permitted to be withdrawn from the Certificate Account pursuant
to clauses (i)-(viii), inclusive, of Section 3.08(a) and amounts permitted to be
withdrawn from the Distribution Account pursuant to clauses (i)-(iii) inclusive
of Section 3.08(b), (b) the amount of the related Advance and (c) in connection
with Defective Mortgage Loans, as applicable, the aggregate of the Purchase
Prices and Substitution Adjustment Amounts deposited on the related Distribution
Account Deposit Date.
Bankruptcy Code: The United States Bankruptcy Reform Act of 1978,
as amended.
Bankruptcy Coverage Termination Date: The point in time at which
the Bankruptcy Loss Coverage Amount is reduced to zero.
Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; provided, however, that a Bankruptcy Loss
shall not be deemed a Bankruptcy Loss hereunder so long as the Master Servicer
has notified the Trustee in writing that the Master Servicer is diligently
pursuing any remedies that may exist in connection with the related Mortgage
Loan and either (A) the related Mortgage Loan is not in default with regard to
payments due thereunder or (B) delinquent payments of principal and interest
under the related Mortgage Loan and any related escrow payments in respect of
such Mortgage Loan are being advanced on a current basis by the Master Servicer,
in either case without giving effect to any Debt Service Reduction or Deficient
Valuation.
Bankruptcy Loss Coverage Amount: As of any Determination Date,
the Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy Losses allocated to
the Certificates since the Cut-off Date and (ii) any permissible reductions in
the Bankruptcy Loss Coverage Amount as evidenced by a letter of each Rating
Agency to the Trustee to the effect that any such reduction will not result in a
downgrading of the then current ratings assigned to the Classes of Certificates
rated by it.
Book-Entry Certificates: As specified in the Preliminary
Statement.
Business Day: Any day other than (i) a Saturday or a Sunday, or
(ii) a day on which banking institutions in the City of New York, New York, or
the State of [______________] or the city in which the Corporate Trust Office of
the Trustee is located are authorized or obligated by law or executive order to
be closed.
Certificate: Any one of the Certificates executed by the Trustee
in substantially the forms attached hereto as exhibits.
Certificate Account: The separate Eligible Account or Accounts
created and maintained by the Master Servicer pursuant to Section 3.05 with a
depository institution in the name of the Master Servicer for the benefit of the
Trustee on behalf of Certificateholders and designated
"____________________________ in trust for the registered holders of [Morgan
Stanley ABS Capital I Inc.], Asset Backed Certificates Series 199_-_."
Certificate Balance: With respect to any Certificate at any time,
the maximum dollar amount of principal to which the Holder thereof is then
entitled hereunder, such amount being equal
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to the Denomination thereof (A) minus the sum of (i) all distributions of
principal previously made with respect thereto and (ii) all Realized Losses
allocated thereto and, in the case of any Subordinated Certificates, all other
reductions in Certificate Balance previously allocated thereto pursuant to
Section 4.03 and (B) in the case of any Class of Accrual Certificates, increased
by the Accrual Amount added to the Class Certificate Balance of such Class prior
to such date.
Certificate Owner: With respect to any Book-Entry Certificate,
the Person who is the beneficial owner of such Book-Entry Certificate.
Certificate Register: The register maintained pursuant to Section
5.02 hereof.
Certificateholder or Holder: The person in whose name a
Certificate is registered in the Certificate Register, except that, solely for
the purpose of giving any consent pursuant to this Agreement, any Certificate
registered in the name of the Depositor or any affiliate of the Depositor shall
be deemed not to be Outstanding and the Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to effect such consent has been obtained;
provided, however, that if any such Person (including the Depositor) owns 100%
of the Percentage Interests evidenced by a Class of Certificates, such
Certificates shall be deemed to be Outstanding for purposes of any provision
hereof that requires the consent of the Holders of Certificates of a particular
Class as a condition to the taking of any action hereunder. The Trustee is
entitled to rely conclusively on a certification of the Depositor or any
affiliate of the Depositor in determining which Certificates are registered in
the name of an affiliate of the Depositor.
Class: All Certificates bearing the same class designation as set
forth in the Preliminary Statement.
Class A-_ Optimal Amount: As to any Distribution Date, an amount
equal to the sum of (i) the product of the Class A-_ Percentage and the
Scheduled Principal Distribution Amount and (ii) the product of (A) the Class
A-_ Percentage, (B) the Prepayment Shifting Percentage and (C) the Unscheduled
Principal Distribution Amount.
Class A-_ Percentage: As to any Distribution Date, a fraction,
the numerator of which is the Class Certificate Balance of the Class A-_
Certificates on such Distribution Date and the denominator of which is the
aggregate Class Certificate Balances of the Senior Certificates (other than the
Class PO Certificates) on such Distribution Date.
Class Certificate Balance: With respect to any Class and as to
any date of determination, the aggregate of the Certificate Balances of all
Certificates of such Class as of such date.
Class Interest Shortfall: As to any Distribution Date and Class,
the amount by which the amount described in clause (i) of the definition of
Class Optimal Interest Distribution Amount for such Class exceeds the amount of
interest actually distributed on such Class on such Distribution Date pursuant
to such clause (i).
Class Optimal Interest Distribution Amount: With respect to any
Distribution Date and interest bearing Class or, with respect to any interest
bearing Component, any Component thereof, the sum of (i) one month's interest
accrued during the related Interest Accrual Period at the
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Pass-Through Rate for such Class on the related Class Certificate Balance,
Component Balance or Notional Amount, as applicable, subject to reduction as
provided in Section 4.02(d) and (ii) any Class Unpaid Interest Amounts for such
Class or Component.
Class PO Deferred Amount: As to any Distribution Date, the
aggregate of the applicable PO Percentage of each Realized Loss, other than any
Excess Loss, to be allocated to the Class PO Certificates on such Distribution
Date on or prior to the Senior Credit Support Depletion Date or previously
allocated to the Class PO Certificates and not yet paid to the Holders of the
Class PO Certificates.
Class Subordination Percentage: With respect to any Distribution
Date and each Class of Subordinated Certificates, the quotient (expressed as a
percentage) of (a) the Class Certificate Balance of such Class of Certificates
immediately prior to such Distribution Date divided by (b) the aggregate of the
Class Certificate Balances immediately prior to such Distribution Date of all
Classes of Certificates.
Class Unpaid Interest Amounts: As to any Distribution Date and
Class of interest bearing Certificates, the amount by which the aggregate Class
Interest Shortfalls for such Class on prior Distribution Dates exceeds the
amount distributed on such Class on prior Distribution Dates pursuant to clause
(ii) of the definition of Class Optimal Interest Distribution Amount.
Closing Date: ___________, 199_.
Code: The Internal Revenue Code of 1986, including any successor
or amendatory provisions.
COFI: The Monthly Weighted Average Cost of Funds Index for the
Eleventh District Savings Institutions published by the Federal Home Loan Bank
of San Francisco.
COFI Certificates: As specified in the Preliminary Statement.
Collateral Value: With respect to a Mortgage Loan the proceeds of
which were not used to refinance an existing mortgage loan, the lesser of (x)
the appraised value based on an appraisal made by an independent fee appraiser
at the time of the origination of the related Mortgage Loan, and (y) the sales
price of such Mortgaged Property at such time of origination. With respect to a
Mortgage Loan the proceeds of which were used to refinance an existing mortgage
loan, the appraised value of the Mortgaged Property based upon the appraisal
obtained at the time of refinancing.
Component: As specified in the Preliminary Statement.
Component Balance: With respect to any Component and any
Distribution Date, the Initial Component Balance thereof on the Closing Date,
(A) less all amounts applied in reduction of the principal balance of such
Component and Realized Losses allocated thereto on previous Distribution Dates
and (B) in the case of the Accrual Certificates, increased by all interest
accrued and added to the Component Balance thereof prior to such Distribution
Date.
Component Certificates: As specified in the Preliminary
Statement.
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Corporate Trust Office: The designated office of the Trustee in
the State of New York at which at any particular time its corporate trust
business with respect to this Agreement shall be administered, which office at
the date of the execution of this Agreement is located at
__________________________________ (Attn: ____________________________________,
facsimile no. ________________, and which is the address to which notices to and
correspondence with the Trustee should be directed.
Cut-off Date: _________ __, 199_.
Cut-off Date Pool Principal Balance: $______________.
Cut-off Date Principal Balance: As to any Mortgage Loan, the
Stated Principal Balance thereof as of the close of business on the Cut-off
Date.
[DCR: Duff & Phelps Credit Rating Company, or any successor
thereto. If DCR is designated as a Rating Agency in the Preliminary Statement,
for purposes of Section 10.05(b) the address for notices to DCR shall be Duff &
Phelps Credit Rating Company, 17 State Street, 12th Floor, New York, New York
10004, Attention: ______________, or such other address as DCR may hereafter
furnish to the Depositor and the Master Servicer.]
Debt Service Reduction: With respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code in the Scheduled Payment for such Mortgage Loan which became
final and non-appealable, except such a reduction resulting from a Deficient
Valuation or any reduction that results in a permanent forgiveness of principal.
Defective Mortgage Loan: Any Mortgage Loan which is required to
be repurchased pursuant to Section 2.02 or 2.03.
Deficient Valuation: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then-outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
Scheduled Payment that results in a permanent forgiveness of principal, which
valuation or reduction results from an order of such court which is final and
non-appealable in a proceeding under the Bankruptcy Code.
Definitive Certificates: Any Certificate evidenced by a Physical
Certificate and any Certificate issued in lieu of a Book-Entry Certificate
pursuant to Section 5.02(e).
Delay - Certificates: As specified in the Preliminary Statements.
Deleted Mortgage Loan: As defined in Section 2.03(c) hereof.
Denomination: With respect to each Certificate, the amount set
forth on the face thereof as the "Initial Certificate Balance of this
Certificate" or the "Initial Notional Amount of this Certificate" or, if neither
of the foregoing, the Percentage Interest appearing on the face thereof.
Depositor: Morgan Stanley ABS Capital I Inc., a Delaware
corporation, or its successor in interest.
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Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & Co., as the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Distribution Date, the ____ day of
each month or if such ____ day is not a Business Day the next preceding Business
Day; provided, however, that if such ____ day or such Business Day, whichever is
applicable, is less than two Business Days prior to the related Distribution
Date, the Determination Date shall be the first Business Day which is two
Business Days preceding such Distribution Date.
Discount Mortgage Loan: Any Mortgage Loan with an Adjusted Net
Mortgage Rate that is less than the Required Coupon.
Distribution Account: The separate Eligible Account created and
maintained by the Trustee pursuant to Section 3.05 in the name of the Trustee
for the benefit of the Certificateholders and designated
"_________________________ in trust for registered holders of [Morgan Stanley
ABS Capital I Inc.] Asset Backed Pass-Through Certificates, Series 199_-_."
Funds in the Distribution Account shall be held in trust for the
Certificateholders for the uses and purposes set forth in this Agreement.
Distribution Account Deposit Date: As to any Distribution Date,
12:30 p.m. [Eastern] time on the Business Day immediately preceding such
Distribution Date.
Distribution Date: The ____ day of each calendar month after the
initial issuance of the Certificates, or if such ____ day is not a Business Day,
the next succeeding Business Day, commencing in ____________, 199_.
Due Date: With respect to any Distribution Date, the first day of
the month in which the related Distribution Date occurs.
Eligible Account: Any of (i) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest
short-term ratings of each Rating Agency at the time any amounts are held on
deposit therein, or (ii) an account or accounts in a depository institution or
trust company in which such accounts are insured by the FDIC (to the limits
established by the FDIC) and the uninsured deposits in which accounts are
otherwise secured such that, as evidenced by an Opinion of Counsel delivered to
the Trustee and to each Rating Agency, the Certificateholders have a claim with
respect to the funds in such account or a perfected first priority security
interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, or (iii) a trust account or accounts maintained with
(a) the trust department of a federal or state chartered depository institution
or (b) a trust company, acting in its fiduciary capacity or (iv) any other
account acceptable to each Rating
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Agency. Eligible Accounts may bear interest, and may include, if otherwise
qualified under this definition, accounts maintained with the Trustee.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
ERISA-Restricted Certificate: As specified in the Preliminary
Statement.
Escrow Account: The Eligible Account or Accounts established and
maintained pursuant to Section 3.06(a) hereof.
Event of Default: As defined in Section 7.01 hereof.
Excess Loss: The amount of any (i) Fraud Loss realized after the
Fraud Loss Coverage Termination Date, (ii) Special Hazard Loss realized after
the Special Hazard Coverage Termination Date or (iii) Bankruptcy Loss realized
after the Bankruptcy Coverage Termination Date.
Excess Proceeds: With respect to any Liquidated Mortgage Loan,
the amount, if any, by which the sum of any Liquidation Proceeds of such
Mortgage Loan received in the calendar month in which such Mortgage Loan became
a Liquidated Mortgage Loan, net of any amounts previously reimbursed to the
Master Servicer as Nonrecoverable Advance(s) with respect to such Mortgage Loan
pursuant to Section 3.08(a)(iii), exceeds (i) the unpaid principal balance of
such Liquidated Mortgage Loan as of the Due Date in the month in which such
Mortgage Loan became a Liquidated Mortgage Loan plus (ii) accrued interest at
the Mortgage Rate from the Due Date as to which interest was last paid or
advanced (and not reimbursed) to Certificateholders up to the Due Date
applicable to the Distribution Date immediately following the calendar month
during which such liquidation occurred.
Expense Rate: As to each Mortgage Loan, the sum of the related
Master Servicing Fee Rate and the Trustee Fee Rate.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FIRREA: The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989.
[Fitch: Fitch Investors Service, L.P., or any successor thereto.
If Fitch is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 10.05(b) the address for notices to Fitch shall be Fitch
Investors Service, L.P., One State Street Plaza, New York, New York 10004,
Attention: _______________________________________, or such other address as
Fitch may hereafter furnish to the Depositor and the Master Servicer.]
FNMA: The Federal National Mortgage Association, a federally
chartered and privately owned corporation organized and existing under the
Federal National Mortgage Association Charter Act, or any successor thereto.
Fraud Loan: A Liquidated Mortgage Loan as to which a Fraud Loss
has occurred.
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Fraud Loss Coverage Amount: As of the Closing Date,
$_____________ subject to reduction from time to time, by the amount of Fraud
Losses allocated to the Certificates. In addition, on each anniversary of the
Cut-off Date, the Fraud Loss Coverage Amount will be reduced as follows: (a) on
the __________, __________, __________ and __________ anniversaries of the
Cut-off Date, to an amount equal to the lesser of (i) ___% of the then current
Pool Stated Principal Balance and (ii) the excess of the Fraud Loss Coverage
Amount as of the preceding anniversary of the Cut-off Date over the cumulative
amount of Fraud Losses allocated to the Certificates since such preceding
anniversary; and (b) on the __________ anniversary of the Cut-off Date, to zero.
Fraud Loss Coverage Termination Date: The point in time at which
the Fraud Loss Coverage Amount is reduced to zero.
Fraud Losses: Realized Losses on Mortgage Loans as to which a
loss is sustained by reason of a default arising from fraud, dishonesty or
misrepresentation in connection with the related Mortgage Loan, including a loss
by reason of the denial of coverage under any related Primary Insurance Policy
because of such fraud, dishonesty or misrepresentation.
Index: With respect to any Interest Accrual Period for the COFI
Certificates, the then-applicable index used by the Trustee pursuant to Section
4.05 to determine the applicable Pass-Through Rate for such Interest Accrual
Period for the COFI Certificates.
Indirect Participant: A broker, dealer, bank or other financial
institution or other Person that clears through or maintains a custodial
relationship with a Depository Participant.
Initial Bankruptcy Coverage Amount: $_________.
Initial Component Balance: As specified in the Preliminary
Statement.
Initial LIBOR Rate: Not applicable.
Insurance Policy: With respect to any Mortgage Loan included in
the Trust Fund, any insurance policy, including all riders and endorsements
thereto in effect, including any replacement policy or policies for any
Insurance Policies.
Insurance Proceeds: Proceeds paid by an insurer pursuant to any
Insurance Policy, in each case other than any amount included in such Insurance
Proceeds in respect of Insured Expenses.
Insured Expenses: Expenses covered by an Insurance Policy or any
other insurance policy with respect to the Mortgage Loans.
Interest Accrual Period: With respect to each Class of Delay
Certificates and any Distribution Date, the calendar month prior to the month of
such Distribution Date. With respect to any Non-Delay Certificates and any
Distribution Date, the one month period commencing on the ____ day of the month
preceding the month in which such Distribution Date occurs and ending on the
____ day of the month in which such Distribution Date occurs.
Interest Determination Date: With respect to (a) any Interest
Accrual Period for any LIBOR Certificates and (b) any Interest Accrual Period
for the COFI Certificates for which the
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applicable Index is LIBOR, the second Business Day prior to the first day of
such Interest Accrual Period.
Latest Possible Maturity Date: The Distribution Date following
the third anniversary of the scheduled maturity date of the Mortgage Loan having
the latest scheduled maturity date as of the Cut-off Date.
LIBOR: The London interbank offered rate for one-month United
States dollar deposits calculated in the manner described in Section 4.06.
LIBOR Certificates: As specified in the Preliminary Statement.
Liquidated Mortgage Loan: With respect to any Distribution Date,
a defaulted Mortgage Loan (including any REO Property) which was liquidated in
the calendar month preceding the month of such Distribution Date and as to which
the Master Servicer has determined (in accordance with this Agreement) that it
has received all amounts it expects to receive in connection with the
liquidation of such Mortgage Loan, including the final disposition of an REO
Property.
Liquidation Proceeds: Amounts, including Insurance Proceeds,
received in connection with the partial or complete liquidation of defaulted
Mortgage Loans, whether through trustee's sale, foreclosure sale or otherwise or
amounts received in connection with any condemnation or partial release of a
Mortgaged Property and any other proceeds received in connection with an REO
Property, less the sum of related unreimbursed Master Servicing Fees, Servicing
Advances and Advances.
Loan-to-Value Ratio: With respect to any Mortgage Loan and as to
any date of determination, (i) the principal balance of such Mortgage Loan [at
the date of origination] divided by (ii) the Collateral Value of the related
Mortgaged Property.
Majority in Interest: As to any Class of Regular Certificates,
the Holders of Certificates of such Class evidencing, in the aggregate, at least
51% of the Percentage Interests evidenced by all Certificates of such Class.
Master Servicer: ____________________________, a ___________
corporation, and its successors and assigns, in its capacity as master servicer
hereunder.
Master Servicer Advance Date: As to any Distribution Date, 12:30
p.m. [Eastern] time on the Business Day immediately preceding such Distribution
Date.
Master Servicing Fee: As to each Mortgage Loan and any
Distribution Date, an amount payable out of each full payment of interest
received on such Mortgage Loan and equal to one-twelfth of the Master Servicing
Fee Rate multiplied by the Stated Principal Balance of such Mortgage Loan as of
the Due Date in the month of such Distribution Date (prior to giving effect to
any Scheduled Payments due on such Mortgage Loan on such Due Date), subject to
reduction as provided in Section 3.14.
Master Servicing Fee Rate: With respect to each Mortgage Loan,
____% per annum.
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Monthly Statement: The statement delivered to the
Certificateholders pursuant to Section 4.04.
Moody's: Moody's Investors Service, Inc., or any successor
thereto. If Moody's is designated as a Rating Agency in the Preliminary
Statement, for purposes of Section 10.05(b) the address for notices to Moody's
shall be Moody's Investors Service, Inc., 99 Church Street, New York, New York
10007, Attention: ___________________________________, or such other address as
Moody's may hereafter furnish to the Depositor or the Master Servicer.
Mortgage: The mortgage, deed of trust or other instrument
creating a first lien on an estate in fee simple or leasehold interest in real
property securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01
hereof pertaining to a particular Mortgage Loan and any additional documents
delivered to the Trustee to be added to the Mortgage File pursuant to this
Agreement.
Mortgage Loans: Such of the mortgage loans transferred and
assigned to the Trustee pursuant to the provisions hereof as from time to time
are held as a part of the Trust Fund (including any REO Property), the mortgage
loans so held being identified in the Mortgage Loan Schedule, notwithstanding
foreclosure or other acquisition of title of the related Mortgaged Property.
Mortgage Loan Schedule: The list of Mortgage Loans (as from time
to time amended by the Master Servicer to reflect the addition of Substitute
Mortgage Loans and the deletion of Deleted Mortgage Loans pursuant to the
provisions of this Agreement) transferred to the Trustee as part of the Trust
Fund and from time to time subject to this Agreement, attached hereto as
Schedule I, setting forth the following information with respect to each
Mortgage Loan:
(i) the loan number;
(ii) the Mortgagor's name and the street address of the Mortgaged
Property, including the zip code;
(iii) the maturity date;
(iv) the original principal balance;
(v) the Cut-off Date Principal Balance;
(vi) the first payment date of the Mortgage Loan;
(vii) the Scheduled Payment in effect as of the Cut- off Date;
(viii) the Loan-to-Value Ratio at origination;
(ix) a code indicating whether the residential dwelling at the
time of origination was represented to be owner-occupied;
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(x) a code indicating whether the residential dwelling is either
(a) a detached single family dwelling (b) a dwelling in a de
minimis PUD, (c) a condominium unit or PUD (other than a de
minimis PUD), or (d) a two- to four-unit residential property;
(xi) the Mortgage Rate;
(xii) the purpose for the Mortgage Loan;
(xiii) the type of documentation program pursuant to which the
Mortgage Loan was originated, and
(xiv) the Master Servicing Fee for the Mortgage Loan.
Such schedule shall also set forth the total of the amounts
described under (iv) and (v) above for all of the Mortgage Loans.
Mortgage Note: The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
Mortgage Rate: The annual rate of interest borne by a Mortgage
Note from time to time, net of any interest premium charged by the mortgagee to
obtain or maintain any Primary Insurance Policy.
Mortgaged Property: The underlying property securing a Mortgage
Loan.
Mortgagor: The obligor(s) on a Mortgage Note.
National Cost of Funds Index: The National Monthly Median Cost of
Funds Ratio to SAIF-Insured Institutions published by the Office of Thrift
Supervision.
Net Prepayment Interest Shortfalls: As to any Distribution Date,
the amount by which the aggregate of Prepayment Interest Shortfalls during the
related Prepayment Period exceeds an amount equal to one-half of the aggregate
Master Servicing Fee for such Distribution Date before reduction of the Master
Servicing Fee in respect of such Prepayment Interest Shortfalls.
Non-Delay Certificates: As specified in the Preliminary
Statement.
Non-Discount Mortgage Loan: Any Mortgage Loan with an Adjusted
Net Mortgage Rate that is greater than or equal to the Required Coupon.
Non-PO Formula Principal Amount: As to any Distribution Date, the
sum of the applicable Non-PO Percentage of (a) the principal portion of each
Scheduled Payment (without giving effect, prior to the Bankruptcy Coverage
Termination Date, to any reductions thereof caused by any Debt Service
Reductions or Deficient Valuations) due on each Mortgage Loan on the related Due
Date, (b) the Stated Principal Balance of each Mortgage Loan that was
repurchased by the Master Servicer pursuant to this Agreement or the Seller
pursuant to the Purchase Agreement as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage
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Loans received during the calendar month preceding the month of such
Distribution Date, (e) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the amount of the Liquidation Proceeds allocable to principal
received during the calendar month preceding the month of such Distribution Date
with respect to such Mortgage Loan and (f) all Principal Prepayments received
during the related Prepayment Period.
Non-PO Percentage: As to any Discount Mortgage Loan, a fraction
(expressed as a percentage) the numerator of which is the Adjusted Net Mortgage
Rate of such Discount Mortgage Loan and the denominator of which is the Required
Coupon. As to any Non-Discount Mortgage Loan, 100%.
Nonrecoverable Advance: Any portion of an Advance previously made
or proposed to be made by the Master Servicer that, in the good faith judgment
of the Master Servicer, will not be ultimately recoverable by the Master
Servicer from the related Mortgagor, related Liquidation Proceeds or otherwise.
Notice of Final Distribution: The notice to be provided pursuant
to Section 9.02 to the effect that final distribution on any of the Certificates
shall be made only upon presentation and surrender thereof.
Notional Amount: With respect to any Distribution Date and the
Class X Certificates, the aggregate of the Stated Principal Balances of the
Non-Discount Mortgage Loans as of the Due Date in the month of such Distribution
Date (prior to giving effect to any Scheduled Payments due on such Mortgage
Loans on such Due Date). With respect to any Distribution Date and (i) the Class
A-_-_ Component, the Class Certificate Balance of the Class A-_ Certificate on
such Distribution Date; (ii) the Class A-_-_ Component, the Class Certificate
Balance of the Class A-_ Certificate on such Distribution Date; and (iii) the
Class A-_-_ Component, the Class Certificate Balance of the Class A-_
Certificate on such Distribution Date.
Notional Amount Certificates: As specified in the Preliminary
Statement.
Offered Certificates: As specified in the Preliminary Statement.
Officer's Certificate: A certificate (i) signed by the Chairman
of the Board, the Vice Chairman of the Board, the President, a Managing
Director, a Vice President (however denominated), an Assistant Vice President,
the Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the Depositor and the Trustee, as the case may be, as required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be
counsel for the Depositor or the Master Servicer, including, in-house counsel,
reasonably acceptable to the Trustee; provided, however, that with respect to
the interpretation or application of the REMIC Provisions, such counsel must (i)
in fact be independent of the Depositor and the Master Servicer, (ii) not have
any direct financial interest in the Depositor or the Master Servicer or in any
affiliate of either, and (iii) not be connected with the Depositor or the Master
Servicer as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
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Optional Termination: The termination of the trust created
hereunder in connection with the purchase of the Mortgage Loans pursuant to
Section 9.01(a) hereof.
Original Applicable Credit Support Percentage: With respect to
each of the following Classes of Subordinated Certificates, the corresponding
percentage described below, as of the Closing Date:
Class B-_ ____%
Class B-_ ____%
Class B-_ ____%
Class B-_ ____%
Class B-_ ____%
Class B-_ ____%
Original Mortgage Loan: The mortgage loan refinanced in
connection with the origination of a Refinancing Mortgage Loan.
Original Subordinated Principal Balance: The aggregate of the
Class Certificate Balances of the Subordinated Certificates as of the Closing
Date.
OTS: The Office of Thrift Supervision.
Outside Reference Date: As to any Interest Accrual Period for the
COFI Certificates, the close of business on the tenth day thereof.
Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or delivered
to the Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which other
Certificates have been executed and delivered by the Trustee
pursuant to this Agreement.
Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan
with a Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.
Ownership Interest: As to any Residual Certificate, any ownership
interest in such Certificate including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial.
Pass-Through Rate: For any interest bearing Class of Certificates
or Component, the per annum rate set forth or calculated in the manner described
in the Preliminary Statement.
Percentage Interest: As to any Certificate, the percentage
interest evidenced thereby in distributions required to be made on the related
Class, such percentage interest being set forth on the face thereof or equal to
the percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.
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Permitted Investments: (i) obligations of the United States or
any agency thereof, provided such obligations are backed by the full faith and
credit of the United States; (ii) general obligations of or obligations
guaranteed by any state of the United States or the District of Columbia
receiving the highest long-term debt rating of each Rating Agency rating the
related Series of Securities, or such lower rating as will not result in the
downgrading or withdrawal of the ratings then assigned to the Certificates by
each such Rating Agency; (iii) commercial or finance company paper which is then
receiving the highest commercial or finance company paper rating of each such
Rating Agency, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by each such Rating
Agency; (iv) certificates of deposit, demand or time deposits, or bankers'
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 long term unsecured debt obligations
of such depository institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company, but only if
Moody's Investors Service, Inc. ("Moody's") is not a Rating Agency) are then
rated one of the two highest long-term and the highest short-term ratings of
each such Rating Agency for such securities, or such lower ratings as will not
result in the downgrading or withdrawal of the rating then assigned to the
Certificates by any such Rating Agency; (iv) demand or time deposits or
certificates of deposit issued by any bank or trust company or savings
institution to the extent that such deposits are fully insured by the FDIC; (v)
guaranteed reinvestment agreements issued by any bank, insurance company or
other corporation containing, at the time of the issuance of such agreements,
such terms and conditions as will not result in the downgrading or withdrawal of
the rating then assigned to the Certificates by any such Rating Agency; (vi)
repurchase obligations with respect to any security described in clauses (i) and
(ii) above, in either case entered into with a depository institution or trust
company (acting as principal) described in clause (iv) above; (vii) securities
(other than stripped bonds, stripped coupons or instruments sold at a purchase
price in excess of 115% of the face amount thereof) bearing interest or sold at
a discount issued by any corporation incorporated under the laws of the United
States or any state thereof which, at the time of such investment, have one of
the two highest ratings of each Rating Agency (except if the Rating Agency is
Moody's, such rating shall be the highest commercial paper rating of Moody's for
any such securities), or such lower rating as will not result in the downgrading
or withdrawal of the rating then assigned to the Certificates by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
and (viii) such other investments having a specified stated maturity and bearing
interest or sold at a discount acceptable to each Rating Agency as will not
result in the downgrading or withdrawal of the rating then assigned to the
Securities of such Series by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; provided that no such instrument
shall be a Permitted Investment if such instrument evidences the right to
receive interest only payments with respect to the obligations underlying such
instrument.
Permitted Transferee: Any person other than (i) the United
States, any State or political subdivision thereof, or any agency or
instrumentality of any of the foregoing, (ii) a foreign government,
International Organization or any agency or instrumentality of either of the
foregoing, (iii) an organization (except certain farmers' cooperatives described
in section 521 of the Code) which is exempt from tax imposed by Chapter 1 of the
Code (including the tax imposed by section 511 of the Code on unrelated business
taxable income) on any excess inclusions (as defined in section 860E(c)(l) of
the Code) with respect to any Residual Certificate, (iv) rural electric and
telephone cooperatives described in section 1381(a)(2)(C) of the Code, (v) a
Person that is not a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in or
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under the laws of the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States unless such Person has furnished the transferor and the Trustee
with a duly completed Internal Revenue Service Form 4224, and (vi) any other
Person so designated by the Depositor based upon an Opinion of Counsel that the
Transfer of an Ownership Interest in a Residual Certificate to such Person may
cause the REMIC hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding. The terms "United States," "State" and
"International Organization" shall have the meanings set forth in section 7701
of the Code or successor provisions. A corporation will not be treated as an
instrumentality of the United States or of any State or political subdivision
thereof for these purposes if all of its activities are subject to tax and, with
the exception of the Federal Home Loan Mortgage Corporation, a majority of its
board of directors is not selected by such government unit.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
Physical Certificate: As specified in the Preliminary Statement.
Planned Balance: With respect to the Planned Principal Classes
and any Distribution Date appearing in Schedule IV hereto, the applicable amount
appearing opposite such Distribution Date for such respective Class or
Component.
Planned Principal Classes: As specified in the Preliminary
Statement.
PO Formula Principal Amount: As to any Distribution Date, the sum
of the applicable PO Percentage of (a) the principal portion of each Scheduled
Payment (without giving effect, prior to the Bankruptcy Coverage Termination
Date, to any reductions thereof caused by any Debt Service Reductions or
Deficient Valuations) due on each Mortgage Loan on the related Due Date, (b) the
Stated Principal Balance of each Mortgage Loan that was repurchased by the
Master Servicer pursuant to this Agreement or the Seller pursuant to the
Purchase Agreement as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Mortgage Loan received with respect to
such Distribution Date, (d) any Insurance Proceeds or Liquidation Proceeds
allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the calendar month preceding the month
of such Distribution Date, (e) with respect to each Mortgage Loan that became a
Liquidated Mortgage Loan during the month preceding the calendar month of such
Distribution Date, the amount of Liquidation Proceeds allocable to principal
received during the month preceding the month of such Distribution Date with
respect to such Mortgage Loan and (f) all Principal Prepayments received during
the related Prepayment Period.
PO Percentage: As to any Discount Mortgage Loan, a fraction
(expressed as a percentage) the numerator of which is the excess of the Required
Coupon over the Adjusted Net Mortgage Rate of such Discount Mortgage Loan and
the denominator of which is the Required Coupon. As to any Non-Discount Mortgage
Loan, 0%.
Pool Stated Principal Balance: As to any Distribution Date, the
aggregate of the Stated Principal Balances of the Mortgage Loans which were
Outstanding Mortgage Loans on the Due Date in the month preceding the month of
such Distribution Date.
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Prepayment Interest Excess: As to any Principal Prepayment
received by the Master Servicer from the first day through the fifteenth day of
any calendar month (other than the calendar month in which the Cut-off Date
occurs), all amounts paid by the related Mortgagor in respect of interest on
such Principal Prepayment. All Prepayment Interest Excess shall be paid to the
Master Servicer as additional master servicing compensation.
Prepayment Interest Shortfall: As to any Distribution Date,
Mortgage Loan and Principal Prepayment received on or after the sixteenth day of
the month preceding the month of such Distribution Date (or, in the case of the
first Distribution Date, on or after the Cut-off Date) and on or before the last
day of the month preceding the month of such Distribution Date, the amount, if
any, by which one month's interest at the related Mortgage Rate, net of the
Master Servicing Fee Rate, on such Principal Prepayment exceeds the amount of
interest paid in connection with such Principal Prepayment.
Prepayment Period: As to any Distribution Date, the period from
the __th day of the calendar month preceding the month of such Distribution Date
(or, in the case of the first Distribution Date, from the Cut-off Date) through
the __th of the month of such Distribution Date.
Prepayment Shifting Percentage: As to any Distribution Date
occurring during the ____ years beginning on the _____ Distribution Date will
equal 0%. Thereafter, the Prepayment Shifting Percentage for any Distribution
Date occurring on or after the ____ anniversary of the _____ Distribution Date
will be as follows: for any Distribution Date in the _____ year thereafter, __%;
for any Distribution Date in the ______ year thereafter, __%; for any
Distribution Date in the ______ year thereafter, __%; for any Distribution Date
in the ______ year thereafter, __%; and for any Distribution Date thereafter,
100%.
Primary Insurance Policy: Each policy of primary mortgage
guaranty insurance or any replacement policy therefor with respect to any
Mortgage Loan.
Primary Planned Principal Classes: As specified in the
Preliminary Statement.
Principal Prepayment: Any payment of principal by a Mortgagor on
a Mortgage Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Mortgage Loan.
Private Certificate: As specified in the Preliminary Statement.
Pro Rata Share: As to any Distribution Date, the Subordinated
Principal Distribution Amount and any Class of Subordinated Certificates, the
portion of the Subordinated Principal Distribution Amount allocable to such
Class, equal to the product of the Subordinated Principal Distribution Amount on
such Distribution Date and a fraction, the numerator of which is the related
Class Certificate Balance thereof and the denominator of which is the aggregate
of the Class Certificate Balances of the Subordinated Certificates.
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Prospectus Supplement: The Prospectus Supplement dated ________
__, 199_ relating to the Offered Certificates.
PUD: Planned Unit Development.
Purchase Agreement: The Mortgage Loan Purchase Agreement, dated
as of _________, 199__, relating to the sale of the Mortgage Loans by the Seller
to the Depositor.
Purchase Price: With respect to any Mortgage Loan required to be
purchased by the Seller pursuant to the Purchase Agreement or purchased at the
option of the Master Servicer pursuant to Section 3.11, an amount equal to the
sum of (i) 100% of the unpaid principal balance of the Mortgage Loan on the date
of such purchase, and (ii) accrued interest thereon at the applicable Mortgage
Rate (or at the applicable Adjusted Mortgage Rate if the purchaser is the Master
Servicer) from the date through which interest was last paid by the Mortgagor to
the Due Date in the month in which the Purchase Price is to be distributed to
Certificateholders.
Qualified Insurer: A mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as a
FNMA-approved mortgage insurer and having a claims paying ability rating of at
least "AA" or equivalent rating by a nationally recognized statistical rating
organization. Any replacement insurer with respect to a Mortgage Loan must have
at least as high a claims paying ability rating as the insurer it replaces had
on the Closing Date.
Rating Agency: Each of the Rating Agencies specified in the
Preliminary Statement. If any such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, as is designated by the
Depositor, notice of which designation shall be given to the Trustee. References
herein to a given rating category of a Rating Agency shall mean such rating
category without giving effect to any modifiers.
Realized Loss: With respect to each Liquidated Mortgage Loan, an
amount (not less than zero or more than the Stated Principal Balance of the
Mortgage Loan) as of the date of such liquidation, equal to (i) the Stated
Principal Balance of the Liquidated Mortgage Loan as of the date of such
liquidation, plus (ii) interest at the Adjusted Net Mortgage Rate from the Due
Date as to which interest was last paid or advanced (and not reimbursed) to
Certificateholders up to the Due Date in the month in which Liquidation Proceeds
are required to be distributed on the Stated Principal Balance of such
Liquidated Mortgage Loan from time to time, minus (iii) the Liquidation
Proceeds, if any, received during the month in which such liquidation occurred,
to the extent applied as recoveries of interest at the Adjusted Net Mortgage
Rate and to principal of the Liquidated Mortgage Loan. With respect to each
Mortgage Loan which has become the subject of a Deficient Valuation, if the
principal amount due under the related Mortgage Note has been reduced, the
difference between the principal balance of the Mortgage Loan outstanding
immediately prior to such Deficient Valuation and the principal balance of the
Mortgage Loan as reduced by the Deficient Valuation. With respect to each
Mortgage Loan which has become the subject of a Debt Service Reduction and any
Distribution Date, the amount, if any, by which the principal portion of the
related Scheduled Payment has been reduced.
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Record Date: With respect to any Distribution Date, the close of
business on the last Business Day of the month preceding the month in which such
Distribution Date occurs.
Reference Bank: As defined in Section 4.05.
Refinancing Mortgage Loan: Any Mortgage Loan originated in
connection with the refinancing of an existing mortgage loan.
Regular Certificates: As specified in the Preliminary Statement.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.
Relief Act Reductions: With respect to any Distribution Date and
any Mortgage Loan as to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended calendar month as a
result of the application of the Relief Act, the amount, if any, by which (i)
interest collectible on such Mortgage Loan for the most recently ended calendar
month is less than (ii) interest accrued thereon for such month pursuant to the
Mortgage Note.
REMIC: A "real estate mortgage investment conduit" within the
meaning of section 860D of the Code.
REMIC Change of Law: Any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to REMICs and the REMIC Provisions issued after the
Closing Date.
REMIC Provisions: Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations promulgated thereunder, as the foregoing may be in
effect from time to time as well as provisions of applicable state laws.
REO Property: A Mortgaged Property acquired by the Trust Fund
through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Mortgage Loan.
Request for Release: The Request for Release submitted by the
Master Servicer to the Trustee, substantially in the form of Exhibits M and N,
as appropriate.
Required Coupon: ____% per annum.
Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy that is required to be maintained from time to time under this
Agreement.
Residual Certificates: As specified in the Preliminary Statement.
Responsible Officer: When used with respect to the Trustee, any
Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, any Trust Officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also to whom, with respect to a particular matter, such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
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Restricted Classes: As defined in Section 4.02(e).
Scheduled Balances: With respect to any Scheduled Classes and any
Distribution Date appearing in Schedule IV hereto, the applicable amount
appearing in Schedule IV hereto opposite such Distribution Date for such
respective Classes.
Scheduled Classes: As specified in the Preliminary Statement.
Scheduled Payment: The scheduled monthly payment on a Mortgage
Loan due on any Due Date allocable to principal and/or interest on such Mortgage
Loan which, unless otherwise specified herein, shall give effect to any related
Debt Service Reduction and any Deficient Valuation that affects the amount of
the monthly payment due on such Mortgage Loan.
Scheduled Principal Distribution Amount: With respect to any
Distribution Date, the applicable Non-PO Percentage of the amount described in
clauses (a) through (d) of the definition of Non-PO Formula Principal Amount.
Secondary Planned Principal Clauses: As specified in the
Preliminary Statement.
Securities Act: The Securities Act of 1933, as amended.
Seller: ________________________, a ________ corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans to the
Depositor.
Senior Certificates: As specified in the Preliminary Statement.
Senior Credit Support Depletion Date: The date on which the Class
Certificate Balance of each Class of Subordinated Certificates has been reduced
to zero.
Senior Percentage: As to any Distribution Date, the percentage
equivalent of a fraction the numerator of which is the aggregate of the Class
Certificate Balances of each Class of Senior Certificates (other than the Class
PO Certificates) as of such date and the denominator of which is the aggregate
of the Class Certificate Balances of all Classes of Certificates (other than the
Class PO Certificates) as of such date.
Senior Prepayment Percentage: For any Distribution Date during
the __________ years beginning on the ____ Distribution Date, 100%. The Senior
Prepayment Percentage for any Distribution Date occurring on or after the
__________ anniversary of the first Distribution Date will, except as provided
herein, be as follows: for any Distribution Date in the __________ year
thereafter, the Senior Percentage plus __% of the Subordinated Percentage for
such Distribution Date; for any Distribution Date in the __________ year
thereafter, the Senior Percentage plus ___% of the Subordinated Percentage for
such Distribution Date; for any Distribution Date in the __________ year
thereafter, the Senior Percentage plus __% of the Subordinated Percentage for
such Distribution Date; for any Distribution Date in the __________ year
thereafter, the Senior Percentage plus ___% of the Subordinated Percentage for
such Distribution Date; and for any Distribution Date thereafter, the Senior
Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Senior Percentage exceeds the initial Senior Percentage,
in which case the Senior Prepayment Percentage for such Distribution Date will
once again equal 100%). Notwithstanding the foregoing, no decrease in the Senior
Prepayment Percentage will occur if, as of the first Distribution Date as to
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which any such decrease applies, (i) the outstanding principal balance of all
Mortgage Loans delinquent ___ days or more (averaged over the preceding ______
period), as a percentage of the aggregate principal balance of the Subordinate
Certificates (averaged over the preceding six month period), is equal to or
greater than ___% or (ii) cumulative Realized Losses with respect to the
Mortgage Loans exceed (a) with respect to the Distribution Date on the
__________ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance, (b) with respect to the Distribution Date on the
__________ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance, (c) with respect to the Distribution Date on the
__________ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance, (d) with respect to the Distribution Date on the
__________ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance and (e) with respect to the Distribution Date on
the __________ anniversary of the first Distribution Date, __% of the Original
Subordinated Principal Balance.
Senior Principal Distribution Amount: As to any Distribution
Date, the sum of (i) the Senior Percentage of the applicable Non-PO Percentage
of all amounts described in clauses (a) through (d) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date, (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the calendar month
preceding the month of such Distribution Date, the lesser of (x) the Senior
Percentage of the applicable Non-PO Percentage of the Stated Principal Balance
of such Mortgage Loan and (y) either (A) the Senior Prepayment Percentage or (B)
if an Excess Loss was sustained with respect to such Liquidated Mortgage Loan
during such prior calendar month, the Senior Percentage, of the applicable
Non-PO Percentage of the amount of the Liquidation Proceeds allocable to
principal received with respect to such Mortgage Loan, and (iii) the Senior
Prepayment Percentage of the applicable Non-PO Percentage of the amounts
described in clause (f) of the definition of "Non-PO Formula Principal Amount"
for such Distribution Date.
Servicing Advances: All customary, reasonable and necessary "out
of pocket" costs and expenses incurred in the performance by the Master Servicer
of its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3.11 and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3.09.
Servicing Officer: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and facsimile signature appear on a list of servicing officers
furnished to the Trustee by the Master Servicer on the Closing Date pursuant to
this Agreement, as such list may from time to time be amended.
Special Hazard Coverage Termination Date: The point in time at
which the Special Hazard Loss Coverage Amount is reduced to zero.
Special Hazard Loss: Any Realized Loss suffered by a Mortgaged
Property on account of direct physical loss but not including (i) any loss of a
type covered by a hazard insurance policy or a flood insurance policy required
to be maintained with respect to such Mortgaged Property pursuant to Section
3.09 to the extent of the amount of such loss covered thereby, or (ii) any loss
caused by or resulting from:
(a) normal wear and tear;
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(b) fraud, conversion or other dishonest act on the part of the
Trustee, the Master Servicer or any of their agents or employees
(without regard to any portion of the loss not covered by any errors and
omissions policy);
(c) errors in design, faulty workmanship or faulty materials,
unless the collapse of the property or a part thereof ensues and then
only for the ensuing loss;
(d) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether controlled or
uncontrolled, and whether such loss be direct or indirect, proximate or
remote or be in whole or in part caused by, contributed to or aggravated
by a peril covered by the definition of the term "Special Hazard Loss";
(e) hostile or warlike action in time of peace and war, including
action in hindering, combating or defending against an actual, impending
or expected attack:
1. by any government or sovereign power, de jure or de
facto, or by any authority maintaining or using military, naval
or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power, authority or
forces;
(f) any weapon of war employing nuclear fission, fusion or other
radioactive force, whether in time of peace or war; or
(g) insurrection, rebellion, revolution, civil war, usurped power
or action taken by governmental authority in hindering, combating or
defending against such an occurrence, seizure or destruction under
quarantine or customs regulations, confiscation by order of any
government or public authority or risks of contraband or illegal
transportation or trade.
Special Hazard Loss Coverage Amount: With respect to the first
Distribution Date, $____________. With respect to any Distribution Date after
the first Distribution Date, the lesser of (a) the greatest of (i) ___% of the
aggregate of the principal balances of the Mortgage Loans, (ii) __________ the
principal balance of the largest Mortgage Loan and (iii) the aggregate of the
principal balances of all Mortgage Loans secured by Mortgaged Properties located
in the single [_________] postal zip code area having the highest aggregate
principal balance of any such zip code area and (b) the Special Hazard Loss
Coverage Amount as of the Closing Date less the amount, if any, of Special
Hazard Losses allocated to the Certificates since the Closing Date. All
principal balances for the purpose of this definition will be calculated as of
the first day of the calendar month preceding the month of such Distribution
Date after giving effect to Scheduled Payments on the Mortgage Loans then due,
whether or not paid.
Special Hazard Mortgage Loan: A Liquidated Mortgage Loan as to
which a Special Hazard Loss has occurred.
S&P: Standard & Poor's Ratings Group, a division of McGraw-Hill
Inc. If S&P is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 10.05(b) the address for notices to S&P shall be Standard &
Poor's Ratings Group, 26 Broadway, 15th Floor,
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New York, New York 10004, Attention: ________________________________, or such
other address as S&P may hereafter furnish to the Depositor and the Master
Servicer.
Startup Day: The Closing Date.
Stated Principal Balance: As to any Mortgage Loan and Due Date,
the unpaid principal balance of such Mortgage Loan as of such Due Date as
specified in the amortization schedule at the time relating thereto (before any
adjustment to such amortization schedule by reason of any moratorium or similar
waiver or grace period) after giving effect to any previous partial Principal
Prepayments and Liquidation Proceeds allocable to principal (other than with
respect to any Liquidated Mortgage Loan) and to the payment of principal due on
such Due Date and irrespective of any delinquency in payment by the related
Mortgagor.
[Streamlined Documentation Mortgage Loan: Any Mortgage Loan
originated pursuant to the Seller's Streamlined Loan Documentation Program then
in effect.]
Subordinated Certificates: As specified in the Preliminary
Statement.
Subordinated Percentage: As to any Distribution Date, 100% minus
the Senior Percentage for such Distribution Date.
Subordinated Prepayment Percentage: As to any Distribution Date,
100% minus the Senior Prepayment Percentage for such Distribution Date.
Subordinated Principal Distribution Amount: With respect to any
Distribution Date, an amount equal to (A) the sum of (i) the Subordinated
Percentage of the applicable Non-PO Percentage of all amounts described in
clauses (a) through (d) of the definition of "Non-PO Formula Principal Amount"
for such Distribution Date, (ii) with respect to each Mortgage Loan that became
a Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the applicable Non-PO Percentage of the amount of the
Liquidation Proceeds allocated to principal received with respect thereto
remaining after application thereof pursuant to clause (ii) of the definition of
Senior Principal Distribution Amount, up to the Subordinated Percentage of the
applicable Non-PO Percentage of the Stated Principal Balance of such Mortgage
Loan and (iii) the Subordinated Prepayment Percentage of the applicable Non-PO
Percentage of all amounts described in clause (f) of the definition of "Non-PO
Formula Principal Amount" for such Distribution Date reduced by (B) the amount
of any payments in respect of Class PO Deferred Amounts on the related
Distribution Date.
Subservicer: Any person to whom the Master Servicer has
contracted for the servicing of all or a portion of the Mortgage Loans pursuant
to Section 3.02 hereof.
Substitute Mortgage Loan: A Mortgage Loan substituted by the
Seller for a Deleted Mortgage Loan pursuant to the Purchase Agreement which
must, on the date of such substitution, as confirmed in a Request for Release,
substantially in the form of Exhibit M, (i) have a Stated Principal Balance,
after deduction of the principal portion of the Scheduled Payment due in the
month of substitution, not in excess of, and not more than __% less than the
Stated Principal Balance of the Deleted Mortgage Loan; (ii) be accruing interest
at a rate no lower than and not more than __% per annum higher than, that of the
Deleted Mortgage Loan; (iii) have a Loan-to-Value Ratio no higher than that of
the Deleted Mortgage Loan; (iv) have a remaining term to maturity no greater
than (and
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not more than ____________ less than that of) the Deleted Mortgage Loan; and (v)
comply with each representation and warranty set forth in Section 2.03 hereof.
Substitution Adjustment Amount: The meaning ascribed to such term
pursuant to Section 2.03.
Support Classes: As specified in the Preliminary Statement.
Targeted Balance: With respect to the Targeted Principal Classes
and any Distribution Date appearing in Schedule IV hereto, the applicable amount
appearing opposite such Distribution Date for such respective Class or
Component.
Targeted Principal Classes: As specified in the Preliminary
Statement.
Tax Matters Person: The person designated as "tax matters person"
in the manner provided under Treasury regulation ss. 1.860F-4(d) and temporary
Treasury regulation ss. 301.6231(a)(7)1T. Initially, the Tax Matters Person
shall be the Trustee.
Tax Matters Person Certificate: The Class A-R Certificate with a
Denomination of $1.00.
Transfer: Any direct or indirect transfer or sale of any
Ownership Interest in a Residual Certificate.
Trustee: ____________________ and its successors and, if a
successor trustee is appointed hereunder, such successor.
Trustee Fee: As to any Distribution Date, an amount equal to
one-twelfth of the Trustee Fee Rate multiplied by the Pool Stated Principal
Balance with respect to such Distribution Date.
Trustee Fee Rate: With respect to each Mortgage Loan, the per
annum rate agreed upon in writing on or prior to the Closing Date by the Trustee
and the Depositor.
Trust Fund: The corpus of the trust created hereunder consisting
of (i) the Mortgage Loans and all interest and principal received on or with
respect thereto after the Cut-off Date to the extent not applied in computing
the Cut-off Date Principal Balance thereof; (ii) the Certificate Account, the
Distribution Account, and all amounts deposited therein pursuant to the
applicable provisions of this Agreement; (iv) property that secured a Mortgage
Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure or
otherwise; and (v) all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing.
Unscheduled Principal Distribution Amount: With respect to any
Distribution Date, the sum of (i) with respect to each Mortgage Loan that became
a Liquidated Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the lesser of (x) the applicable Non-PO Percentage of the
Stated Principal Balance of such Mortgage Loan and (y) the applicable Non-PO
Percentage of the amount of the Liquidation Proceeds allocable to principal
received with respect to such Mortgage Loan, and (ii) the applicable Non-PO
Percentage of the amount described in clause (f) of the definition of Non-PO
Formula Principal Amount.
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Voting Rights: The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. As of any date of
determination, (a) 1% of all Voting Rights shall be allocated to each Class of
Notional Amount Certificates, if any (such Voting Rights to be allocated among
the holders of Certificates of each such Class in accordance with their
respective Percentage Interests), and (b) the remaining Voting Rights (or 100%
of the Voting Rights if there is no Class of Notional Amount Certificates) shall
be allocated among Holders of the remaining Classes of Certificates in
proportion to the Certificate Balances of their respective Certificates on such
date.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
Section 2.01. Conveyance of Mortgage Loans.
(a) RESERVED
(b) The Depositor, concurrently with the execution and delivery
hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the
Trustee for the benefit of the Certificateholders, without recourse, all the
right, title and interest of the Depositor in and to the Trust Fund together
with the Depositor's right to require the Seller to cure any breach of a
representation or warranty made herein by the Seller or to repurchase or
substitute for any affected Mortgage Loan in accordance herewith.
(c) In connection with the transfer and assignment set forth in
clause (b) above, the Depositor has delivered or caused to be delivered to the
Trustee for the benefit of the Certificateholders the following documents or
instruments with respect to each Mortgage Loan so assigned:
(i) the original Mortgage Note endorsed by manual or
facsimile signature in blank in the following form: "Pay to the
order of ____________ without recourse," with all intervening
endorsements showing a complete chain of endorsement from the
originator to the Person endorsing it to the Trustee (each such
endorsement being sufficient to transfer all right, title and
interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note);
(ii) except as provided below, the original recorded
Mortgage or a copy of such Mortgage certified by the Seller as
being a true and complete copy of the Mortgage;
(iii) a duly executed assignment of the Mortgage (which
may be included in a blanket assignment or assignments), together
with, except as provided below, all interim recorded assignments
of such mortgage (each such assignment, when duly and validly
completed, to be in recordable form and sufficient to effect the
assignment of and transfer to the assignee thereof, under the
Mortgage to which the assignment relates); provided that, if the
related Mortgage has not been returned from the applicable public
recording office, such assignment of the Mortgage may exclude the
information to be provided by the recording office;
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(iv) the original or copies of each assumption,
modification, written assurance or substitution agreement, if
any; and
(v) except as provided below, the original or duplicate
original lender's title policy and all riders thereto.
In the event that in connection with any Mortgage Loan the
Depositor cannot deliver (a) the original recorded Mortgage, (b) all interim
recorded assignments or (c) the lender's title policy (together with all riders
thereto) satisfying the requirements of clause (ii), (iii) or (v) above,
respectively, concurrently with the execution and delivery hereof because such
document or documents have not been returned from the applicable public
recording office in the case of clause (ii) or (iii) above, or because the title
policy has not been delivered to either the Master Servicer or the Depositor by
the applicable title insurer in the case of clause (v) above, the Depositor
shall promptly deliver to the Trustee, in the case of clause (ii) or (iii)
above, such original Mortgage or such interim assignment, as the case may be,
with evidence of recording indicated thereon upon receipt thereof from the
public recording office, or a copy thereof, certified, if appropriate, by the
relevant recording office, but in no event shall any such delivery of the
original Mortgage and each such interim assignment or a copy thereof, certified,
if appropriate, by the relevant recording office, be made later than one year
following the Closing Date, or, in the case of clause (v) above, no later than
120 days following the Closing Date; provided, however, in the event the
Depositor is unable to deliver by such date each Mortgage and each such interim
assignment by reason of the fact that any such documents have not been returned
by the appropriate recording office, or, in the case of each such interim
assignment, because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver such documents to the
Trustee as promptly as possible upon receipt thereof and, in any event, within
720 days following the Closing Date. The Depositor shall forward or cause to be
forwarded to the Trustee (a) from time to time additional original documents
evidencing an assumption or modification of a Mortgage Loan and (b) any other
documents required to be delivered by the Depositor or the Master Servicer to
the Trustee. In the event that the original Mortgage is not delivered and in
connection with the payment in full of the related Mortgage Loan and the public
recording office requires the presentation of a "lost instruments affidavit and
indemnity" or any equivalent document, because only a copy of the Mortgage can
be delivered with the instrument of satisfaction or reconveyance, the Master
Servicer shall execute and deliver or cause to be executed and delivered such a
document to the public recording office. In the case where a public recording
office retains the original recorded Mortgage or in the case where a Mortgage is
lost after recordation in a public recording office, the Depositor shall deliver
or cause to be delivered to the Trustee a copy of such Mortgage certified by
such public recording office to be a true and complete copy of the original
recorded Mortgage.
As promptly as practicable subsequent to such transfer and
assignment, and in any event, within thirty (30) days thereafter, the Trustee
shall (i) affix the Trustee's name to each assignment of Mortgage, as the
assignee thereof, (ii) cause such assignment to be in proper form for recording
in the appropriate public office for real property records and (iii) cause to be
delivered for recording in the appropriate public office for real property
records the assignments of the Mortgages to the Trustee, except that, with
respect to any assignments of Mortgage as to which the Trustee has not received
the information required to prepare such assignment in recordable form, the
Trustee's obligation to do so and to deliver the same for such recording shall
be as soon as practicable after receipt of such information and in any event
within thirty (30) days after receipt thereof and that the Trustee need not
cause to be recorded any assignment which relates to a Mortgage Loan (a) the
Mortgaged Property and Mortgage File relating to which are located in
[___________] or (b) in any
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other jurisdiction under the laws of which, as evidenced by an Opinion of
Counsel delivered by the [Seller] (at the [Seller's] expense) to the Trustee,
the recordation of such assignment is not necessary to protect the Trustee's and
the Certificateholders' interest in the related Mortgage Loan.
In the case of Mortgage Loans that have been prepaid in full as
of the Closing Date, the Depositor, in lieu of delivering the above documents to
the Trustee, will deposit in the Certificate Account the portion of such payment
that is required to be deposited in the Certificate Account pursuant to Section
3.08 hereof.
Section 2.02. Acceptance by Trustee of the Mortgage Loans.
The Trustee acknowledges receipt of the documents identified in
the Initial Certification in the form annexed hereto as Exhibit G and declares
that it holds and will hold such documents and the other documents delivered to
it constituting the Mortgage Files, and that it holds or will hold such other
assets as are included in the Trust Fund, in trust for the exclusive use and
benefit of all present and future Certificateholders. The Trustee acknowledges
that it will maintain possession of the Mortgage Notes in the State of
[__________], unless otherwise permitted by the Rating Agencies.
The Trustee agrees to execute and deliver on the Closing Date to
the Depositor, the Master Servicer and the Seller an Initial Certification in
the form annexed hereto as Exhibit G. Based on its review and examination, and
only as to the documents identified in such Initial Certification, the Trustee
acknowledges that such documents appear regular on their face and relate to such
Mortgage Loan. The Trustee shall be under no duty or obligation to inspect,
review or examine said documents, instruments, certificates or other papers to
determine that the same are genuine, enforceable or appropriate for the
represented purpose or that they have actually been recorded in the real estate
records or that they are other than what they purport to be on their face.
Not later than 90 days after the Closing Date, the Trustee shall
deliver to the Depositor, the Master Servicer and the Seller a Final
Certification in the form annexed hereto as Exhibit H, with any applicable
exceptions noted thereon.
If, in the course of such review, the Trustee finds any document
constituting a part of a Mortgage File which does not meet the requirements of
Section 2.01, the Trustee shall list such as an exception in the Final
Certification; provided, however that the Trustee shall not make any
determination as to whether (i) any endorsement is sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note or (ii) any assignment is in recordable
form or is sufficient to effect the assignment of and transfer to the assignee
thereof under the mortgage to which the assignment relates. The Master Servicer
shall promptly cause the Seller to correct or cure such defect within 90 days
from the date it was so notified of such defect and, if the Seller does not
correct or cure such defect within such period, the Master Servicer shall cause
the Seller to either (a) substitute for the related Mortgage Loan a Substitute
Mortgage Loan, which substitution shall be accomplished in the manner and
subject to the conditions set forth in Section 2.03, or (b) purchase such
Mortgage Loan from the Trustee within 90 days from the date the Seller was
notified of such defect in writing at the Purchase Price of such Mortgage Loan;
provided, however, that in no event shall such substitution or purchase occur
more than 540 days from the Closing Date, except that if the substitution or
purchase of a Mortgage Loan pursuant to this provision is required by reason of
a delay in delivery of any comments by the appropriate recording office, and
there is a dispute between either the Master Servicer or the Seller
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and the Trustee over the location or status of the recorded document, then such
substitution or purchase shall occur within 720 days from the Closing Date. The
Trustee shall deliver written notice to each Rating Agency within 270 days from
the Closing Date indicating each Mortgage Loan (a) which has not been returned
by the appropriate recording office or (b) as to which there is a dispute as to
location or status of such Mortgage Loan. Such notice shall be delivered every
90 days thereafter until the related Mortgage Loan is returned to the Trustee.
Any such substitution pursuant to (a) above or purchase pursuant to (b) above
shall not be effected prior to the delivery to the Trustee of the Opinion of
Counsel required by Section 2.05 hereof, if any, and any substitution pursuant
to (a) above shall not be effected prior to the additional delivery to the
Trustee of a Request for release substantially in the form of Exhibit N. No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. The Master Servicer shall cause the Purchase
Price for any such Mortgage Loan to be deposited by the Seller in the
Certificate Account on or prior to the Distribution Account Deposit Date for the
Distribution Date in the month following the month of repurchase and, upon
receipt of such deposit and certification with respect thereto in the form of
Exhibit N hereto, the Trustee shall release the related Mortgage File to the
Seller and shall execute and deliver at the Seller's request such instruments of
transfer or assignment prepared by the Seller, in each case without recourse, as
shall be necessary to vest in the Seller, or a designee, the Trustee's interest
in any Mortgage Loan released pursuant hereto.
The Trustee shall retain possession and custody of each Mortgage
File in accordance with and subject to the terms and conditions set forth
herein. The Master Servicer shall promptly deliver to the Trustee, upon the
execution or receipt thereof, the originals of such other documents or
instruments constituting the Mortgage File as come into the possession of the
Master Servicer from time to time.
It is understood and agreed that the obligation of the Master
Servicer to cause the Seller to substitute for or to purchase any Mortgage Loan
which does not meet the requirements of Section 2.01 above shall constitute the
sole remedy respecting such defect available to the Trustee, the Depositor and
any Certificateholder against the Seller.
Section 2.03. Representations, Warranties and Covenants of the
Master Servicer.
(a) The Master Servicer hereby makes the representations and
warranties set forth in Schedule II hereto, and by this reference incorporated
herein, to the Depositor and the Trustee, as of the Closing Date, or if so
specified therein, as of the Cut-off Date.
(b) The Seller, has made the representations and warranties set
forth in Schedule III hereto, to the Depositor and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.
(c) Upon discovery by any of the parties hereto of a breach of a
representation or warranty made with respect to Section 2.03(b) that materially
and adversely affects the interests of the Certificateholders in any Mortgage
Loan, the party discovering such breach shall give prompt notice thereof to the
other parties. The Master Servicer shall cause the Seller, within 90 days of the
earlier of its discovery or its receipt of written notice from any party of a
breach of any representation or warranty made with respect to Section 2.03(b)
which materially and adversely affects the interests of the Certificateholders
in any Mortgage Loan, to cure such breach in all material respects, and if such
breach is not so cured, to, (i) if such 90-day period expires prior to the
second anniversary of the Closing Date, remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust Fund and
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substitute in its place a Substitute Mortgage Loan, in the manner and subject to
the conditions set forth in this Section ; or (ii) repurchase the affected
Mortgage Loan or Mortgage Loans from the Trustee at the Purchase Price in the
manner set forth below; provided, however, that any such substitution pursuant
to (i) above shall not be effected prior to the delivery to the Trustee of the
Opinion of Counsel required by Section 2.05 hereof, if any, and any such
substitution pursuant to (i) above shall not be effected prior to the additional
delivery to the Trustee of a Request for Release substantially in the form of
Exhibit N and the Mortgage File for any such Substitute Mortgage Loan. The
Master Servicer shall cause the Seller to promptly reimburse the Master Servicer
and the Trustee for any expenses reasonably incurred by the Master Servicer or
the Trustee in respect of enforcing the remedies for such breach. With respect
to the representations and warranties described in this Section which were to
the best of the Seller's knowledge, if it is discovered by either the Depositor,
the Seller or the Trustee that the substance of such representation and warranty
is inaccurate and such inaccuracy materially and adversely affects the value of
the related Mortgage Loan or the interests of the Certificateholders therein,
notwithstanding the Seller's lack of knowledge with respect to the substance of
such representation or warranty, such inaccuracy shall be deemed a breach of the
applicable representation or warranty.
With respect to any Substitute Mortgage Loan or Loans, the Master
Servicer shall cause the Seller to deliver to the Trustee for the benefit of the
Certificateholders the Mortgage Note, the Mortgage, the related assignment of
the Mortgage, and such other documents and agreements as are required by Section
2.01, with the Mortgage Note endorsed and the Mortgage assigned as required by
Section 2.01. No substitution is permitted to be made in any calendar month
after the Determination Date for such month. Scheduled Payments due with respect
to Substitute Mortgage Loans in the month of substitution shall not be part of
the Trust Fund and will be retained by the Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan. The Master Servicer
shall amend the Mortgage Loan Schedule for the benefit of the Certificateholders
to reflect the removal of such Deleted Mortgage Loan and the substitution of the
Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the
amended Mortgage Loan Schedule to the Trustee. Upon such substitution, the
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects, and, pursuant to the Purchase Agreement, the Seller
shall be deemed to have made with respect to such Substitute Mortgage Loan or
Loans, as of the date of substitution, the representations and warranties made
with respect to Section 2.03(b) with respect to such Mortgage Loan. Upon any
such substitution and the deposit to the Certificate Account of the amount
required to be deposited therein in connection with such substitution as
described in the following paragraph, the Trustee shall release the Mortgage
File held for the benefit of the Certificateholders relating to such Deleted
Mortgage Loan to the Seller and shall execute and deliver at the Seller's
direction such instruments of transfer or assignment prepared by the Seller, in
each case without recourse, as shall be necessary to vest title in the Seller,
or its designee, the Trustee's interest in any Deleted Mortgage Loan substituted
for pursuant to this Section 2.03.
For any month in which the Seller substitutes one or more
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master
Servicer will determine the amount (if any) by which the aggregate principal
balance of all such Substitute Mortgage Loans as of the date of substitution is
less than the aggregate Stated Principal Balance of all such Deleted Mortgage
Loans (after application of the scheduled principal portion of the monthly
payments due in the month of substitution). The Master Servicer shall cause the
amount of such shortage (the "Substitution
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Adjustment Amount") plus an amount equal to the aggregate of any unreimbursed
Advances with respect to such Deleted Mortgage Loans to be deposited in the
Certificate Account by the Seller on or before the Distribution Account Deposit
Date for the Distribution Date in the month succeeding the calendar month during
which the related Mortgage Loan became required to be purchased or replaced
hereunder.
In the event that the Seller shall have repurchased a Mortgage
Loan, the Purchase Price therefor shall be deposited in the Certificate Account
pursuant to Section 3.05 on or before the Distribution Account Deposit Date for
the Distribution Date in the month following the month during which the Seller
became obligated pursuant to the Purchase Agreement to repurchase or replace
such Mortgage Loan and upon such deposit of the Purchase Price, the delivery of
the Opinion of Counsel required by Section 2.05 and receipt of a Request for
Release in the form of Exhibit N hereto, the Trustee shall release the related
Mortgage File held for the benefit of the Certificateholders to such Person, and
the Trustee shall execute and deliver at such Person's direction such
instruments of transfer or assignment prepared by such Person, in each case
without recourse, as shall be necessary to transfer title from the Trustee. It
is understood and agreed that the obligation under this Agreement of any Person
to cure, repurchase or replace any Mortgage Loan as to which a breach has
occurred and is continuing shall constitute the sole remedy against such Persons
respecting such breach available to Certificateholders, the Depositor or the
Trustee on their behalf.
The representations and warranties made pursuant or respect to
this Section 2.03 shall survive delivery of the respective Mortgage Files to the
Trustee for the benefit of the Certificateholders.
Section 2.04. Representations and Warranties of the Depositor as
to the Mortgage Loans.
The Depositor hereby represents and warrants to the Trustee with
respect to each Mortgage Loan as of the date hereof or such other date set forth
herein that as of the Closing Date, and following the transfer of the Mortgage
Loans to it by the Seller, the Depositor had good title to the Mortgage Loans
and the Mortgage Notes were subject to no offsets, defenses or counterclaims.
The Depositor hereby assigns, transfers and conveys to the
Trustee all of its rights with respect to the Mortgage Loans including, without
limitation, the representations and warranties of the Seller made pursuant to
the Purchase Agreement, together with all rights of the Depositor to require the
Seller to cure any breach thereof or to repurchase or substitute for any
affected Mortgage Loan in accordance with this Agreement and the Purchase
Agreement.
It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the Mortgage
Files to the Trustee. Upon discovery by the Depositor or the Trustee of a breach
of any of the foregoing representations and warranties set forth in this Section
2.04 (referred to herein as a "breach"), which breach materially and adversely
affects the interest of the Certificateholders, the party discovering such
breach shall give prompt written notice to the others and to each Rating Agency.
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Section 2.05. Delivery of Opinion of Counsel in Connection with
Substitutions.
(a) Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.02 or Section 2.03 shall be made more than 90
days after the Closing Date unless the Seller delivers to the Trustee an Opinion
of Counsel, which Opinion of Counsel shall not be at the expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that such
substitution will not (i) result in the imposition of the tax on "prohibited
transactions" on the Trust Fund or contributions after the Startup Date, as
defined in Sections 860F(a)(2) and 860G(d) of the Code, respectively, or (ii)
cause the Trust Fund to fail to qualify as a REMIC at any time that any
Certificates are outstanding.
(b) Upon discovery by the Depositor[, the Seller], the Master
Servicer, or the Trustee that any Mortgage Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the Seller, pursuant to the
Purchase Agreement, at the Seller's option, to either (i) substitute, if the
conditions in Section 2.03(c) with respect to substitutions are satisfied, a
Substitute Mortgage Loan for the affected Mortgage Loan, or (ii) repurchase the
affected Mortgage Loan within 90 days of such discovery in the same manner as it
would a Mortgage Loan for a breach of representation or warranty made pursuant
to Section 2.03. The Trustee shall reconvey to the Seller the Mortgage Loan to
be released pursuant hereto in the same manner, and on the same terms and
conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section 2.03.
Section 2.06. Execution and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of the
Trust Fund and, concurrently with such transfer and assignment, has executed and
delivered to or upon the order of the Depositor, the Certificates in authorized
denominations evidencing directly or indirectly the entire ownership of the
Trust Fund. The Trustee agrees to hold the Trust Fund and exercise the rights
referred to above for the benefit of all present and future Holders of the
Certificates and to perform the duties set forth in this Agreement to the best
of its ability, to the end that the interests of the Holders of the Certificates
may be adequately and effectively protected.
Section 2.07. REMIC Matters.
The Preliminary Statement sets forth the designations and "latest
possible maturity date" for federal income tax purposes of all interests created
hereby. The "Startup Day" for purposes of the REMIC Provisions shall be the
Closing Date. The "tax matters person" with respect to the Trust Fund shall be
the Trustee and the Trustee shall hold the Tax Matters Person Certificate. The
Trust Fund's fiscal year shall be the calendar year.
Section 2.08. Covenants of the Master Servicer.
The Master Servicer hereby covenants to the Depositor and the
Trustee as follows:
(a) the Master Servicer shall comply in the performance of its
obligations under this Agreement with all reasonable rules and
requirements of the insurer under each Required Insurance Policy; and
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(b) no written information, certificate of an officer, statement
furnished in writing or written report delivered to the Depositor, any
affiliate of the Depositor or the Trustee and prepared by the Master
Servicer pursuant to this Agreement will contain any untrue statement a
material fact or omit to state a material fact necessary to make such
information, certificate, statement or report not misleading.
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. Master Servicer to Service Mortgage Loans.
For and on behalf of the Certificateholders, the Master Servicer
shall service and administer the Mortgage Loans in accordance with the terms of
this Agreement and customary and usual standards of practice of prudent mortgage
loan servicers. In connection with such servicing and administration, the Master
Servicer shall have full power and authority, acting alone and/or through
Subservicers as provided in Section 3.02 hereof, to do or cause to be done any
and all things that it may deem necessary or desirable in connection with such
servicing and administration, including but not limited to, the power and
authority, subject to the terms hereof (i) to execute and deliver, on behalf of
the Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds, and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any
Mortgage Loan; provided that the Master Servicer shall not take any action that
is inconsistent with or prejudices the interests of the Trust Fund or the
Certificateholders in any Mortgage Loan or the rights and interests of the
Depositor, the Trustee and the Certificateholders under this Agreement. The
Master Servicer shall represent and protect the interests of the Trust Fund in
the same manner as it protects its own interests in mortgage loans in its own
portfolio in any claim, proceeding or litigation regarding a Mortgage Loan, and
shall not make or permit any modification, waiver or amendment of any Mortgage
Loan which would cause the Trust Fund to fail to qualify as a REMIC or result in
the imposition of any tax under Section 860F(a) or Section 860G(d) of the Code.
Without limiting the generality of the foregoing, the Master Servicer, in its
own name or in the name of the Depositor and the Trustee, is hereby authorized
and empowered by the Depositor and the Trustee, when the Master Servicer
believes it appropriate in its reasonable judgment, to execute and deliver, on
behalf of the Trustee, the Depositor, the Certificateholders or any of them, any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Mortgage Loans, and with respect to the Mortgaged Properties held for the
benefit of the Certificateholders. The Master Servicer shall prepare and deliver
to the Depositor and/or the Trustee such documents requiring execution and
delivery by either or both of them as are necessary or appropriate to enable the
Master Servicer to service and administer the Mortgage Loans to the extent that
the Master Servicer is not permitted to execute and deliver such documents
pursuant to the preceding sentence. Upon receipt of such documents, the
Depositor and/or the Trustee shall execute such documents and deliver them to
the Master Servicer.
In accordance with the standards of the preceding paragraph, the
Master Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first
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instance from related collections from the Mortgagors pursuant to Section 3.06,
and further as provided in Section 3.08. The costs incurred by the Master
Servicer, if any, in effecting the timely payments of taxes and assessments on
the Mortgaged Properties and related insurance premiums shall not, for the
purpose of calculating monthly distributions to the Certificateholders, be added
to the Stated Principal Balances of the related Mortgage Loans, notwithstanding
that the terms of such Mortgage Loans so permit.
Section 3.02. Subservicing; Enforcement of the Obligations of
Servicers.
(a) The Master Servicer may arrange for the subservicing of any
Mortgage Loan by a Subservicer pursuant to a subservicing agreement; provided,
however, that such subservicing arrangement and the terms of the related
subservicing agreement must provide for the servicing of such Mortgage Loans in
a manner consistent with the servicing arrangements contemplated hereunder.
Unless the context otherwise requires, references in this Agreement to actions
taken or to be taken by the Master Servicer in servicing the Mortgage Loans
include actions taken or to be taken by a Subservicer on behalf of the Master
Servicer. Notwithstanding the provisions of any subservicing agreement, any of
the provisions of this Agreement relating to agreements or arrangements between
the Master Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Master Servicer shall remain obligated and liable
to the Depositor, the Trustee and the Certificateholders for the servicing and
administration of the Mortgage Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
subservicing agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Master Servicer alone were servicing and administering the Mortgage Loans.
All actions of each Subservicer performed pursuant to the related subservicing
agreement shall be performed as an agent of the Master Servicer with the same
force and effect as if performed directly by the Master Servicer.
(b) For purposes of this Agreement, the Master Servicer shall be
deemed to have received any collections, recoveries or payments with respect to
the Mortgage Loans that are received by a Subservicer regardless of whether such
payments are remitted by the Subservicer to the Master Servicer.
Section 3.03. Rights of the Depositor and the Trustee in Respect
of the Master Servicer.
The Depositor may, but is not obligated to, enforce the
obligations of the Master Servicer hereunder and may, but is not obligated to,
perform, or cause a designee to perform, any defaulted obligation of the Master
Servicer hereunder and in connection with any such defaulted obligation to
exercise the related rights of the Master Servicer hereunder; provided that the
Master Servicer shall not be relieved of any of its obligations hereunder by
virtue of such performance by the Depositor or its designee. Neither the Trustee
nor the Depositor shall have any responsibility or liability for any action or
failure to act by the Master Servicer nor shall the Trustee or the Depositor be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.
Section 3.04. Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no
longer be the Master Servicer hereunder (including by reason of an Event of
Default), the Trustee or its successor shall thereupon assume all of the rights
and obligations of the Master Servicer hereunder arising thereafter
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(except that the Trustee shall not be (i) liable for losses of the Master
Servicer pursuant to Section 3.09 hereof or any acts or omissions of the
predecessor Master Servicer hereunder), (ii) obligated to make Advances if it is
prohibited from doing so by applicable law, (iii) obligated to effectuate
repurchases or substitutions of Mortgage Loans hereunder including, but not
limited to, repurchases or substitutions of Mortgage Loans pursuant to Section
2.02 or 2.03 hereof, (iv) responsible for expenses of the Master Servicer
pursuant to Section 2.03 or (v) deemed to have made any representations and
warranties of the Master Servicer hereunder). Any such assumption shall be
subject to Section 7.02 hereof. If the Master Servicer shall for any reason no
longer be the Master Servicer (including by reason of any Event of Default), the
Trustee or its successor shall succeed to any rights and obligations of the
Master Servicer under each subservicing agreement.
The Master Servicer shall, upon request of the Trustee, but at
the expense of the Master Servicer, deliver to the assuming party all documents
and records relating to each subservicing agreement or substitute subservicing
agreement and the Mortgage Loans then being serviced thereunder and an
accounting of amounts collected or held by it and otherwise use its best efforts
to effect the orderly and efficient transfer of the substitute subservicing
agreement to the assuming party.
Section 3.05. Collection of Mortgage Loan Payments; Certificate
Account; Distribution Account.
(a) The Master Servicer shall make reasonable efforts in
accordance with the customary and usual standards of practice of prudent
mortgage servicers to collect all payments called for under the terms and
provisions of the Mortgage Loans to the extent such procedures shall be
consistent with this Agreement and the terms and provisions of any related
Required Insurance Policy. Consistent with the foregoing, the Master Servicer
may in its discretion (i) waive any late payment charge or any prepayment charge
or penalty interest in connection with the prepayment of a Mortgage Loan and
(ii) extend the due dates for payments due on a Mortgage Note for a period not
greater than 180 days; provided, however, that the Master Servicer cannot extend
the maturity of any such Mortgage Loan past the date on which the final payment
is due on the latest maturing Mortgage Loan as of the Cut-off Date. In the event
of any such arrangement, the Master Servicer shall make Advances on the related
Mortgage Loan in accordance with the provisions of Section 4.01 during the
scheduled period in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangements. The Master
Servicer shall not be required to institute or join in litigation with respect
to collection of any payment (whether under a Mortgage, Mortgage Note or
otherwise or against any public or governmental authority with respect to a
taking or condemnation) if it reasonably believes that enforcing the provision
of the Mortgage or other instrument pursuant to which such payment is required
is prohibited by applicable law.
(b) The Master Servicer shall establish and maintain a
Certificate Account into which the Master Servicer shall deposit or cause to be
deposited on a daily basis within one Business Day of receipt, except as
otherwise specifically provided herein, the following payments and collections
remitted by Subservicers or received by it in respect of Mortgage Loans
subsequent to the Cut-off Date (other than in respect of principal and interest
due on the Mortgage Loans on or before the Cut-off Date) and the following
amounts required to be deposited hereunder:
(i) all payments on account of principal on the Mortgage Loans,
including Principal Prepayments;
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(ii) all payments on account of interest on the Mortgage Loans,
net of the related Master Servicing Fee;
(iii) all Insurance Proceeds and Liquidation Proceeds, other than
proceeds to be applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures;
(iv) any amount required to be deposited by the Master Servicer
pursuant to Section 3.05(d) in connection with any losses on Permitted
Investments;
(v) any amounts required to be deposited by the Master Servicer
pursuant to Section 3.09(b), 3.09(d), and in respect of net monthly
rental income from REO Property pursuant to Section 3.11 hereof;
(vi) all Substitution Adjustment Amounts;
(vii) all Advances made by the Master Servicer pursuant to
Section 4.01; and
(viii) any other amounts required to be deposited hereunder.
In addition, with respect to any Mortgage Loan that is subject to
a buydown agreement, on each Due Date for such Mortgage Loan, in addition to the
monthly payment remitted by the Mortgagor, the Master Servicer shall cause funds
to be deposited into the Certificate Account in an amount required to cause an
amount of interest to be paid with respect to such Mortgage Loan equal to the
amount of interest that has accrued on such Mortgage Loan from the preceding Due
Date at the Mortgage Rate net of the related Master Servicing Fee on such date.
The foregoing requirements for remittance by the Master Servicer
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of prepayment penalties,
late payment charges or assumption fees, if collected, need not be remitted by
the Master Servicer. In the event that the Master Servicer shall remit any
amount not required to be remitted, it may at any time withdraw or direct the
institution maintaining the Certificate Account to withdraw such amount from the
Certificate Account, any provision herein to the contrary notwithstanding. Such
withdrawal or direction may be accomplished by delivering written notice thereof
to the Trustee or such other institution maintaining the Certificate Account
which describes the amounts deposited in error in the Certificate Account. The
Master Servicer shall maintain adequate records with respect to all withdrawals
made pursuant to this Section . All funds deposited in the Certificate Account
shall be held in trust for the Certificateholders until withdrawn in accordance
with Section 3.08.
(c) The Trustee shall establish and maintain, on behalf of the
Certificateholders, the Distribution Account. The Trustee shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the following:
(i) the aggregate amount remitted by the Master Servicer to the
Trustee pursuant to Section 3.08(a)(ix);
(ii) any amount deposited by the Master Servicer pursuant to
Section 3.05(d) in connection with any losses on Permitted Investments;
and
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(iii) any other amounts deposited hereunder which are required to
be deposited in the Distribution Account.
In the event that the Master Servicer shall remit any amount not
required to be remitted, it may at any time direct the Trustee to withdraw such
amount from the Distribution Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution Account. All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.08. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Master Servicer.
(d) Each institution at which the Certificate Account or the
Distribution Account is maintained shall invest the funds therein as directed in
writing by the Master Servicer in Permitted Investments, which shall mature not
later than (i) in the case of the Certificate Account, the second Business Day
next preceding the related Distribution Account Deposit Date (except that if
such Permitted Investment is an obligation of the institution that maintains
such account, then such Permitted Investment shall mature not later than the
Business Day next preceding such Distribution Account Deposit Date) and (ii) in
the case of the Distribution Account, the Business Day next preceding the
Distribution Date (except that if such Permitted Investment is an obligation of
the institution that maintains such fund or account, then such Permitted
Investment shall mature not later than such Distribution Date) and, in each
case, shall not be sold or disposed of prior to its maturity. All such Permitted
Investments shall be made in the name of the Trustee, for the benefit of the
Certificateholders. All income and gain net of any losses realized from any such
investment of funds on deposit in the Certificate Account or the Distribution
Account shall be for the benefit of the Master Servicer as servicing
compensation and shall be remitted to it monthly as provided herein. The amount
of any realized losses in the Certificate Account or the Distribution Account
incurred in any such account in respect of any such investments shall promptly
be deposited by the Master Servicer in the Certificate Account or paid to the
Trustee for deposit into the Distribution Account, as applicable. The Trustee in
its fiduciary capacity shall not be liable for the amount of any loss incurred
in respect of any investment or lack of investment of funds held in the
Certificate Account or the Distribution Account and made in accordance with this
Section 3.05.
(e) The Master Servicer shall give notice to the Trustee, the
Seller, each Rating Agency and the Depositor of any proposed change of the
location of the Certificate Account prior to any change thereof. The Trustee
shall give notice to the Master Servicer, the Seller, each Rating Agency and the
Depositor of any proposed change of the location of the Distribution Account
prior to any change thereof.
Section 3.06. Collection of Taxes, Assessments and Similar Items;
Escrow Accounts.
(a) To the extent required by the related Mortgage Note and not
violative of current law, the Master Servicer shall establish and maintain one
or more accounts (each, an "Escrow Account") and deposit and retain therein all
collections from the Mortgagors (or advances by the Master Servicer) for the
payment of taxes, assessments, hazard insurance premiums or comparable items for
the account of the Mortgagors. Nothing herein shall require the Master Servicer
to compel a Mortgagor to establish an Escrow Account in violation of applicable
law.
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(b) Withdrawals of amounts so collected from the Escrow Accounts
may be made only to effect timely payment of taxes, assessments, hazard
insurance premiums, condominium or PUD association dues, or comparable items, to
reimburse the Master Servicer out of related collections for any payments made
pursuant to Sections 3.01 hereof (with respect to taxes and assessments and
insurance premiums) and 3.09 hereof (with respect to hazard insurance), to
refund to any Mortgagors any sums determined to be overages, to pay interest, if
required by law or the terms of the related Mortgage or Mortgage Note, to
Mortgagors on balances in the Escrow Account or to clear and terminate the
Escrow Account at the termination of this Agreement in accordance with Section
9.01 hereof. The Escrow Accounts shall not be a part of the Trust Fund.
(c) The Master Servicer shall advance any payments referred to in
Section 3.06(a) that are not timely paid by the Mortgagors on the date when the
tax, premium or other cost for which such payment is intended is due, but the
Master Servicer shall be required so to advance only to the extent that such
advances, in the good faith judgment of the Master Servicer, will be recoverable
by the Master Servicer out of Insurance Proceeds, Liquidation Proceeds or
otherwise.
Section 3.07. Access to Certain Documentation and Information
Regarding the Mortgage Loans.
The Master Servicer shall afford the Depositor and the Trustee
reasonable access to all records and documentation regarding the Mortgage Loans
and all accounts, insurance information and other matters relating to this
Agreement, such access being afforded without charge, but only upon reasonable
request and during normal business hours at the office designated by the Master
Servicer.
Upon reasonable advance notice in writing, the Master Servicer
will provide to each Certificateholder which is a savings and loan association,
bank or insurance company certain reports and reasonable access to information
and documentation regarding the Mortgage Loans sufficient to permit such
Certificateholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates; provided
that the Master Servicer shall be entitled to be reimbursed by each such
Certificateholder for actual expenses incurred by the Master Servicer in
providing such reports and access.
Section 3.08. Permitted Withdrawals from the Certificate Account
and Distribution Account.
(a) The Master Servicer may from time to time make withdrawals
from the Certificate Account for the following purposes:
(i) to pay to the Master Servicer (to the extent not previously
retained by the Master Servicer) the servicing compensation to which it
is entitled pursuant to Section 3.14, and to pay to the Master Servicer,
as additional servicing compensation, earnings on or investment income
with respect to funds in or credited to the Certificate Account;
(ii) to reimburse the Master Servicer for unreimbursed Advances
made by it, such right of reimbursement pursuant to this subclause (ii)
being limited to amounts received on the Mortgage Loan(s) in respect of
which any such Advance was made;
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(iii) to reimburse the Master Servicer for any Nonrecoverable
Advance previously made;
(iv) to reimburse the Master Servicer for Insured Expenses from
the related Insurance Proceeds;
(v) to reimburse the Master Servicer for (a) unreimbursed
Servicing Advances, the Master Servicer's right to reimbursement
pursuant to this clause (a) with respect to any Mortgage Loan being
limited to amounts received on such Mortgage Loan(s) which represent
late recoveries of the payments for which such advances were made
pursuant to Section 3.01 or Section 3.06 and (b) for unpaid Master
Servicing Fees as provided in Section 3.11 hereof;
(vi) to pay to the purchaser, with respect to each Mortgage Loan
or property acquired in respect thereof that has been purchased pursuant
to Section 2.02, 2.03 or 3.11, all amounts received thereon after the
date of such purchase;
(vii) to reimburse [the Seller,] the Master Servicer or the
Depositor for expenses incurred by any of them and reimbursable pursuant
to Section 6.03 hereof;
(viii) to withdraw any amount deposited in the Certificate
Account and not required to be deposited therein;
(ix) on or prior to the Distribution Account Deposit Date, to
withdraw an amount equal to the related Available Funds and the Trustee
Fee for such Distribution Date and remit such amount to the Trustee for
deposit in the Distribution Account; and
(x) to clear and terminate the Certificate Account upon
termination of this Agreement pursuant to Section 9.01 hereof.
The Master Servicer shall keep and maintain separate accounting,
on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Certificate Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Certificate Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee an
Officer's Certificate of a Servicing Officer indicating the amount of any
previous Advance determined by the Master Servicer to be a Nonrecoverable
Advance and identifying the related Mortgage Loans(s), and their respective
portions of such Nonrecoverable Advance.
(b) The Trustee shall withdraw funds from the Distribution
Account for distributions to Certificateholders in the manner specified in this
Agreement (and to withhold from the amounts so withdrawn, the amount of any
taxes that it is authorized to withhold pursuant to the last paragraph of
Section 8.11). In addition, the Trustee may from time to time make withdrawals
from the Distribution Account for the following purposes:
(i) to pay to itself the Trustee Fee for the related Distribution
Date;
(ii) to pay to the Master Servicer as additional servicing
compensation earnings on or investment income with respect to funds in
the Distribution Account;
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(iii) to withdraw and return to the Master Servicer any amount
deposited in the Distribution Account and not required to be deposited
therein; and
(iv) to clear and terminate the Distribution Account upon
termination of the Agreement pursuant to Section 9.01 hereof.
Section 3.09. Maintenance of Hazard Insurance; Maintenance of
Primary Insurance Policies.
(a) The Master Servicer shall cause to be maintained, for each
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. Any amounts collected by the Master Servicer under any such policies
(other than the amounts to be applied to the restoration or repair of the
related Mortgaged Property or amounts released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures) shall be deposited in
the Certificate Account. Any cost incurred by the Master Servicer in maintaining
any such insurance shall not, for the purpose of calculating monthly
distributions to the Certificateholders or remittances to the Trustee for their
benefit, be added to the principal balance of the Mortgage Loan, notwithstanding
that the terms of the Mortgage Loan so permit. Such costs shall be recoverable
by the Master Servicer out of late payments by the related Mortgagor or out of
Liquidation Proceeds to the extent permitted by Section 3.08 hereof. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired in respect of a
Mortgage other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located at the time of origination of the Mortgage Loan in
a federally designated special flood hazard area and such area is participating
in the national flood insurance program, the Master Servicer shall cause flood
insurance to be maintained with respect to such Mortgage Loan. Such flood
insurance shall be in an amount equal to the least of (i) the original principal
balance of the related Mortgage Loan, (ii) the replacement value of the
improvements which are part of such Mortgaged Property, and (iii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program.
(b) In the event that the Master Servicer shall obtain and
maintain a blanket policy insuring against hazard losses on all of the Mortgage
Loans, it shall conclusively be deemed to have satisfied its obligations as set
forth in the first sentence of this Section, it being understood and agreed that
such policy may contain a deductible clause on terms substantially equivalent to
those commercially available and maintained by comparable servicers. If such
policy contains a deductible clause, the Master Servicer shall, in the event
that there shall not have been maintained on the related Mortgaged Property a
policy complying with the first sentence of this Section , and there shall have
been a loss that would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as Master
Servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf
of itself, the Depositor, and the Trustee for the benefit of the
Certificateholders, claims under any such blanket policy.
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(c) The Master Servicer shall not take any action which would
result in non-coverage under any applicable Primary Insurance Policy of any loss
which, but for the actions of the Master Servicer, would have been covered
thereunder. The Master Servicer shall not cancel or refuse to renew any such
Primary Insurance Policy that is in effect at the date of the initial issuance
of the Certificates and is required to be kept in force hereunder unless the
replacement Primary Insurance Policy for such canceled or non-renewed policy is
maintained with a Qualified Insurer. The Master Servicer shall not be required
to maintain any Primary Insurance Policy with respect to any Mortgage Loan with
a Loan-to-Value Ratio less than or equal to 80% as of any date of determination
or, based on a new appraisal, the principal balance of such Mortgage Loan
represents 80% or less of the new appraised value. The Master Servicer agrees to
effect the timely payment of the premiums on each Primary Insurance Policy, and
such costs not otherwise recoverable shall be recoverable by the Master Servicer
from the related liquidation proceeds.
(d) In connection with its activities as Master Servicer of the
Mortgage Loans, the Master Servicer agrees to present on behalf of itself, the
Trustee and Certificateholders, claims to the insurer under any Primary
Insurance Policies and, in this regard, to take such reasonable action as shall
be necessary to permit recovery under any Primary Insurance Policies respecting
defaulted Mortgage Loans. Any amounts collected by the Master Servicer under any
Primary Insurance Policies shall be deposited in the Certificate Account.
Section 3.10. Enforcement of Due-on-Sale Clauses; Assumption
Agreements.
(a) Except as otherwise provided in this Section , when any
property subject to a Mortgage has been conveyed by the Mortgagor, the Master
Servicer shall to the extent that it has knowledge of such conveyance, enforce
any due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. Notwithstanding the foregoing, the Master
Servicer is not required to exercise such rights with respect to a Mortgage Loan
if the Person to whom the related Mortgaged Property has been conveyed or is
proposed to be conveyed satisfies the terms and conditions contained in the
Mortgage Note and Mortgage related thereto and the consent of the mortgagee
under such Mortgage Note or Mortgage is not otherwise so required under such
Mortgage Note or Mortgage as a condition to such transfer. In the event that the
Master Servicer is prohibited by law from enforcing any such due-on-sale clause,
or if coverage under any Required Insurance Policy would be adversely affected,
or if nonenforcement is otherwise permitted hereunder, the Master Servicer is
authorized, subject to Section 3.10(b), to take or enter into an assumption and
modification agreement from or with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note and, unless prohibited by applicable state law, the Mortgagor
remains liable thereon, provided that the Mortgage Loan shall continue to be
covered (if so covered before the Master Servicer enters such agreement) by the
applicable Required Insurance Policies. The Master Servicer, subject to Section
3.10(b), is also authorized with the prior approval of the insurers under any
Required Insurance Policies 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. Notwithstanding the foregoing, the Master Servicer shall not
be deemed to be in default under this Section by reason of any transfer or
assumption which the Master Servicer reasonably believes it is restricted by law
from preventing, for any reason whatsoever.
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(b) Subject to the Master Servicer's duty to enforce any
due-on-sale clause to the extent set forth in Section 3.10(a) hereof, in any
case in which a Mortgaged Property has been conveyed to a Person by a Mortgagor,
and such Person is to enter into an assumption agreement or modification
agreement or supplement to the Mortgage Note or Mortgage that requires the
signature of the Trustee, or if an instrument of release signed by the Trustee
is required releasing the Mortgagor from liability on the Mortgage Loan, the
Master Servicer shall prepare and deliver or cause to be prepared and delivered
to the Trustee for signature and shall direct, in writing, the Trustee to
execute the assumption agreement with the Person to whom the Mortgaged Property
is to be conveyed and such modification agreement or supplement to the Mortgage
Note or Mortgage or other instruments as are reasonable or necessary to carry
out the terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term of the
Mortgage Note may be changed. In addition, the substitute Mortgagor and the
Mortgaged Property must be acceptable to the Master Servicer in accordance with
its underwriting standards as then in effect. Together with each such
substitution, assumption or other agreement or instrument delivered to the
Trustee for execution by it, the Master Servicer shall deliver an Officer's
Certificate signed by a Servicing Officer stating that the requirements of this
subsection have been met in connection therewith. The Master Servicer shall
notify the Trustee that any such substitution or assumption agreement has been
completed by forwarding to the Trustee the original of such substitution or
assumption agreement, which in the case of the original shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Master Servicer for
entering into an assumption or substitution of liability agreement will be
retained by the Master Servicer as additional servicing compensation.
Section 3.11. Realization Upon Defaulted Mortgage Loans;
Repurchase of Certain Mortgage Loans.
The Master Servicer shall use reasonable efforts to foreclose
upon or otherwise comparably convert the ownership of properties securing such
of the Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general mortgage servicing activities and
meet the requirements of the insurer under any Required Insurance Policy;
provided, however, that the Master Servicer shall not be required to expend its
own funds in connection with any foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration and/or foreclosure
will increase the proceeds of liquidation of the Mortgage Loan after
reimbursement to itself of such expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds (respecting which it shall have
priority for purposes of withdrawals from the Certificate Account). The Master
Servicer shall be responsible for all other costs and expenses incurred by it in
any such proceedings; provided, however, that it shall be entitled to
reimbursement thereof from the liquidation proceeds with respect to the related
Mortgaged Property, as provided in the definition of Liquidation Proceeds. If
the Master Servicer has knowledge that a Mortgaged Property which the Master
Servicer is contemplating acquiring in foreclosure or by deed in lieu of
foreclosure is located within a one mile radius of any site listed in the
Expenditure Plan for the Hazardous Substance Clean Up Bond Act of 1984 or other
site with environmental or hazardous waste risks known to the Master Servicer,
the Master Servicer will, prior to acquiring the Mortgaged Property, consider
such risks and only take action in accordance with its established environmental
review procedures.
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With respect to any REO Property, the deed or certificate of sale
shall be taken in the name of the Trustee for the benefit of the
Certificateholders, or its nominee, on behalf of the Certificateholders. The
Trustee's name shall be placed on the title to such REO Property solely as the
Trustee hereunder and not in its individual capacity. The Master Servicer shall
ensure that the title to such REO Property references the Pooling and Servicing
Agreement and the Trustee's capacity thereunder. Pursuant to its efforts to sell
such REO Property, the Master Servicer shall either itself or through an agent
selected by the Master Servicer protect and conserve such REO Property in the
same manner and to such extent as is customary in the locality where such REO
Property is located and may, incident to its conservation and protection of the
interests of the Certificateholders, rent the same, or any part thereof, as the
Master Servicer deems to be in the best interest of the Certificateholders for
the period prior to the sale of such REO Property. The Master Servicer shall
prepare for and deliver to the Trustee a statement with respect to each REO
Property that has been rented showing the aggregate rental income received and
all expenses incurred in connection with the management and maintenance of such
REO Property at such times as is necessary to enable the Trustee to comply with
the reporting requirements of the REMIC Provisions. The net monthly rental
income, if any, from such REO Property shall be deposited in the Certificate
Account no later than the close of business on each Determination Date. The
Master Servicer shall perform the tax reporting and withholding required by
Sections 1445 and 6050J of the Code with respect to foreclosures and
abandonments, the tax reporting required by Section 6050H of the Code with
respect to the receipt of mortgage interest from individuals and any tax
reporting required by Section 6050P of the Code with respect to the cancellation
of indebtedness by certain financial entities, by preparing such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.
In the event that the Trust Fund acquires any Mortgaged Property
as aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Master Servicer shall dispose of such Mortgaged Property
prior to two years after its acquisition by the Trust Fund unless the Trustee
shall have been supplied with an Opinion of Counsel to the effect that the
holding by the Trust Fund of such Mortgaged Property subsequent to such two-year
period will not result in the imposition of taxes on "prohibited transactions"
of the REMIC hereunder as defined in section 860F of the Code or cause the REMIC
to fail to qualify as a REMIC at any time that any Certificates are outstanding,
in which case the Trust Fund may continue to hold such Mortgaged Property
(subject to any conditions contained in such Opinion of Counsel).
Notwithstanding any other provision of this Agreement, no Mortgaged Property
acquired by the Trust Fund shall be rented (or allowed to continue to be rented)
or otherwise used for the production of income by or on behalf of the Trust Fund
in such a manner or pursuant to any terms that would (i) cause such Mortgaged
Property to fail to qualify as "foreclosure property" within the meaning of
section 860G(a)(8) of the Code or (ii) subject the REMIC to the imposition of
any federal, state or local income taxes on the income earned from such
Mortgaged Property under Section 860G(c) of the Code or otherwise, unless the
Master Servicer has agreed to indemnify and hold harmless the Trust Fund with
respect to the imposition of any such taxes.
The decision of the Master Servicer to foreclose on a defaulted
Mortgage Loan shall be subject to a determination by the Master Servicer that
the proceeds of such foreclosure would exceed the costs and expenses of bringing
such a proceeding. The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property or other taxes) in connection with such management and net of
unreimbursed Master Servicing Fees, Advances and Servicing Advances, shall be
applied to the payment of principal of and interest on the related defaulted
Mortgage Loans (with interest accruing
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as though such Mortgage Loans were still current) and all such income shall be
deemed, for all purposes in this Agreement, to be payments on account of
principal and interest on the related Mortgage Notes and shall be deposited into
the Certificate Account. To the extent the net income received during any
calendar month is in excess of the amount attributable to amortizing principal
and accrued interest at the related Mortgage Rate on the related Mortgage Loan
for such calendar month, such excess shall be considered to be a partial
prepayment of principal of the related Mortgage Loan.
The proceeds from any liquidation of a Mortgage Loan, as well as
any income from an REO Property, will be applied in the following order of
priority: first, to reimburse the Master Servicer for any related unreimbursed
Servicing Advances and Master Servicing Fees; second, to reimburse the Master
Servicer for any unreimbursed Advances; third, to reimburse the Certificate
Account for any Nonrecoverable Advances (or portions thereof) that were
previously withdrawn by the Master Servicer pursuant to Section 3.08(a)(iii)
that related to such Mortgage Loan; fourth, to accrued and unpaid interest (to
the extent no Advance has been made for such amount or any such Advance has been
reimbursed) on the Mortgage Loan or related REO Property, at the Adjusted Net
Mortgage Rate to the Due Date occurring in the month in which such amounts are
required to be distributed; and fifth, as a recovery of principal of the
Mortgage Loan. Excess Proceeds, if any, from the liquidation of a Liquidated
Mortgage Loan will be retained by the Master Servicer as additional servicing
compensation pursuant to Section 3.14.
The Master Servicer, in its sole discretion, shall have the right
to purchase for its own account from the Trust Fund any Mortgage Loan which is
91 days or more delinquent at a price equal to the Purchase Price. The Purchase
Price for any Mortgage Loan purchased hereunder shall be deposited in the
Certificate Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit __ hereto, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trustee's right, title and interest in and to such Mortgage Loan and
all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage Loan
shall thereupon own such Mortgage Loan, and all security and documents, free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.
Section 3.12. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by
the Master Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Master Servicer will immediately notify
the Trustee by delivering, or causing to be delivered a "Request for Release"
substantially in the form of Exhibit N. Upon receipt of such request, the
Trustee shall promptly release the related Mortgage File to the Master Servicer,
and the Trustee shall at the Master Servicer's direction execute and deliver to
the Master Servicer the request for reconveyance, deed of reconveyance or
release or satisfaction of mortgage or such instrument releasing the lien of the
Mortgage in each case provided by the Master Servicer, together with the
Mortgage Note with written evidence of cancellation thereon. Expenses incurred
in connection with any instrument of satisfaction or deed of reconveyance shall
be chargeable to the related Mortgagor. From time to time and as shall be
appropriate for the servicing or foreclosure of any Mortgage Loan, including for
such purpose, collection under any policy of flood insurance, any fidelity bond
or errors or omissions policy, or for the purposes of effecting a partial
release of any Mortgaged Property from
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the lien of the Mortgage or the making of any corrections to the Mortgage Note
or the Mortgage or any of the other documents included in the Mortgage File, the
Trustee shall, upon delivery to the Trustee of a Request for Release in the form
of Exhibit [M] signed by a Servicing Officer, release the Mortgage File to the
Master Servicer. Subject to the further limitations set forth below, the Master
Servicer shall cause the Mortgage File or documents so released to be returned
to the Trustee when the need therefor by the Master Servicer no longer exists,
unless the Mortgage Loan is liquidated and the proceeds thereof are deposited in
the Certificate Account, in which case the Master Servicer shall deliver to the
Trustee a Request for Release in the form of Exhibit N, signed by a Servicing
Officer.
If the Master Servicer at any time seeks to initiate a
foreclosure proceeding in respect of any Mortgaged Property as authorized by
this Agreement, the Master Servicer shall deliver or cause to be delivered to
the Trustee, for signature, as appropriate, any court pleadings, requests for
trustee's sale or other documents necessary to effectuate such foreclosure or
any legal action brought to obtain judgment against the Mortgagor on the
Mortgage Note or the Mortgage or to obtain a deficiency judgment or to enforce
any other remedies or rights provided by the Mortgage Note or the Mortgage or
otherwise available at law or in equity.
Section 3.13. Documents Records and Funds in Possession of Master
Servicer to be Held for the Trustee.
Notwithstanding any other provisions of this Agreement, the
Master Servicer shall transmit to the Trustee as required by this Agreement all
documents and instruments in respect of a Mortgage Loan coming into the
possession of the Master Servicer from time to time and shall account fully to
the Trustee for any funds received by the Master Servicer or which otherwise are
collected by the Master Servicer as Liquidation Proceeds or Insurance Proceeds
in respect of any Mortgage Loan. All Mortgage Files and funds collected or held
by, or under the control of, the Master Servicer in respect of any Mortgage
Loans, whether from the collection of principal and interest payments or from
Liquidation Proceeds, including but not limited to, any funds on deposit in the
Certificate Account, shall be held by the Master Servicer for and on behalf of
the Trustee and shall be and remain the sole and exclusive property of the
Trustee, subject to the applicable provisions of this Agreement. The Master
Servicer also agrees that it shall not create, incur or subject any Mortgage
File or any funds that are deposited in the Certificate Account, Distribution
Account or any Escrow Account, or any funds that otherwise are or may become due
or payable to the Trustee for the benefit of the Certificateholders, to any
claim, lien, security interest, judgment, levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds collected on, or in connection with, a
Mortgage Loan, except, however, that the Master Servicer shall be entitled to
set off against and deduct from any such funds any amounts that are properly due
and payable to the Master Servicer under this Agreement.
Section 3.14. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer
shall be entitled to retain or withdraw from the Certificate Account an amount
equal to the Master Servicing Fee for each Mortgage Loan, provided that the
aggregate Master Servicing Fee with respect to any Distribution Date shall be
reduced (i) by an amount equal to the aggregate of the Prepayment Interest
Shortfalls, if any, with respect to such Distribution Date, but not below an
amount equal to one-half of the aggregate Master Servicing Fee for such
Distribution Date before reduction thereof in respect of such Prepayment
Interest Shortfalls, and (ii) with respect to the first Distribution Date, an
amount equal to
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any amount to be deposited into the Distribution Account by the Depositor
pursuant to [Section 2.01(a)] and not so deposited.
Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, late payment
charges and all income and gain net of any losses realized from Permitted
Investments shall be retained by the Master Servicer to the extent not required
to be deposited in the Certificate Account pursuant to Section 3.05 hereof. The
Master Servicer shall be required to pay all expenses incurred by it in
connection with its master servicing activities hereunder (including payment of
any premiums for hazard insurance and any Primary Insurance Policy and
maintenance of the other forms of insurance coverage required by this Agreement)
and shall not be entitled to reimbursement therefor except as specifically
provided in this Agreement.
Section 3.15. Access to Certain Documentation.
The Master Servicer shall provide to the OTS and the FDIC and to
comparable regulatory authorities supervising Holders of Subordinated
Certificates and the examiners and supervisory agents of the OTS, the FDIC and
such other authorities, access to the documentation regarding the Mortgage Loans
required by applicable regulations of the OTS and the FDIC. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices designated by the Master Servicer.
Nothing in this Section shall limit the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Master Servicer to provide access as provided
in this Section as a result of such obligation shall not constitute a breach of
this Section .
Section 3.16. Annual Statement as to Compliance.
The Master Servicer shall deliver to the Depositor and the
Trustee on or before 120 days after the end of the Master Servicer's fiscal
year, commencing with its 199_ fiscal year, an Officer's Certificate stating, as
to the signer thereof, that (i) a review of the activities of the Master
Servicer during the preceding calendar year and of the performance of the Master
Servicer under this Agreement has been made under such officer's supervision and
(ii) to the best of such officer's knowledge, based on such review, the Master
Servicer has fulfilled all its obligations under this Agreement throughout such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The Trustee shall forward a copy of each such statement to each Rating
Agency.
Section 3.17. Annual Independent Public Accountants' Servicing
Statement; Financial Statements.
On or before 120 days after the end of the Master Servicer's
fiscal year, commencing with its 199_ fiscal year, the Master Servicer at its
expense shall cause a nationally or regionally recognized firm of independent
public accountants (who may also render other services to the Master Servicer or
any affiliate thereof) which is a member of the American Institute of Certified
Public Accountants to furnish a statement to the Trustee and the Depositor to
the effect that-such firm has examined certain documents and records relating to
the servicing of the Mortgage Loans under this Agreement or of mortgage loans
under pooling and servicing agreements substantially similar to this Agreement
(such statement to have attached thereto a schedule setting forth the pooling
and servicing
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agreements covered thereby) and that, on the basis of such examination,
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FNMA and FHLMC, such servicing has been conducted in compliance with such
pooling and servicing agreements except for such significant exceptions or
errors in records that, in the opinion of such firm, the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FNMA and FHLMC requires it to report. In rendering such statement,
such firm may rely, as to matters relating to direct servicing of mortgage loans
by Subservicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FNMA and FHLMC
(rendered within one year of such statement) of independent public accountants
with respect to the related Subservicer. Copies of such statement shall be
provided by the Trustee to any Certificateholder upon request at the Master
Servicer's expense, provided such statement is delivered by the Master Servicer
to the Trustee.
Section 3.18. Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall for so long as it acts as master
servicer under this Agreement, obtain and maintain in force (a) a policy or
policies of insurance covering errors and omissions in the performance of its
obligations as Master Servicer hereunder and (b) a fidelity bond in respect of
its officers, employees and agents. Each such policy or policies and bond shall,
together, comply with the requirements from time to time of FNMA or FHLMC for
persons performing servicing for mortgage loans purchased by FNMA or FHLMC. In
the event that any such policy or bond ceases to be in effect, the Master
Servicer shall obtain a comparable replacement policy or bond from an insurer or
issuer, meeting the requirements set forth above as of the date of such
replacement.
ARTICLE IV
DISTRIBUTIONS AND
ADVANCES BY THE MASTER SERVICER
Section 4.01. Advances.
The Master Servicer shall determine on or before each Master
Servicer Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make an
Advance, it shall, on or before the Master Servicer Advance Date, either (i)
deposit into the Certificate Account an amount equal to the Advance or (ii) make
an appropriate entry in its records relating to the Certificate Account that any
Amount Held for Future Distribution has been used by the Master Servicer in
discharge of its obligation to make any such Advance. Any funds so applied shall
be replaced by the Master Servicer by deposit in the Certificate Account no
later than the close of business on the next Master Servicer Advance Date. The
Master Servicer shall be entitled to be reimbursed from the Certificate Account
for all Advances of its own funds made pursuant to this Section as provided in
Section 3.08. The obligation to make Advances with respect to any Mortgage Loan
shall continue if such Mortgage Loan has been foreclosed or otherwise terminated
and the related Mortgaged Property has not been liquidated.
The Master Servicer shall deliver to the Trustee on the related
Master Servicer Advance Date an Officer's Certificate of a Servicing Officer
indicating the amount of any proposed Advance determined by the Master Servicer
to be a Nonrecoverable Advance.
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Section 4.02. Priorities of Distribution.
(a) On each Distribution Date, the Trustee shall withdraw the
Available Funds from the Distribution Account and apply such funds to
distributions on the Certificates in the following order and priority and, in
each case, to the extent of Available Funds remaining:
[(i) to each interest-bearing Class of Senior
Certificates, an amount allocable to interest equal to the
related Class Optimal Interest Distribution Amount, any shortfall
being allocated among such Classes in proportion to the amount of
the Class Optimal Interest Distribution Amount that would have
been distributed in the absence of such shortfall, provided,
however, that prior to the Accrual Termination Date, the amount
otherwise distributable as interest on each Class of Accrual
Certificates on such Distribution Date shall be distributed to
the Accretion Directed Certificates as set forth in 4.02(a)(ii)
and added to the Class Certificate Balances of certain Classes as
set forth in Section 4.02(b);
(ii) On each Distribution Date until the Accrual
Termination Date, the Accrual Amount will be distributed as
principal of the following Classes of Senior Certificates in the
following order of priority:
(x) to the Class A-_ Certificates, until the Class
Certificate Balance thereof has been reduced to zero; and
(y) to the Class A-_-_ Component until the
Component Balance thereof has been reduced to zero.
On any Distribution Date that the Accrual Amount is in excess of
the amount necessary to reduce the Component Balance of the Class A-_-_
Component to zero, such excess shall be distributed as provided in Section
4.02(b).
(iii) to each Class of Senior Certificates, concurrently
as follows:
(x) to the Class PO Certificates, an amount allocable
to principal equal to the PO Formula Principal Amount, up to
the outstanding Class Certificate Balance of the Class PO
Certificates;
(y) on each Distribution Date prior to the Senior Credit
Support Depletion Date, the Non-PO Formula Principal Amount, up
to the amount of the Senior Principal Distribution Amount for
such Distribution Date, will be distributed as follows:
(A) to the Class A-_ Certificates, the Class
A-_ Optimal Amount;
(B) to the Class A-R Certificates until the
Class Certificate Balance thereof has been reduced
to zero;
(C) sequentially, to the Class A-_ and Class
A-_ Certificates in that order, until the
respective Class Certificate
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Balances thereof have been reduced to their
respective Planned Balances for such Distribution
Date;
(D) sequentially, to the Class
A-_Certificates and the Class A-_-_ and Class A-
_-_Components, in that order, until the respective
Class Certificate Balance or Component Balances
thereof, as the case may be, have been reduced to
their respective Targeted Balances for such
Distribution Date;
(E) concurrently, to the Class A-_ and Class
A-_ Certificates and the Class A-_-_ Component, pro
rata based on their respective Class Certificate
Balances or Component Balance, as the case may be,
until the Class Certificate Balances and Component
Balance thereof, as the case may be, have been
reduced to zero;
(F) sequentially, to the Class A-_
Certificates and the Class A-_-_ and Class A-
_-_Components, in that order, without regard to
their respective Targeted Balances and until the
respective Class Certificate Balance or Component
Balances thereof, as the case may be, have been
reduced to zero;
(G) sequentially, to the Class A-_ and Class
A-_ Certificates in that order, without regard to
their respective Planned Balances and until the
respective Class Certificate Balances have been
reduced to zero; and
(H) to the Class A-_ Certificates until the
Class Certificate Balance thereof has been reduced
to zero.
(iv) to the Class PO Certificates, any Class PO
Deferred Amounts, up to an amount not to exceed the amount
calculated pursuant to clause (A) of the definition of the
Subordinated Principal Distribution Amount for such
Distribution Date (with such amount to be allocated first
from amounts calculated pursuant to clause (a)(iii) of the
definition of Subordinated Principal Distribution Amount);
(v) to each Class of Subordinated Certificates,
subject to paragraph (e) below, in the following order of
priority:
(A) to the Class B-_ Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Distribution
Date;
(B) to the Class B-_ Certificates, an amount
allocable to principal equal to its Pro Rata Share
for such Distribution Date until the Class
Certificate Balance thereof is reduced to zero;
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(C) to the Class B-_ Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Class for
such Distribution Date;
(D) to the Class B-_ Certificates, an amount
allocable to principal equal to its Pro Rata Share
for such Distribution Date until the Class
Certificate Balance thereof is reduced to zero;
(E) to the Class B-_ Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Class for
such Distribution Date;
(F) to the Class B-_ Certificates, an amount
allocable to principal equal to its Pro Rata Share
for such Distribution Date until the Class
Certificate Balance thereof is reduced to zero;
(G) to the Class B-_ Certificates, an amount
allocable to interest equal to the amount of the
Class Optimal Interest Distribution Amount for such
Class for such Distribution Date;
(H) to the Class B-_ Certificates, an amount
allocable to principal equal to its Pro Rata Share
for such Distribution Date until the Class
Certificate Balance thereof has been reduced to
zero;
(I) to the Class B-_ Certificates, an amount
allocable to interest equal to the amount of the
Class Optimal Interest Distribution Amount for such
Class for such Distribution Date;
(J) to the Class B-_ Certificates, an amount
allocable to principal equal to its Pro Rata Share
for such Distribution Date until the Class
Certificate Balance thereof has been reduced to
zero;
(K) to the Class B-_ Certificates, an amount
allocable to interest equal to the Class Optimal
Interest Distribution Amount for such Class for
such Distribution Date; and
(L) to the Class B-_ Certificates, an amount
allocable to principal equal to its Pro Rata Share
for such Distribution Date until the Class
Certificate Balance thereof is reduced to zero.
(vi) to the Class A-R Certificates, any remaining
Available Funds.]
On any Distribution Date, amounts distributed in respect of Class PO Deferred
Amounts will not reduce the Class Certificate Balance of the Class PO
Certificates.
On any Distribution Date, to the extent the Amount Available for
Senior Principal is insufficient to make the full distribution required to be
made pursuant to clause (iii)(x) above, (A) the amount distributable on the
Class PO Certificates in respect of principal shall be equal to the product of
(1) the Amount Available for Senior Principal and (2) a fraction, the numerator
of which is the PO
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Formula Principal Amount and the denominator of which is the sum of the PO
Formula Principal Amount and the Senior Principal Distribution Amount and (B)
the amount distributable on the Senior Certificates, other than the Class PO
Certificates, in respect of principal shall be equal to the product of (1) the
Amount Available for Senior Principal and (2) a fraction, the numerator of which
is the Senior Principal Distribution Amount and the denominator of which is the
sum of the Senior Principal Distribution Amount and the PO Formula Principal
Amount.
(b) On each Distribution Date prior to the Accrual Termination
Date, the Accrual Amount for such Distribution Date shall not (except as
provided in the last sentence of this clause (b)) be distributed as interest
with respect to the Class A-_-_ Component but shall instead be added to the
Component Balance of such Component on the related Distribution Date. With
respect to any Distribution Date prior to the Accrual Termination Date on which
principal payments on the Class A-_-_ Component are distributed pursuant to
Section 4.02(a)(iii), the Accrual Amount shall be deemed to have been added on
such Distribution Date to the Class Certificate Balance (and included in the
amount distributable on the Accretion Directed Certificates pursuant to Section
4.02(a)(ii) for such Distribution Date) and the related distribution thereon
shall be deemed to have been applied concurrently towards the reduction of all
or a portion of the amount so added and, to the extent of any excess, towards
the reduction of the Component Balance of the Class A-_-_ Component immediately
prior to such Distribution Date. Notwithstanding any such distribution, the
Class A-_-_ Component shall continue to be a Class of Accrual Certificates on
each subsequent Distribution Date until the Accrual Termination Date.
Notwithstanding the foregoing with respect to the Distribution Date on which the
Accrual Amount is in excess of the amount necessary to reduce the Component
Balance of the Class A-___ Component to zero, such excess will be distributed on
such Distribution Date as interest on the Class A-_-_ Component.
(c) On each Distribution Date on or after the Senior Credit
Support Depletion Date, notwithstanding the allocation and priority set forth in
Section 4.02(a)(iii)(y), the portion of Available Funds available to be
distributed as principal of the Senior Certificates (other than the Class PO
Certificates) shall be distributed concurrently, as principal, on such Classes,
pro rata, on the basis of their respective Class Certificate Balances, until the
Class Certificate Balances thereof are reduced to zero.
(d) On each Distribution Date, the amount referred to in clause
(i) of the definition of Class Optimal Interest Distribution Amount for each
Class of Certificates for such Distribution Date shall be reduced by (i) the
related Class' pro rata share of Net Prepayment Interest Shortfalls based on
such Class' Class Optimal Interest Distribution Amount for such Distribution
Date without taking into account such Net Prepayment Interest Shortfalls and
(ii) the related Class' Allocable Share of (A) after the Special Hazard Coverage
Termination Date, with respect to each Mortgage Loan that became a Special
Hazard Mortgage Loan during the calendar month preceding the month of such
Distribution Date, the excess of one month's interest at the related Adjusted
Net Mortgage Rate on the Stated Principal Balance of such Mortgage Loan as of
the Due Date in such month over the amount of Liquidation Proceeds applied as
interest on such Mortgage Loan with respect to such month, (B) after the
Bankruptcy Coverage Termination Date, with respect to each Mortgage Loan that
became subject to a Bankruptcy Loss during the calendar month preceding the
month of such Distribution Date, the interest portion of the related Debt
Service Reduction or Deficient Valuation, (C) each Relief Act Reduction incurred
during the calendar month preceding the month of such Distribution Date and (D)
after the Fraud Coverage Termination Date, with respect to each Mortgage Loan
that became a Fraud Loan during the calendar month preceding the month of such
Distribution Date, the excess of one month's interest at the related Adjusted
Net Mortgage Rate
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on the Stated Principal Balance of such Mortgage Loan as of the Due Date in such
month over the amount of Liquidation Proceeds applied as interest on such
Mortgage Loan with respect to such month.
(e) Notwithstanding the priority and allocation contained in
Section 4.02(a)(v), if with respect to any Class of Subordinated Certificates on
any Distribution Date the sum of the related Class Subordination Percentages of
such Class and of all Classes of Subordinated Certificates which have a higher
numerical Class designation than such Class (the "Applicable Credit Support
Percentage") is less than the Original Applicable Credit Support Percentage for
such Class, no distribution of Principal Prepayments will be made to any such
Classes (the "Restricted Classes") and the amount of such Principal Prepayments
otherwise distributable to the Restricted Classes shall be distributed to any
Classes of Subordinated Certificates having lower numerical Class designations
than such Class, pro rata, based on their respective Class Certificate Balances
immediately prior to such Distribution Date and shall be distributed in the
sequential order provided in Section 4.02(a)(v).
Section 4.03. Allocation of Realized Losses.
(a) On or prior to each Determination Date, the Trustee shall
determine the total amount of Realized Losses, including Excess Losses, with
respect to the related Distribution Date.
Realized Losses with respect to any Distribution Date shall be
allocated as follows:
[(i) the applicable PO Percentage of any Realized Loss shall be
allocated to the Class PO Certificates; and
(ii)(A) the applicable Non-PO Percentage of any Realized Loss
(other than an Excess Loss) shall be allocated first to the Subordinated
Certificates in reverse order of their respective numerical Class
designations (beginning with the Class of Subordinated Certificates then
outstanding with the highest numerical Class designation) until the
respective Class Certificate Balance of each such Class is reduced to
zero, and second to the Senior Certificates (other than the Class PO
Certificates), pro rata on the basis of their respective Class
Certificate Balances immediately prior to the related Distribution Date,
or, in the case of the Accrual Certificate, the lesser of the Component
Balance or the initial Component Balance thereof, until the Class
Certificate Balances and Component Balance thereof have been reduced to
zero;
(B) the applicable Non-PO Percentage of any Excess Losses shall
be allocated to the Senior Certificates (other than the Class PO
Certificates) and the Subordinated Certificates then outstanding, pro
rata, on the basis of their respective Class Certificate Balances or, in
the case of the Accrual Certificates, on the basis of the lesser of
their initial Component Balance and their then-current Component Balance
immediately prior to the related Distribution Date.]
(b) The Class Certificate Balance of the Class of Subordinated
Certificates then outstanding with the highest numerical Class designation shall
be reduced on each Distribution Date (i) by the amount of any payments on the
Class PO Certificates in respect of Class PO Deferred Amounts and (ii) by the
amount, if any, by which the aggregate of the Class Certificate Balances of all
outstanding Classes of Certificates (after giving effect to the distribution of
principal and the allocation of Realized Losses and Class PO Deferred Amounts on
such Distribution Date) exceeds the Pool Stated Principal Balance for the
following Distribution Date.
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(c) Any Realized Loss allocated to a Class of Certificates or any
reduction in the Class Certificate Balance of a Class of Certificates pursuant
to Section 4.03(b) above shall be allocated among the Certificates of such Class
in proportion to their respective Certificate Balances. Any Realized Loss
allocated to a Class of Certificates comprised of Components shall be allocated
among such Components based on their respective Component Balances.
(d) Any allocation of Realized Losses to a Certificate or to any
Component or any reduction in the Certificate Balance of a Certificate, pursuant
to Section 4.03(b) above shall be accomplished by reducing the Certificate
Balance or Component Balance thereof, as applicable, immediately following the
distributions made on the related Distribution Date in accordance with the
definition of "Certificate Balance" or "Component Balance," as the case may be.
Section 4.04. Monthly Statements to Certificateholders.
(a) Not later than each Distribution Date, the Trustee shall
prepare and cause to be forwarded by first class mail to each Certificateholder,
the Master Servicer and the Depositor a statement setting forth with respect to
the related distribution:
(i) the amount thereof allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments and
Liquidation Proceeds included therein;
(ii) the amount thereof allocable to interest, any Class
Unpaid Interest Shortfall included in such distribution and any
remaining Class Unpaid Interest Shortfall after giving effect to
such distribution;
(iii) if the distribution to the Holders of such Class of
Certificates is less than the full amount that would be
distributable to such Holders if there were sufficient funds
available therefor, the amount of the shortfall and the
allocation thereof as between principal and interest;
(iv) the Class Certificate Balance of each Class of
Certificates and the Component Balances of each Component after
giving effect to the distribution of principal on such
Distribution Date;
(v) the Pool Stated Principal Balance for the following
Distribution Date;
(vi) the Senior Percentage and Subordinated Percentage for
the following Distribution Date;
(vii) the amount of the Master Servicing Fees paid to or
retained by the Master Servicer with respect to such Distribution
Date;
(viii) the Pass-Through Rate for each such Class of
Certificates with respect to such Distribution Date;
(ix) the amount of Advances included in the distribution
on such Distribution Date and the aggregate amount of Advances
outstanding as of the close of business on such Distribution
Date;
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(x) the number and aggregate principal amounts of Mortgage
Loans (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 1 to 30 days (2) 31 to 60 days (3) 61 to 90 days and (4) 91
or more days and (B) in foreclosure and delinquent (1) 1 to 30
days (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or more days,
as of the close of business on the last day of the calendar month
preceding such Distribution Date;
(xi) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number and
Stated Principal Balance of such Mortgage Loan as of the close of
business on the Determination Date preceding such Distribution
Date and the date of acquisition thereof;
(xii) the total number and principal balance of any REO
Properties (and market value, if available) as of the close of
business on the Determination Date preceding such Distribution
Date;
(xiii) the Senior Prepayment Percentage and Class A-6
Optimal Amount for the following Distribution Date;
(xiv) the aggregate amount of Realized Losses incurred
during the preceding calendar month; and
(xv) the Special Hazard Loss Coverage Amount, the Fraud
Loss Coverage Amount and the Bankruptcy Loss Coverage Amount, in
each case as of the related Determination Date.
(b) The Trustee's responsibility for disbursing the above
information to the Certificateholders is limited to the availability, timeliness
and accuracy of the information provided by the Master Servicer. The Trustee
will send a copy of each statement provided pursuant to this Section 4.04 to
each Rating Agency.
(c) On or before the fifth Business Day following the end of each
Prepayment Period (but in no event later than the third Business Day prior to
the related Distribution Date), the Master Servicer shall deliver to the Trustee
(which delivery may be by electronic data transmission) a report in
substantially the form set forth as Schedule V hereto.
(d) Within a reasonable period of time after the end of each
calendar year, the Trustee shall cause to be furnished to each Person who at any
time during the calendar year was a Certificateholder, a statement containing
the information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this
Section 4.04 aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code as from time to time in effect.
[Section 4.05.Determination of Pass-Through Rates for COFI
Certificates.
The Pass-Through Rate for each Class of COFI Certificates for
each Interest Accrual Period after the initial Interest Accrual Period shall be
determined by the Trustee as provided below
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on the basis of the Index and the applicable formulae appearing in footnotes
corresponding to the COFI Certificates in the table relating to the Certificates
in the Preliminary Statement.
Except as provided below, with respect to each Interest Accrual
Period following the initial Interest Accrual Period, the Trustee shall not
later than two Business Days following the publication of the applicable Index
determine the Pass-Through Rate at which interest shall accrue in respect of the
COFI Certificates during the related Interest Accrual Period.
Except as provided below, the Index to be used in determining the
respective Pass-Through Rates for the COFI Certificates for a particular
Interest Accrual Period shall be COFI for the second calendar month preceding
such Interest Accrual Period. If at the Outside Reference Date for any Interest
Accrual Period, COFI for the second calendar month preceding such Interest
Accrual Period has not been published, the Trustee shall use COFI for the third
calendar month preceding such Interest Accrual Period. If COFI for neither the
second nor third calendar months preceding any Interest Accrual Period has been
published on or before the related Outside Reference Date, the Index for such
Interest Accrual Period and for all subsequent Interest Accrual Periods shall be
the National Cost of Funds Index for the third calendar month preceding such
Interest Accrual Period (or the fourth preceding calendar month if such National
Cost of Funds Index for the third preceding calendar month has not been
published by such Outside Reference Date). In the event that the National Cost
of Funds Index for neither the third nor fourth calendar months preceding an
Interest Accrual Period has been published on or before the related Outside
Reference Date, then for such Interest Accrual Period and for each succeeding
Interest Accrual Period, the Index shall be LIBOR, determined in the manner set
forth below.
On each Interest Determination Date so long as the COFI
Certificates are outstanding and the applicable Index therefor is LIBOR, the
Trustee shall either (i) request each Reference Bank to inform the Trustee of
the quotation offered by its principal London office for making one-month United
States dollar deposits in leading banks in the London interbank market, as of
11:00 a.m. (London time) on such Interest Determination Date or (ii) in lieu of
making any such request, rely on such Reference Bank quotations that appear at
such time on the Reuters Screen LIBO Page (as defined in the International Swap
Dealers Association Inc. Code of Standard Wording, Assumptions and Provisions
for Swaps, 1986 Edition), to the extent available.
With respect to any Interest Accrual Period for which the
applicable Index is LIBOR, LIBOR for such Interest Accrual Period will be
established by the Trustee on the related Interest Determination Date as
follows:
(a) If on any Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations
(rounding such arithmetic mean upwards if necessary to the nearest whole
multiple of 1/32%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per
annum which the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32%) of
the one-month United States dollar
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lending rates that New York City banks selected by the Trustee are
quoting, on the relevant Interest Determination Date, to the principal
London offices of at least two of the Reference Banks to which such
quotations are, in the opinion of the Trustee, being so made, or (ii) in
the event that the Trustee can determine no such arithmetic mean, the
lowest one-month United States dollar lending rate which New York City
banks selected by the Trustee are quoting on such Interest Determination
Date to leading European banks.
From such time as the applicable Index becomes LIBOR until all of
the COFI Certificates are paid in full, the Trustee will at all times retain at
least four Reference Banks for the purposes of determining LIBOR with respect to
each interest Determination Date. The Master Servicer initially shall designate
the Reference Banks. Each "Reference Bank" shall be a leading bank engaged in
transactions in Eurodollar deposits in the international Eurocurrency market,
shall not control, be controlled by, or be under common control with, the
Trustee and shall have an established place of business in London. If any such
Reference Bank should be unwilling or unable to act as such or if the Master
Servicer should terminate its appointment as Reference Bank, the Trustee shall
promptly appoint or cause to be appointed another Reference Bank. The Trustee
shall have no liability or responsibility to any Person for (i) the selection of
any Reference Bank for purposes of determining LIBOR or (ii) any inability to
retain at least four Reference Banks which is caused by circumstances beyond its
reasonable control.
In determining LIBOR and any Pass-Through Rate for the COFI
Certificates or any Reserve Interest Rate, the Trustee may conclusively rely and
shall be protected in relying upon the offered quotations (whether written, oral
or on the Reuters Screen) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. The Trustee shall not have any liability or responsibility to any Person
for (i) the Trustee's selection of New York City banks for purposes of
determining any Reserve Interest Rate or (ii) its inability, following a
good-faith reasonable effort, to obtain such quotations from the Reference Banks
or the New York City banks or to determine such arithmetic mean, all as provided
for in this Section 4.05.
The establishment of LIBOR and each Pass-Through Rate for the
LIBOR Certificates by the Trustee shall (in the absence of manifest error) be
final, conclusive and binding upon each Holder of a Certificate and the
Trustee.]
[Section 4.06.Determination of Pass-Through Rates for LIBOR
Certificates.
On each Interest Determination Date so long as the LIBOR
Certificates are outstanding, the Trustee shall either (i) request each
Reference Bank to inform the Trustee of the quotation offered by its principal
London office for making one-month United States dollar deposits in leading
banks in the London interbank market, as of 11:00 a.m. (London time) on such
Interest Determination Date or (ii) in lieu of making any such request, rely on
such Reference Bank quotations that appear at such time on the Reuters Screen
LIBO Page (as defined in the International Swap Dealers Association Inc. Code of
Standard Wording, Assumptions and provisions for Swaps, 1986 Edition), to the
extent available.
LIBOR for the next Interest Accrual Period will be established by
the Trustee on each interest Determination Date as follows:
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(a) If on any interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the next Interest
Accrual Period shall be the arithmetic mean of such offered quotations
(rounding such arithmetic mean upwards if necessary to the nearest whole
multiple of 1/32%).
(b) If on any Interest Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the higher of (i) LIBOR as
determined on the previous Interest Determination Date or (ii) the
Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per
annum which the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/32%) of
the one-month United States dollar lending rates that New York City
banks selected by the Trustee are quoting, on the relevant Interest
Determination Date, to the principal London offices of at least two of
the Reference Banks to which such quotations are, in the opinion of the
Trustee, being so made, or (ii) in the event that the Trustee can
determine no such arithmetic mean, the lowest one-month United States
dollar lending rate which New York City banks selected by the Trustee
are quoting on such Interest Determination Date to leading European
banks.
(c) If on any interest Determination Date the trustee is required
but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (b) above, LIBOR shall be LIBOR as determined on
the preceding Interest Determination Date, or, in the case of the first
Interest Determination Date, the Initial LIBOR Rate.
Until all of the LIBOR Certificates are paid in full, the Trustee
will at all times retain at least four Reference Banks for the purpose of
determining LIBOR with respect to each Interest Determination Date. The Master
Servicer initially shall designate the Reference Banks. Each "Reference Bank"
shall be a leading bank engaged in transactions in Eurodollar deposits in the
international Eurocurrency market, shall not control, be controlled by, or be
under common control with, the Trustee and shall have an established place of
business in London. If any such Reference Bank should be unwilling or unable to
act as such or if the Master Servicer should terminate its appointment as
Reference Bank, the Trustee shall promptly appoint or cause to be appointed
another Reference Bank. The Trustee shall have no liability or responsibility to
any Person for (i) the selection of any Reference Bank for purposes of
determining LIBOR or (ii) any inability to retain at least four Reference Banks
which is caused by circumstances beyond its reasonable control.
The Pass-Through Rate for each Class of LIBOR Certificates for
each Interest Accrual Period shall be determined by the Trustee on each Interest
Determination Date so long as the LIBOR Certificates are outstanding on the
basis of LIBOR and the respective formulae appearing in footnotes corresponding
to the LIBOR Certificates in the table relating to the Certificates in the
Preliminary Statement.
In determining LIBOR, any Pass-Through Rate for the LIBOR
Certificates or any Reserve Interest Rate, the Trustee may conclusively rely and
shall be protected in relying upon the offered quotations (whether written, oral
or on the Reuters Screen) from the Reference Banks or the New York City banks as
to LIBOR or the Reserve Interest Rate, as appropriate, in effect from time to
time. The Trustee shall not have any liability or responsibility to any Person
for (i) the Trustee's selection of New York City banks for purposes of
determining any Reserve Interest Rate or (ii) its inability, following a
good-faith reasonable effort, to obtain such quotations from the Reference Banks
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or the New York City banks or to determine such arithmetic mean, all as provided
for in this Section 4.06.
The establishment of LIBOR and each Pass-Through Rate for the
LIBOR Certificates by the Trustee shall (in the absence of manifest error) be
final, conclusive and binding upon each Holder of a Certificate and the
Trustee.]
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates.
The Certificates shall be substantially in the forms attached
hereto as exhibits. The Certificates shall be issuable in registered form, in
the minimum denominations, integral multiples in excess thereof (except that one
Certificate in each Class may be issued in a different amount which must be in
excess of the applicable minimum denomination) and aggregate denominations per
Class set forth in the Preliminary Statement.
Subject to Section 9.02 hereof respecting the final distribution
on the Certificates, on each Distribution Date the Trustee shall make
distributions to each Certificateholder of record on the preceding Record Date
either (x) by wire transfer in immediately available funds to the account of
such holder at a bank or other entity having appropriate facilities therefor, if
(i) such Holder has so notified the Trustee at least five Business Days prior to
the related Record Date and (ii) such Holder shall hold (A) a Notional Amount
Certificate, (B) 100% of the Class Certificate Balance of any Class of
Certificates or (C) Certificates of any Class with aggregate principal
Denominations of not less than $1,000,000 or (y) by check mailed by first class
mail to such Certificateholder at the address of such holder appearing in the
Certificate Register.
The Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee by an authorized officer. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures were affixed, authorized to sign on behalf of the Trustee
shall bind the Trustee, notwithstanding that such individuals or any of them
have ceased to be so authorized prior to the countersignature and delivery of
such Certificates or did not hold such offices at the date of such Certificate.
No Certificate shall be entitled to any benefit under this Agreement, or be
valid for any purpose, unless countersigned by the Trustee by manual signature,
and such countersignature upon any Certificate shall be conclusive evidence, and
the only evidence, that such Certificate has been duly executed and delivered
hereunder. All Certificates shall be dated the date of their countersignature.
On the Closing Date, the Trustee shall countersign the Certificates to be issued
at the direction of the Depositor, or any affiliate thereof.
The Depositor shall provide, or cause to be provided, to the
Trustee on a continuous basis, an adequate inventory of Certificates to
facilitate transfers.
Section 5.02. Certificate Register; Registration of Transfer and
Exchange of Certificates.
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(a) The Trustee shall maintain, or cause to be maintained in
accordance with the provisions of Section 5.06 hereof, a Certificate Register
for the Trust Fund in which, subject to the provisions of subsections (b) and
(c) below and to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. Upon surrender for registration of
transfer of any Certificate, the Trustee shall execute and deliver, in the name
of the designated transferee or transferees, one or more new Certificates of the
same Class and aggregate Percentage Interest.
At the option of a Certificateholder, Certificates may be
exchanged for other Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest upon surrender of the
Certificates to be exchanged at the office or agency of the Trustee. Whenever
any Certificates are so surrendered for exchange, the Trustee shall execute,
authenticate, and deliver the Certificates which the Certificateholder making
the exchange is entitled to receive. Every Certificate presented or surrendered
for registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
holder thereof or his attorney duly authorized in writing.
No service charge to the Certificateholders shall be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates may be required.
All Certificates surrendered for registration of transfer or
exchange shall be cancelled and subsequently destroyed by the Trustee in
accordance with the Trustee's customary procedures.
(b) No transfer of a Private Certificate shall be made unless
such transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance with the Securities
Act and such laws, the Certificateholder desiring to effect such transfer and
such Certificateholder's prospective transferee shall each certify to the
Trustee in writing the facts surrounding the transfer in substantially the forms
set forth in Exhibit J (the "Transferor Certificate") and (i) deliver a letter
in substantially the form of either Exhibit K (the "Investment Letter") or
Exhibit L (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Private Certificate and any
prospective transferee designated by any such Holder, information regarding the
related Certificates and the Mortgage Loans and such other information as shall
be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A. The Trustee and the Master Servicer shall cooperate with the Depositor in
providing the Rule 144A information referenced in the preceding sentence,
including providing to the Depositor such information regarding the
Certificates, the Mortgage Loans and other matters regarding the Trust Fund as
the Depositor shall reasonably request to meet its obligation under the
preceding sentence. Each Holder of a Private Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee and the
Depositor[, the Seller] and the Master Servicer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
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No transfer of an ERISA-Restricted Certificate shall be made
unless the Trustee shall have received either (i) a representation from the
transferee of such Certificate acceptable to and in form and substance
satisfactory to the Trustee (in the event such Certificate is a Private
Certificate, such requirement is satisfied only by the Trustee's receipt of a
representation letter from the transferee substantially in the form of Exhibit K
or Exhibit L), to the effect that such transferee is not an employee benefit
plan or arrangement subject to Section 406 of ERISA or a plan or arrangement
subject to Section 4975 of the Code, nor a person acting on behalf of any such
plan or arrangement, nor using the assets of any such plan or arrangement to
effect such transfer, (ii) if the purchaser is an insurance company, a
representation that the purchaser is an insurance company which is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
Certificates are covered under PTCE 95-60 or (iii) in the case of any such
ERISA-Restricted Certificate presented for registration in the name of an
employee benefit plan subject to ERISA, or a plan or arrangement subject to
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement, or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust Fund, addressed to
the Trustee to the effect that the purchase or holding of such ERISA-Restricted
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. For purposes of the
preceding sentence, with respect to an ERISA-Restricted Certificate that is not
a Private Certificate, in the event the representation letter referred to in the
preceding sentence is not so furnished, such representation shall be deemed to
have been made to the Trustee by the transferee's (including an initial
acquiror's) acceptance of the ERISA-Restricted Certificates. Notwithstanding
anything else to the contrary herein, any purported transfer of an
ERISA-Restricted Certificate to or on behalf of an employee benefit plan subject
to ERISA or to the Code without the delivery to the Trustee of an Opinion of
Counsel satisfactory to the Trustee as described above shall be void and of no
effect.
To the extent permitted under applicable law (including, but not
limited to, ERISA), the Trustee shall be under no liability to any Person for
any registration of transfer of any ERISA-Restricted Certificate that is in fact
not permitted by this Section 5.02(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.
(c) Each Person who has or who acquires any Ownership Interest in
a Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions, and
the rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall be a Permitted Transferee and
shall promptly notify the Trustee of any change or impending change in
its status as a Permitted Transferee.
(ii) No Ownership Interest in a Residual Certificate may
be registered on the Closing Date or thereafter transferred, and the
Trustee shall not register the Transfer of any Residual Certificate
unless, in addition to the certificates required to be delivered to the
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Trustee under sub-paragraph (b) above, the Trustee shall have been
furnished with an affidavit (a "Transfer Affidavit") of the initial
owner or the proposed transferee in the form attached hereto as Exhibit
I.
(iii) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall agree (A) to obtain a Transfer
Affidavit from any other Person to whom such Person attempts to Transfer
its Ownership Interest in a Residual Certificate, (B) to obtain a
Transfer Affidavit from any Person for whom such Person is acting as
nominee, trustee or agent in connection with any Transfer of a Residual
Certificate and (C) not to Transfer its Ownership Interest in a Residual
Certificate or to cause the Transfer of an Ownership Interest in a
Residual Certificate to any other Person if it has actual knowledge that
such Person is not a Permitted Transferee.
(iv) Any attempted or purported Transfer of any Ownership
Interest in a Residual Certificate in violation of the provisions of
this Section 5.02(c) shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported transferee shall
become a Holder of a Residual Certificate in violation of the provisions
of this Section 5.02(c), then the last preceding Permitted Transferee
shall be restored to all rights as Holder thereof retroactive to the
date of registration of Transfer of such Residual Certificate. The
Trustee shall be under no liability to any Person for any registration
of Transfer of a Residual Certificate that is in fact not permitted by
Section 5.02(b) and this Section 5.02(c) or for making any payments due
on such Certificate to the Holder thereof or taking any other action
with respect to such Holder under the provisions of this Agreement so
long as the Transfer was registered after receipt of the related
Transfer Affidavit, Transferor Certificate and either the Rule 144A
Letter or the Investment Letter. The Trustee shall be entitled but not
obligated to recover from any Holder of a Residual Certificate that was
in fact not a Permitted Transferee at the time it became a Holder or, at
such subsequent time as it became other than a Permitted Transferee, all
payments made on such Residual Certificate at and after either such
time. Any such payments so recovered by the Trustee shall be paid and
delivered by the Trustee to the last preceding Permitted Transferee of
such Certificate.
(v) The Depositor shall use its best efforts to make
available, upon receipt of written request from the Trustee, all
information necessary to compute any tax imposed under Section 860E(e)
of the Code as a result of a Transfer of an Ownership Interest in a
Residual Certificate to any Holder who is not a Permitted Transferee.
The restrictions on Transfers of a Residual Certificate set forth
in this Section 5.02(c) shall cease to apply (and the applicable portions of the
legend on a Residual Certificate may be deleted) with respect to Transfers
occurring after delivery to the Trustee of an Opinion of Counsel, which Opinion
of Counsel shall not be an expense of the Trust Fund, the Trustee, the Seller or
the Master Servicer, to the effect that the elimination of such restrictions
will not cause the Trust Fund hereunder to fail to qualify as a REMIC at any
time that the Certificates are outstanding or result in the imposition of any
tax on the Trust Fund, a Certificateholder or another Person. Each Person
holding or acquiring any Ownership Interest in a Residual Certificate hereby
consents to any amendment of this Agreement which, based on an Opinion of
Counsel furnished to the Trustee, is reasonably necessary (a) to ensure that the
record ownership of, or any beneficial interest in, a Residual Certificate is
not transferred, directly or indirectly, to a Person that is not a Permitted
Transferee and (b) to provide for a means to compel the Transfer of a Residual
Certificate which is held by a Person that is not a Permitted Transferee to a
Holder that is a Permitted Transferee.
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(d) The preparation and delivery of all certificates and opinions
referred to above in this Section 5.02 in connection with transfer shall be at
the expense of the parties to such transfers.
(e) Except as provided below, the Book-Entry Certificates shall
at all times remain registered in the name of the Depository or its nominee and
at all times: (i) registration of the Certificates may not be transferred by the
Trustee except to another Depository; (ii) the Depository shall maintain
book-entry records with respect to the Certificate Owners and with respect to
ownership and transfers of such Book-Entry Certificates; (iii) ownership and
transfers of registration of the Book-Entry Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository, Depository Participants and indirect participating firms as
representatives of the Certificate Owners of the Book-Entry Certificates for
purposes of exercising the rights of holders under this Agreement, and requests
and directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates
shall be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owner. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
If (x) (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (ii) the Trustee or the Depositor is
unable to locate a qualified successor, (y) the Depositor at its option advises
the Trustee in writing that it elects to terminate the book-entry system through
the Depository or (z) after the occurrence of an Event of Default, Certificate
Owners representing at least 51% of the Certificate Balance of the Book-Entry
Certificates together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners, through the Depository,
of the occurrence of any such event and of the availability of definitive,
fully-registered Certificates (the "Definitive Certificates") to Certificate
Owners requesting the same. Upon surrender to the Trustee of the related Class
of Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Master Servicer, the Depositor nor the Trustee shall
be liable for any delay in delivery of such instruction and each may
conclusively rely on, and shall be protected in relying on, such instructions.
The Master Servicer shall provide the Trustee with an adequate inventory of
certificates to facilitate the issuance and transfer of Definitive Certificates.
Upon the issuance of Definitive Certificates all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed to
be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that the Trustee shall not by virtue of its assumption of such obligations
become liable to any party for any act or failure to act of the Depository.
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Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the Trustee,
or the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate and (b) there is delivered to the Master Servicer and
the Trustee such security or indemnity as may be required by them to save each
of them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.03, the Trustee may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith. Any replacement Certificate issued pursuant to
this Section 5.03 shall constitute complete and indefeasible evidence of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
Section 5.04. Persons Deemed Owners.
The Master Servicer, the Trustee and any agent of the Master
Servicer or the Trustee may treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
distributions as provided in this Agreement and for all other purposes
whatsoever, and neither the Master Servicer, the Trustee nor any agent of the
Master Servicer or the Trustee shall be affected by any notice to the contrary.
Section 5.05. Access to List of Certificateholders' Names and
Addresses.
If three or more Certificateholders (a) request such information
in writing from the Trustee, (b) state that such Certificateholders desire to
communicate with other Certificate-holders with respect to their rights under
this Agreement or under the Certificates, and (c) provide a copy of the
communication which such Certificateholders propose to transmit, or if the
Depositor or Master Servicer shall request such information in writing from the
Trustee, then the Trustee shall, within ten Business Days after the receipt of
such request, provide the Depositor, the Master Servicer or such
Certificateholders at such recipients' expense the most recent list of the
Certificateholders of such Trust Fund held by the Trustee, if any. The Depositor
and every Certificateholder, by receiving and holding a Certificate, agree that
the Trustee shall not be held accountable by reason of the disclosure of any
such information as to the list of the Certificateholders hereunder, regardless
of the source from which such information was derived.
Section 5.06. Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at its
expense an office or offices or agency or agencies in New York City where
Certificates may be surrendered for registration of transfer or exchange. The
Trustee initially designates its Corporate Trust Office for such purposes. The
Trustee will give prompt written notice to the Certificateholders of any change
in such location of any such office or agency.
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ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
Section 6.01. Respective Liabilities of the Depositor and the
Master Servicer.
The Depositor and the Master Servicer shall each be liable in
accordance herewith only to the extent of the obligations specifically and
respectively imposed upon and undertaken by them herein.
Section 6.02. Merger or Consolidation of the Depositor or the
Master Servicer.
The Depositor and the Master Servicer will each keep in full
effect its existence, rights and franchises as a corporation under the laws of
the United States or under the laws of one of the states thereof and will each
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, or any of the
Mortgage Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Master Servicer may be
merged or consolidated, or any Person resulting from any merger or consolidation
to which the Depositor or the Master Servicer shall be a party, or any person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.
Section 6.03. Limitation on Liability of the Depositor, the
Master Servicer and Others.
None of the Depositor, the Master Servicer or any of the
directors, officers, employees or agents of the Depositor or the Master Servicer
shall be under any liability to the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor, the Master Servicer or any such Person against
any breach of representations or warranties made by it herein or protect the
Depositor, the Master Servicer or any such Person from any liability which would
otherwise be imposed by reasons of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Depositor, the Master Servicer and any
director, officer, employee or agent of the Depositor or the Master Servicer may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Depositor,
the Master Servicer and any director, officer, employee or agent of the
Depositor or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense incurred in connection with any
audit, controversy or judicial proceeding relating to a governmental taxing
authority or any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense related to any specific Mortgage Loan
or Mortgage Loans (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to this Agreement) and any loss, liability or
expense incurred by reason of willful
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misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder. Neither of the Depositor nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective duties hereunder and which in its opinion may
involve it in any expense or liability; provided, however, that the Depositor or
the Master Servicer may in its discretion undertake any such action that it may
deem necessary or desirable in respect of this Agreement and the rights and
duties of the parties hereto and interests of the Trustee and the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor and the Master Servicer shall
be entitled to be reimbursed therefor out of the Certificate Account.
Section 6.04. Limitation on Resignation of Master Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (a) upon appointment of a successor servicer
and receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates, or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination under clause
(b) permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a successor master servicer shall
have assumed the Master Servicer's responsibilities, duties, liabilities and
obligations hereunder.
ARTICLE VII
DEFAULT
Section 7.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to deposit
in the Certificate Account or remit to the Trustee any payment
(other than a payment required to be made under Section 4.01
hereof) required to be made with respect to any Class of
Certificates under the terms of this Agreement, which failure
shall continue unremedied for five days after the date upon which
written notice of such failure shall have been given to the
Master Servicer by the Trustee or the Depositor or to the Master
Servicer, the Depositor and the Trustee by the Holders of
Certificates of such Class evidencing not less than 25% of the
total distributions allocated to such Class; or
(ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of the
covenants or agreements on the part of the Master Servicer
contained in this Agreement, which failure shall continue
unremedied for a period of thirty days after the date on which
written notice of such failure shall have been given to the
Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the Holders of
Certificates of any Class evidencing not less than 25% of the
total distributions allocated to such Class; or
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(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceeding, or for the winding-up or liquidation of its
affairs, shall have been entered against the Master Servicer and
such decree or order shall have remained in force undischarged or
unstayed for a period of 60 consecutive days; or
(iv) the Master Servicer shall consent to the
appointment of a receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or all
or substantially all of the property of the Master Servicer; or
(v) the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file a
petition to take advantage of, or commence a voluntary case
under, any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily
suspend payment of its obligations; or
(vi) any failure of the Master Servicer to make any
Advance in the manner and at the time required to be made
pursuant to Section 4.01 which continues unremedied for a period
of one Business Day after the date of such failure.
If an Event of Default described in clauses (i) to (v) of this
Section shall occur, then, and in each and every such case, so long as such
Event of Default shall not have been remedied, the Trustee may, or at the
direction of the Holders of Certificates of any Class evidencing not less than
25% of the total distributions allocated to such Class, the Trustee shall by
notice in writing to the Master Servicer (with a copy to each Rating Agency),
terminate all of the rights and obligations of the Master Servicer under this
Agreement and in and to the Mortgage Loans and the proceeds thereof, other than
its rights as a Certificateholder hereunder. If an Event of Default described in
clause (vii) hereof shall occur, the Trustee shall, by notice in writing to the
Master Servicer and the Depositor, terminate all of the rights and obligations
of the Master Servicer under this Agreement and in and to the Mortgage Loans and
the proceeds thereof, other than its rights as a Certificateholder hereunder. On
and after the receipt by the Master Servicer of such written notice, all
authority and power of the Master Servicer hereunder, whether with respect to
the Mortgage Loans or otherwise, shall pass to and be vested in the Trustee. The
Trustee shall thereupon make any Advance described in clause (vii) hereof
subject to Section 3.04 hereof. The Trustee is hereby authorized and empowered
to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents, or otherwise. Unless
expressly provided in such written notice, no such termination shall affect any
obligation of the Master Servicer to pay amounts owed pursuant to Article VIII.
The Master Servicer agrees to cooperate with the Trustee in effecting the
termination of the Master Servicer's responsibilities and rights hereunder,
including, without limitation, the transfer to the Trustee of all cash amounts
which shall at the time be credited to the Certificate Account, or thereafter be
received with respect to the Mortgage Loans.
Notwithstanding any termination of the activities of the Master
Servicer hereunder, the Master Servicer shall be entitled to receive, out of any
late collection of a Scheduled Payment on
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a Mortgage Loan which was due prior to the notice terminating such Master
Servicer's rights and obligations as Master Servicer hereunder and received
after such notice, that portion thereof to which such Master Servicer would have
been entitled pursuant to Sections 3.08(a)(i) through (viii),and any other
amounts payable to such Master Servicer hereunder the entitlement to which arose
prior to the termination of its activities hereunder.
Section 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01 hereof, the Trustee shall, subject to and
to the extent provided in Section 3.04, be the successor to the Master Servicer
in its capacity as master servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all the responsibilities,
duties and liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof and applicable law including the obligation to make
Advances pursuant to Section 4.01. As compensation therefor, the Trustee shall
be entitled to all funds relating to the Mortgage Loans that the Master Servicer
would have been entitled to charge to the Certificate Account or Distribution
Account if the Master Servicer had continued to act hereunder. Notwithstanding
the foregoing, if the Trustee has become the successor to the Master Servicer in
accordance with Section 7.01 hereof, the Trustee may, if it shall be unwilling
to so act, or shall, if it is prohibited by applicable law from making Advances
pursuant to Section 4.01 hereof or if it is otherwise unable to so act, appoint,
or petition a court of competent jurisdiction to appoint, any established
mortgage loan servicing institution the appointment of which does not adversely
affect the then current rating of the Certificates by each Rating Agency as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder.
Any successor to the Master Servicer shall be an institution which is a FNMA and
FHLMC approved seller/servicer in good standing, which has a net worth of at
least $10,000,000, and which is willing to service the Mortgage Loans and
executes and delivers to the Depositor and the Trustee an agreement accepting
such delegation and assignment, which contains an assumption by such Person of
the rights, powers, duties, responsibilities, obligations and liabilities of the
Master Servicer (other than liabilities of the Master Servicer under Section
6.03 hereof incurred prior to termination of the Master Servicer under Section
7.01), with like effect as if originally named as a party to this Agreement; and
provided further that each Rating Agency acknowledges that its rating of the
Certificates in effect immediately prior to such assignment and delegation will
not be qualified or reduced as a result of such assignment and delegation.
Pending appointment of a successor to the Master Servicer hereunder, the
Trustee, unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.04 hereof, act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree; provided, however, that no such
compensation shall be in excess of the Master Servicing Fee permitted the Master
Servicer hereunder. The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. Neither the Trustee nor any other successor master servicer shall be
deemed to be in default hereunder by reason of any failure to make, or any delay
in making, any distribution hereunder or any portion thereof or any failure to
perform, or any delay in performing, any duties or responsibilities hereunder,
in either case caused by the failure of the Master Servicer to deliver or
provide, or any delay in delivering or providing, any cash, information,
documents or records to it.
Any successor to the Master Servicer as master servicer shall
give notice to the Mortgagors of such change of servicer and shall, during the
term of its service as master servicer
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maintain in force the policy or policies that the Master Servicer is required to
maintain pursuant to Section 6.05.
Section 7.03. Notification to Certificateholders.
(a) Upon any termination of or appointment of a successor to the
Master Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders and to each Rating Agency.
(b) Within 60 days after the occurrence of any Event of Default,
the Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform such duties and only such duties as are specifically set
forth in this Agreement. In case an Event of Default has occurred and remains
uncured, the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that are specifically required to be furnished pursuant to any
provision of this Agreement shall examine them to determine whether they are in
the form required by this Agreement; provided, however, that the Trustee shall
not be responsible for the accuracy or content of any such resolution,
certificate, statement, opinion, report, document, order or other instrument.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) unless an Event of Default known to the Trustee
shall have occurred and be continuing, the duties and obligations
of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee
and the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement which it
believed in good faith to be genuine and to have been duly
executed by the proper authorities respecting any matters arising
hereunder;
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(ii) the Trustee shall not be liable for an error
of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be finally
proven that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect
to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of Holders of
Certificates evidencing not less than 25% of the Voting Rights of
Certificates relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under
this Agreement.
Section 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) the Trustee may request and rely upon and shall
be protected in acting or refraining from acting upon any
resolution, Officers' Certificate, certificate of auditors or any
other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other paper
or document believed by it to be genuine and to have been signed
or presented by the proper party or parties and the Trustee shall
have no responsibility to ascertain or confirm the genuineness of
any signature of any such party or parties;
(ii) the Trustee may consult with counsel,
financial advisers or accountants and the advice of any such
counsel, financial advisers or accountants and any Opinion of
Counsel shall be full and complete authorization and protection
in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of
Counsel;
(iii) the Trustee shall not be liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(iv) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or
document, unless requested in writing so to do by Holders of
Certificates evidencing not less than 25% of the Voting Rights
allocated to each Class of Certificates;
(v) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly
or by or through agents, accountants or attorneys;
(vi) the Trustee shall not be required to risk or
expend its own funds or otherwise incur any financial liability
in the performance of any of its duties or in the exercise of any
of its rights or powers hereunder if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not assured to it;
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(vii) the Trustee shall not be liable for any loss
on any investment of funds pursuant to this Agreement (other than
as issuer of the investment security);
(viii) the Trustee shall not be deemed to have
knowledge of an Event of Default until a Responsible Officer of
the Trustee shall have received written notice thereof; and
(ix) the Trustee shall be under no obligation to
exercise any of the trusts, rights or powers vested in it by this
Agreement or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or
direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity satisfactory to the Trustee against the costs, expenses
and liabilities which may be incurred therein or thereby.
Section 8.03. Trustee Not Liable for Certificates or Mortgage
Loans.
The recitals contained herein and in the Certificates shall be
taken as the statements of the Depositor or the Seller, as the case may be, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document other than with respect
to the Trustee's execution and countersignature of the Certificates. The Trustee
shall not be accountable for the use or application by the Depositor or the
Master Servicer of any funds paid to the Depositor or the Master Servicer in
respect of the Mortgage Loans or deposited in or withdrawn from the Certificate
Account by the Depositor or the Master Servicer.
Section 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Certificates with the same rights as it would have if it
were not the Trustee.
Section 8.05. Trustee's Fees and Expenses.
The Trustee, as compensation for its activities hereunder, shall
be entitled to withdraw from the Distribution Account on each Distribution Date
an amount equal to the Trustee Fee for such Distribution Date. The Trustee and
any director, officer, employee or agent of the Trustee shall be indemnified by
the Master Servicer and held harmless against any loss, liability or expense
(including reasonable attorney's fees) (i) incurred in connection with any claim
or legal action relating to (a) this Agreement, (b) the Certificates or (c) in
connection with the performance of any of the Trustee's duties hereunder, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of any of the Trustee's duties
hereunder and (ii) resulting from any error in any tax or information return
prepared by the Master Servicer. Such indemnity shall survive the termination of
this Agreement or the resignation or removal of the Trustee hereunder. Without
limiting the foregoing, the Master Servicer covenants and agrees, except as
otherwise agreed upon in writing by the Depositor and the Trustee, and except
for any such expense, disbursement or advance as may arise from the Trustee's
negligence, bad faith or willful misconduct, to pay or reimburse the Trustee,
for all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Agreement with respect
to: (A) the reasonable compensation and the expenses and disbursements of its
counsel not associated with the
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closing of the issuance of the Certificates, (B) the reasonable compensation,
expenses and disbursements of any accountant, engineer or appraiser that is not
regularly employed by the Trustee, to the extent that the Trustee must engage
such persons to perform acts or services hereunder and (C) printing and
engraving expenses in connection with preparing any Definitive Certificates.
Except as otherwise provided herein, the Trustee shall not be entitled to
payment or reimbursement for any routine ongoing expenses incurred by the
Trustee in the ordinary course of its duties as Trustee, Registrar, Tax Matters
Person or Paying Agent hereunder or for any other expenses.
Section 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or
association organized and doing business under the laws of a state or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $________ subject to
supervision or examination by federal or state authority and with a credit
rating which would not cause either of the Rating Agencies to reduce their
respective then current ratings of the Certificates (or having provided such
security from time to time as is sufficient to avoid such reduction). If such
corporation or association publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 8.06 the combined capital and
surplus of such corporation or association shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 8.06, the Trustee shall resign
immediately in the manner and with the effect specified in Section 8.07 hereof.
The entity serving as Trustee may have normal banking and trust relationships
with the Depositor and its affiliates or the Master Servicer and its affiliates;
provided, however, that such entity cannot be an affiliate of the Master
Servicer other than the Trustee in its role as successor to the Master Servicer.
Section 8.07. Resignation and Removal of Trustee.
The Trustee may at any time resign and be discharged from the
trusts hereby created by giving written notice of resignation to the Depositor
and the Master Servicer and each Rating Agency not less than 60 days before the
date specified in such notice when, subject to Section 8.08, such resignation is
to take effect, and acceptance by a successor trustee in accordance with Section
8.08 meeting the qualifications set forth in Section 8.06. If no successor
trustee meeting such qualifications shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice or
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 hereof and shall fail to resign
after written request thereto by the Depositor, or if at any time the Trustee
shall become incapable of acting, or shall be adjudged as bankrupt or insolvent,
or a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor or the Master Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate, one copy of which instrument shall be delivered to the Trustee, one
copy of which shall be delivered to the Master Servicer and one copy to the
successor trustee.
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The Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered by the successor Trustee to the Master Servicer, one complete
set to the Trustee so removed and one complete set to the successor so
appointed. Notice of any removal of the Trustee shall be given to each Rating
Agency by the Successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.07 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.08 hereof.
Section 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07
hereof shall execute, acknowledge and deliver to the Depositor and to its
predecessor trustee and the Master Servicer an instrument accepting such
appointment hereunder and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with the
like effect as if originally named as trustee herein. The Depositor, the Master
Servicer and the predecessor trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for more fully and
certainly vesting and confirming in the successor trustee all such rights,
powers, duties, and obligations.
No successor trustee shall accept appointment as provided in this
Section 8.08 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06 hereof and its appointment
shall not adversely affect the then current rating of the Certificates.
Upon acceptance of appointment by a successor trustee as provided
in this Section 8.08, the Depositor shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates. If the Depositor fails to mail
such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Depositor.
Section 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to the business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such corporation shall be
eligible under the provisions of Section 8.06 hereof without the execution or
filing of any paper or further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
Section 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust Fund or property securing any Mortgage Note may at
the time be located, the Master Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more Persons approved by the Trustee to act as co-trustee or co-trustees jointly
with the Trustee, or
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separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity and for the benefit of the
Certificateholders, such title to the Trust Fund or any part thereof, whichever
is applicable, and, subject to the other provisions of this Section 8.10, such
powers, duties, obligations, rights and trusts as the Master Servicer and the
Trustee may consider necessary or desirable. If the Master Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request to do so, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 8.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 8.08.
Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) To the extent necessary to effectuate the
purposes of this Section 8.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee, except for the
obligation of the Trustee under this Agreement to advance funds
on behalf of the Master Servicer, shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act
separately without the Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Master Servicer hereunder), the
Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the applicable
Trust Fund or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally
liable by reason of any act or omission of any other trustee
hereunder and such appointment shall not, and shall not be deemed
to, constitute any such separate trustee or co-trustee as agent
of the Trustee;
(iii) The Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee; and
(iv) The Master Servicer, and not the Trustee,
shall be liable for the payment of reasonable compensation,
reimbursement and indemnification to any such separate trustee or
co-trustee.
Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the separate trustees and co-trustees,
when and as effectively as if given to each of them. Every instrument appointing
any separate trustee or co-trustee shall refer to this Agreement and the
conditions of this Article VIII. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such
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instrument shall be filed with the Trustee and a copy thereof given to the
Master Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute
the Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 8.11. Tax Matters.
It is intended that the assets with respect to which any REMIC
election is to be made, as set forth in the Preliminary Statement, shall
constitute, and that the conduct of matters relating to such assets shall be
such as to qualify such assets as, a "real estate mortgage investment conduit"
as defined in and in accordance with the REMIC Provisions. In furtherance of
such intention, the Trustee covenants and agrees that it shall act as agent (and
the Trustee is hereby appointed to act as agent) on behalf of the REMIC and that
in such capacity it shall: (a) prepare and file, or cause to be prepared and
filed, in a timely manner, a U.S. Real Estate Mortgage Investment Conduit Income
Tax Return (Form 1066 or any successor form adopted by the Internal Revenue
Service) and prepare and file or cause to be prepared and filed with the
Internal Revenue Service and applicable state or local tax authorities income
tax or information returns for each taxable year with respect to the REMIC,
containing such information and at the times and in the manner as may be
required by the Code or state or local tax laws, regulations, or rules, and
furnish or cause to be furnished to Certificateholders the schedules, statements
or information at such times and in such manner as may be required thereby; (b)
within thirty days of the Closing Date, furnish or cause to be furnished to the
Internal Revenue Service, on Forms 8811 or as otherwise may be required by the
Code, the name, title, address, and telephone number of the person that the
holders of the Certificates may contact for tax information relating thereto,
together with such additional information as may be required by such Form, and
update such information at the time or times in the manner required by the Code;
(c) make or cause to be made elections that such assets be treated as a REMIC on
the federal tax return for its first taxable year (and, if necessary, under
applicable state law); (d) prepare and forward, or cause to be prepared and
forwarded, to the Certificateholders and to the Internal Revenue Service and, if
necessary, state tax authorities, all information returns and reports as and
when required to be provided to them in accordance with the REMIC Provisions,
including without limitation, the calculation of any original issue discount
using the Prepayment Assumption; (e) provide information necessary for the
computation of tax imposed on the transfer of a Residual Certificate to a Person
that is not a Permitted Transferee, or an agent (including a broker, nominee or
other middleman) of a Non-Permitted Transferee, or a pass-through entity in
which a Non-Permitted Transferee is the record holder of an interest (the
reasonable cost of computing and furnishing such information may be charged to
the Person liable for such tax); (f) to the extent that they are under its
control conduct matters relating to such assets at all times that any
Certificates are outstanding so as to maintain the status as a REMIC under the
REMIC Provisions; (g) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status; (h) pay,
from the sources specified in the last paragraph of this Section 8.11, the
amount of any federal or state tax, including prohibited transaction taxes as
described below, imposed on the REMIC prior to its termination when and as the
same shall be due and payable (but such obligation shall not prevent the Trustee
or any other appropriate Person from contesting any such tax in appropriate
proceedings and shall not prevent the Trustee from withholding payment of such
tax, if permitted by law, pending the
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outcome of such proceedings); (i) ensure that federal, state or local income tax
or information returns shall be signed by the Trustee or such other person as
may be required to sign such returns by the Code or state or local laws,
regulations or rules; (j) maintain records relating to the REMIC, including but
not limited to the income, expenses, assets and liabilities thereof and the fair
market value and adjusted basis of the assets determined at such intervals as
may be required by the Code, as may be necessary to prepare the foregoing
returns, schedules, statements or information; and (k) as and when necessary and
appropriate, represent the REMIC in any administrative or judicial proceedings
relating to an examination or audit by any governmental taxing authority,
request an administrative adjustment as to any taxable year of the REMIC, enter
into settlement agreements with any governmental taxing agency, extend any
statute of limitations relating to any tax item of the REMIC, and otherwise act
on behalf of the REMIC in relation to any tax matter or controversy involving
it.
In order to enable the Trustee to perform its duties as set forth
herein, the Depositor shall provide, or cause to be provided, to the Trustee
within ten (10) days after the Closing Date all information or data that the
Trustee requests in writing and determines to be relevant for tax purposes to
the valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall provide
to the Trustee promptly upon written request therefor, any such additional
information or data that the Trustee may, from time to time, reasonably request
in order to enable the Trustee to perform its duties as set forth herein. The
Depositor hereby indemnifies the Trustee for any losses, liabilities, damages,
claims or expenses of the Trustee arising from any errors or miscalculations of
the Trustee that result from any failure of the Depositor to provide, or to
cause to be provided, accurate information or data to the Trustee on a timely
basis.
In the event that any tax is imposed on "prohibited transactions"
of the REMIC as defined in Section 860F(a)(2) of the Code, on the "net income
from foreclosure property" of the REMIC as defined in Section 860G(c) of the
Code, on any contribution to the REMIC after the Startup Day pursuant to Section
860G(d) of the Code, or any other tax is imposed, [including, without
limitation, any minimum tax imposed upon the REMIC pursuant to Sections 23153
and 24874 of the California Revenue and Taxation Code,] if not paid as otherwise
provided for herein, such tax shall be paid by (i) the Trustee, if any such
other tax arises out of or results from a breach by the Trustee of any of its
obligations under this Agreement, (ii) the Master Servicer, in the case of any
such minimum tax, or if such tax arises out of or results from a breach by the
Master Servicer or Seller of any of their obligations under this Agreement,
(iii) the Seller, if any such tax arises out of or results from the Seller's
obligation to repurchase a Mortgage Loan pursuant to Section 2.02 or 2.03 or
(iv) in all other cases, or in the event that the Trustee, the Master Servicer
or the Seller fails to honor its obligations under the preceding clause (i),(ii)
or (iii), any such tax will be paid with amounts otherwise to be distributed to
the Certificateholders, as provided in Section 3.08(b).
Section 8.12. Periodic Filings.
[PURSUANT TO WRITTEN INSTRUCTIONS FROM THE DEPOSITOR, THE TRUSTEE
SHALL PREPARE, EXECUTE AND FILE ALL PERIODIC REPORTS REQUIRED UNDER THE
SECURITIES EXCHANGE ACT OF 1934 IN CONFORMITY WITH THE TERMS OF THE RELIEF
GRANTED TO THE DEPOSITOR IN MORGAN STANLEY ABS CAPITAL I INC. (___________,
199_), A COPY OF WHICH HAS BEEN SUPPLIED TO THE TRUSTEE BY
THE ISSUER.] In connection with the preparation and filing of such periodic
reports, the Depositor and the Master Servicer shall timely provide to the
Trustee all material information available to them
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which is required to be included in such reports and not known to them to be in
the possession of the Trustee and such other information as the Trustee
reasonably may request from either of them and otherwise reasonably shall
cooperate with the Trustee. The Trustee shall have no liability with respect to
any failure to properly prepare or file such periodic reports resulting from or
relating to the Trustee's inability or failure to obtain any information not
resulting from its own negligence or willful misconduct.
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Liquidation or Purchase of all
Mortgage Loans.
Subject to Section 9.03, the obligations and responsibilities of
the Depositor, the Master Servicer and the Trustee created hereby with respect
to the Trust Fund shall terminate upon the earlier of (a) the purchase by the
Master Servicer of all Mortgage Loans (and REO Properties) remaining in the
Trust Fund at the price equal to the sum of (i) 100% of the Stated Principal
Balance of each Mortgage Loan plus one month's accrued interest thereon at the
applicable Adjusted Mortgage Rate and (ii) the lesser of (x) the appraised value
of any REO Property as determined by the higher of two appraisals completed by
two independent appraisers selected by the Master Servicer at the expense of the
Master Servicer and (y) the Stated Principal Balance of each Mortgage Loan
related to any REO Property, in each case plus accrued and unpaid interest
thereon at the applicable Adjusted Mortgage Rate and (b) the later of (i) the
maturity or other liquidation (or any Advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund and the disposition of all REO
Property and (ii) the distribution to Certificateholders of all amounts required
to be distributed to them pursuant to this Agreement. In no event shall the
trusts created hereby continue beyond the earlier of (i) the expiration of 21
years from the death of the survivor of the descendants of Joseph P. Kennedy,
the late Ambassador of the United States to the Court of St. James's, living on
the date hereof and (ii) the Latest Possible Maturity Date. The right to
purchase all Mortgage Loans and REO Properties pursuant to clause (a) above
shall be conditioned upon the Pool Stated Principal Balance, at the time of any
such repurchase, aggregating less than ten percent of the aggregate Cut-off Date
Principal Balance of the Mortgage Loans.
Section 9.02. Final Distribution on the Certificates.
If on any Determination Date, the Master Servicer determines that
there are no Outstanding Mortgage Loans and no other funds or assets in the
Trust Fund other than the funds in the Certificate Account, the Master Servicer
shall direct the Trustee promptly to send a final distribution notice to each
Certificateholder. If the Master Servicer elects to terminate the Trust Fund
pursuant to clause (a) of Section 9.01, at least 20 days prior to the date
notice is to be mailed to the affected Certificateholders, the Master Servicer
shall notify the Depositor and the Trustee of the date the Master Servicer
intends to terminate the Trust Fund and of the applicable repurchase price of
the Mortgage Loans and REO Properties.
Notice of any termination of the Trust Fund, specifying the
Distribution Date on which Certificateholders may surrender their Certificates
for payment of the final distribution and cancellation, shall be given promptly
by the Trustee by letter to Certificateholders mailed not earlier than the 15th
day and no later than the 10th day of the month next preceding the month of such
final distribution. Any such notice shall specify (a) the Distribution Date upon
which final distribution on
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the Certificates will be made upon presentation and surrender of Certificates at
the office therein designated, (b) the amount of such final distribution, (c)
the location of the office or agency at which such presentation and surrender
must be made, and (d) that the Record Date otherwise applicable to such
Distribution Date is not applicable, distributions being made only upon
presentation and surrender of the Certificates at the office therein specified.
The Master Servicer will give such notice to each Rating Agency at the time such
notice is given to Certificateholders.
In the event such notice is given, the Master Servicer shall
cause all funds in the Certificate Account to be remitted to the Trustee for
deposit in the Distribution Account on the Business Day prior to the applicable
Distribution Date in an amount equal to the final distribution in respect of the
Certificates. Upon such final deposit with respect to the Trust Fund and the
receipt by the Trustee of a Request for Release therefor, the Trustee shall
promptly release to the Master Servicer the Mortgage Files for the Mortgage
Loans.
Upon presentation and surrender of the Certificates, the Trustee
shall cause to be distributed to Certificateholders of each Class, in the order
set forth in Section 4.02 hereof, on the final Distribution Date and in
proportion to their respective Percentage Interests, with respect to
Certificateholders of the same Class, an amount equal to (i) as to each Class of
Regular Certificates, the Certificate Balance thereof plus (a) accrued interest
thereon (or on their Notional Amount, if applicable) in the case of an interest
bearing Certificate and (b) any Class PO Deferred Amounts in the case of the
Class PO Certificates, and (ii) as to the Residual Certificates, the amount, if
any, which remains on deposit in the Distribution Account (other than the
amounts retained to meet claims) after application pursuant to clause (i) above.
In the event that any affected Certificateholders shall not
surrender Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice all the applicable
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets which remain a part of the Trust Fund. If within one year after the
second notice all Certificates shall not have been surrendered for cancellation,
the Class A-R Certificateholders shall be entitled to all unclaimed funds and
other assets of the Trust Fund which remain subject hereto.
Section 9.03. Additional Termination Requirements.
(a) In the event the Master Servicer exercises its purchase
option as provided in Section 9.01, the Trust Fund shall be terminated in
accordance with the following additional requirements, unless the Trustee has
been supplied with an Opinion of Counsel, at the expense of the Master Servicer,
to the effect that the failure to comply with the requirements of this Section
9.03 will not (i) result in the imposition of taxes on "prohibited transactions"
on the REMIC as defined in section 860F of the Code, or (ii) cause the Trust
Fund to fail to qualify as a REMIC at any time that any Certificates are
outstanding:
(1) Within 90 days prior to the final Distribution Date
set forth in the notice given by the Master Servicer under Section 9.02,
the Master Servicer shall prepare and the Trustee, at the expense of the
"tax matters person," shall adopt a plan of complete
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liquidation within the meaning of section 860F(a)(4) of the Code which,
as evidenced by an Opinion of Counsel (which opinion shall not be an
expense of the Trustee or the Tax Matters Person), meets the
requirements of a qualified liquidation; and
(2) Within 90 days after the time of adoption of such a
plan of complete liquidation, the Trustee shall sell all of the assets
of the Trust Fund to the Master Servicer for cash in accordance with
Section 9.01.
(b) The Trustee as agent for any REMIC hereby agrees to adopt and
sign such a plan of complete liquidation upon the written request of the Master
Servicer, and the receipt of the Opinion of Counsel referred to in Section
9.03(a)(1) and to take such other action in connection therewith as may be
reasonably requested by the Master Servicer.
(c) By their acceptance of the Certificates, the Holders thereof
hereby authorize the Master Servicer to prepare and the Trustee to adopt and
sign a plan of complete liquidation.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01.Amendment.
This Agreement may be amended from time to time by the Depositor,
the Master Servicer and the Trustee without the consent of any of the
Certificateholders to cure any ambiguity, or to correct or supplement any
provisions herein, or to make such other provisions with respect to matters or
questions arising under this Agreement as shall not be inconsistent with any
other provisions herein; provided that such action shall not, as evidenced by an
Opinion of Counsel (which Opinion of Counsel shall not be an expense of the
Trustee or the Trust Fund), adversely affect in any material respect the
interests of any Certificateholder; provided, however, that the amendment shall
not be deemed to adversely affect in any material respect the interests of the
Certificateholders if the Person requesting the amendment obtains a letter from
each Rating Agency stating that the amendment would not result in the
downgrading or withdrawal of the respective ratings then assigned to the
Certificates; it being understood and agreed that any such letter in and of
itself will not represent a determination as to the materiality of any such
amendment and will represent a determination only as to the credit issues
affecting any such rating. The Trustee, the Depositor and the Master Servicer
also may at any time and from time to time amend this Agreement without the
consent of the Certificateholders to modify, eliminate or add to any of its
provisions to such extent as shall be necessary or helpful to maintain the
qualification of the Trust Fund as a REMIC under the Code or to avoid or
minimize the risk of the imposition of any tax on the REMIC pursuant to the Code
that would be a claim at any time prior to the final redemption of the
Certificates, provided that the Trustee has been provided an Opinion of Counsel,
which opinion shall be an expense of the party requesting such opinion but in
any case shall not be an expense of the Trustee or the Trust Fund, to the effect
that such action is necessary or helpful to maintain such qualification or to
avoid or minimize the risk of the imposition of such a tax.
This Agreement may also be amended from time to time by the
Depositor, the Master Servicer and the Trustee with the consent of the Holders
of a Majority in Interest of each Class of Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the
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Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class, Percentage Interests aggregating 66%, or (iii) reduce the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, which opinion shall not be an expense
of the Trustee or the Trust Fund, to the effect that such amendment will not
cause the imposition of any tax on the REMIC or the Certificateholders or cause
the Trust Fund to fail to qualify as a REMIC at any time that any Certificates
are outstanding.
Promptly after the execution of any amendment to this Agreement
requiring the consent of Certificateholders, the Trustee shall furnish written
notification of the substance or a copy of such amendment to each
Certificateholder and each Rating Agency.
It shall not be necessary for the consent of Certificateholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter into
an amendment without receiving an Opinion of Counsel (which Opinion shall not be
an expense of the Trustee or the Trust Fund, satisfactory to the Trustee that
(i) such amendment is permitted and is not prohibited by this Agreement and that
all requirements for amending this Agreement have been complied with; and (ii)
either (A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to this
Section 10.01.
Section 10.02.Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at its expense, but only
upon direction by the Trustee accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this Agreement
as herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
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Section 10.03.Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HERETO AND THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 10.04.Intention of Parties.
It is the express intent of the parties hereto that the
conveyance of the Trust Fund by the Depositor to the Trustee be, and be
construed as, an absolute sale thereof to the Trustee. It is, further, not the
intention of the parties that such conveyance be deemed a pledge thereof by the
Depositor to the Trustee. However, in the event that, notwithstanding the intent
of the parties, such assets are held to be the property of the Depositor, or if
for any other reason this Agreement is held or deemed to create a security
interest in such assets, then (i) this Agreement shall be deemed to be a
security agreement within the meaning of the Uniform Commercial Code of the
State of New York and (ii) the conveyance provided for in this Agreement shall
be deemed to be an assignment and a grant by the Depositor to the Trustee, for
the benefit of the Certificateholders, of a security interest in all of the
assets that constitute the Trust Fund, whether now owned or hereafter acquired.
The Depositor for the benefit of the Certificateholders shall, to
the extent consistent with this Agreement, take such actions as may be necessary
to ensure that, if this Agreement were deemed to create a security interest in
the Trust Fund, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of the Agreement. The Depositor shall arrange for
filing any Uniform Commercial Code continuation statements in connection with
any security interest granted or assigned to the Trustee for the benefit of the
Certificateholder.
Section 10.05.Notices.
(a) The Trustee shall use its best efforts to promptly provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or the
Trustee and the appointment of any successor;
4. The repurchase or substitution of Mortgage Loans pursuant to
Section 2.03; and
5. The final payment to Certificateholders.
In addition, the Trustee shall promptly furnish to each Rating
Agency copies of the following:
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1. Each report to Certificateholders described in Section 4.04;
2. Each annual statement as to compliance described in Section
3.16;
3. Each annual independent public accountants' servicing report
described in Section 3.17; and
4. Any notice of a purchase of a Mortgage Loan pursuant to
Section 2.02, 2.03 or 3.11.
(b) All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when delivered to (a) in the
case of the Depositor, Morgan Stanley ABS Capital I Inc., 1585 Broadway, New
York, New York 10036, Attention: _______________, (b) in the case of the Master
Servicer, _____________________________________________, Attention:
_________________ or such other address as may be hereafter furnished to the
Depositor and the Trustee by the Master Servicer in writing, (c) in the case of
the Trustee, _______________________________________________________, Attention:
__________________________________________________, or such other address as the
Trustee may hereafter furnish to the Depositor or Master Servicer and (d) in the
case of the Rating Agencies, the address specified therefor in the definition
corresponding to the name of such Rating Agency. Notices to Certificateholders
shall be deemed given when mailed, first class postage prepaid, to their
respective addresses appearing in the Certificate Register.
Section 10.06.Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
Section 10.07.Assignment.
Notwithstanding anything to the contrary contained herein, except
as provided in Section 6.02, this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee and Depositor.
Section 10.08.Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the trust created hereby, nor entitle
such Certificateholder's legal representative or heirs to claim an accounting or
to take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
provided herein) or in any manner otherwise control the operation and management
of the Trust Fund, or the obligations of the parties hereto, nor shall anything
herein set forth or contained in the terms of the Certificates be construed so
as to constitute the Certificateholders from time to time as partners or members
of an
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association; nor shall any Certificateholder be under any liability to any third
party by reason of any action taken by the parties to this Agreement pursuant to
any provision hereof.
No Certificateholder shall have any right by virtue or by
availing itself of any provisions of this Agreement to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of an Event of Default and of the continuance thereof, as herein
provided, and unless the Holders of Certificates evidencing not less than 25% of
the Voting Rights evidenced by the Certificates shall also have made written
request to the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses, and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein provided and for the
common benefit of all Certificateholders. For the protection and enforcement of
the provisions of this Section 10.08, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 10.09.Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it
will permit and will cause each Subservicer to permit any representative of the
Depositor or the Trustee during the Master Servicer's normal business hours, to
examine all the books of account, records, reports and other papers of the
Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by the Depositor or the Trustee and to discuss its affairs,
finances and accounts relating to the Mortgage Loans with its officers,
employees and independent public accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such representative
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested. Any out-of-pocket expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 10.09
shall be borne by the party requesting such inspection; all other such expenses
shall be borne by the Master Servicer or the related Subservicer.
Section 10.10.Certificates Nonassessable and Fully Paid.
It is the intention of the Depositor that Certificateholders
shall not be personally liable for obligations of the Trust Fund, that the
interests in the Trust Fund represented by the Certificates shall be
nonassessable for any reason whatsoever, and that the Certificates, upon due
authentication thereof by the Trustee pursuant to this Agreement, are and shall
be deemed fully paid.
* * * * * *
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IN WITNESS WHEREOF, the Depositor, the Trustee and the Master
Servicer have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
Morgan Stanley ABS Capital I Inc.
as Depositor
By:________________________________________
Name:
Title:
__________________________________________,
as Trustee
By:________________________________________
Name:
Title:
__________________________________________,
as Master Servicer
By:________________________________________
Name:
Title:
86
<PAGE> 92
SCHEDULE I
Mortgage Loan Schedule
[Delivered at Closing to Trustee]
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<PAGE> 93
SCHEDULE II
Morgan Stanley ABS Capital I Inc.
Mortgage Pass-Through Certificates
Series 199_-_
Representations and Warranties of the Master Servicer
____________________________ ("Master Servicer") hereby makes the
representations and warranties set forth in this Schedule II to the Depositor
and the Trustee, as of the Closing Date, or if so specified herein, as of the
Cut-off Date. Capitalized terms used but not otherwise defined in this Schedule
II shall have the meanings ascribed thereto in the Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") relating to the
above-referenced Series, among the Master Servicer, as master servicer, Morgan
Stanley ABS Capital I Inc., as depositor, and _____________________, as trustee.
(1) The Master Servicer is duly organized as a _______
corporation and is validly existing and in good standing under the laws
of the State of ___________ and is duly authorized and qualified to
transact any and all business contemplated by the Pooling and Servicing
Agreement to be conducted by the Master Servicer in any state in which a
Mortgaged Property is located or is otherwise not required under
applicable law to effect such qualification and, in any event, is in
compliance with the doing business laws of any such state, to the extent
necessary to ensure its ability to enforce each Mortgage Loan, to
service the Mortgage Loans in accordance with the terms of the Pooling
and Servicing Agreement and to perform any of its other obligations
under the Pooling and Servicing Agreement in accordance with the terms
thereof.
(2) The Master Servicer has the full corporate power and
authority to sell and service each Mortgage Loan, and to execute,
deliver and perform, and to enter into and consummate the transactions
contemplated by the Pooling and Servicing Agreement and has duly
authorized by all necessary corporate action on the part of the Master
Servicer the execution, delivery and performance of the Pooling and
Servicing Agreement; and the Pooling and Servicing Agreement, assuming
the due authorization, execution and delivery thereof by the other
parties thereto, constitutes a legal, valid and binding obligation of
the Master Servicer, enforceable against the Master Servicer in
accordance with its terms, except that (a) the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium, receivership and
other similar laws relating to creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
(3) The execution and delivery of the Pooling and
Servicing Agreement by the Master Servicer and servicing of the Mortgage
Loans by the Master Servicer under the Pooling and Servicing Agreement,
the consummation of any other of the transactions contemplated by the
Pooling and Servicing Agreement, and the fulfillment of or compliance
with the terms thereof are in the ordinary course of business of the
Master Servicer and will not (A) result in a material breach of any term
or provision of the charter or by-laws of the Master Servicer or (B)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material
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<PAGE> 94
agreement or instrument to which the Master Servicer is a party or by
which it may be bound, or (C) constitute a material violation of any
statute, order or regulation applicable to the Master Servicer of any
court, regulatory body, administrative agency or governmental body
having jurisdiction over the Master Servicer; and the Master Servicer is
not in breach or violation of any material indenture or other material
agreement or instrument, or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation
may materially impair the Master Servicer's ability to perform or meet
any of its obligations under the Pooling and Servicing Agreement.
(4) The Master Servicer is an approved servicer of
conventional mortgage loans for FNMA or FHLMC and is a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
sections 203 and 211 of the National Housing Act.
(5) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened, against the Master Servicer that would
materially and adversely affect the execution, delivery or
enforceability of the Pooling and Servicing Agreement or the ability of
the Master Servicer to sell or service the Mortgage Loans or to perform
any of its other obligations under the Pooling and Servicing Agreement
in accordance with the terms thereof.
(6) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution,
delivery and performance by the Master Servicer of, or compliance by
Master Servicer with, the Pooling and Servicing Agreement or the
consummation of the transactions contemplated thereby, or if any such
consent, approval, authorization or order is required, the Master
Servicer has obtained the same.
3
<PAGE> 95
SCHEDULE III
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates
Series 199_-_
Representations and Warranties as to the Mortgage Loans
____________________________ ("Seller") has made the
representations and warranties set forth in this Schedule III to the Depositor
and the Trustee, as of the Closing Date, or if so specified herein, as of the
Cut-off Date. Capitalized terms used but not otherwise defined in this Schedule
III shall have the meanings ascribed thereto in the Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") relating to the
above-referenced Series, among ____________, as master servicer, Morgan Stanley
ABS Capital I Inc., as depositor, and ________________________, as trustee.
(1) The information set forth on Schedule I to the Pooling
and Servicing Agreement with respect to each Mortgage Loan is true and
correct in all material respects as of the Closing Date.
(2) As of the Closing Date, all payments due with respect
to each Mortgage Loan prior to the Cut-off Date have been made; and as
of the Cut-off Date, no Mortgage Loan has been contractually delinquent
for __ or more days during the twelve months prior to the Cut-off Date.
(3) No Mortgage Loan had a Loan-to-Value Ratio at
origination in excess of __%.
(4) Each Mortgage is a valid and enforceable first lien on
the Mortgaged Property subject only to (a) the lien of non delinquent
current real property taxes and assessments, (b) covenants, conditions
and restrictions, rights of way, easements and other matters of public
record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Mortgage Loan, and (c) other matters
to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by
such Mortgage.
(5) Immediately prior to the assignment of the Mortgage
Loans to the Depositor, the Seller had good title to, and was the sole
owner of, each Mortgage Loan free and clear of any pledge, lien,
encumbrance or security interest and had full right and authority,
subject to no interest or participation of, or agreement with, any other
party, to sell and assign the same pursuant to the Pooling and Servicing
Agreement.
(6) There is no delinquent tax or assessment lien against
any Mortgaged Property.
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<PAGE> 96
(7) There is no valid offset, defense or counterclaim to
any Mortgage Note or Mortgage, including the obligation of the Mortgagor
to pay the unpaid principal of or interest on such Mortgage Note.
(8) There are no mechanics' liens or claims for work,
labor or material affecting any Mortgaged Property which are or may be a
lien prior to, or equal with, the lien of such Mortgage, except those
which are insured against by the title insurance policy referred to in
item (12) below.
(9) To the best of the Seller's knowledge, each Mortgaged
Property is free of material damage and in good repair.
(10) Each Mortgage Loan at origination complied in all
material respects with applicable state and federal laws, including,
without limitation, usury, equal credit opportunity, real estate
settlement procedures, truth-in-lending and disclosure laws, and
consummation of the transactions contemplated hereby will not involve
the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any
prior holder of any Mortgage has modified the Mortgage in any material
respect (except that a Mortgage Loan may have been modified by a written
instrument which has been recorded or submitted for recordation, if
necessary, to protect the interests of the Certificateholders and the
original or a copy of which has been delivered to the Trustee);
satisfied, cancelled or subordinated such Mortgage in whole or in part;
released the related Mortgaged Property in whole or in part from the
lien of such Mortgage; or executed any instrument of release,
cancellation, modification or satisfaction with respect thereto.
(12) A lender's policy of title insurance together with a
condominium endorsement and extended coverage endorsement, if
applicable, in an amount at least equal to the Cut-off Date Stated
Principal Balance of each such Mortgage Loan or a commitment (binder) to
issue the same was effective on the date of the origination of each
Mortgage Loan, each such policy is valid and remains in full force and
effect, and each such policy was issued by a title insurer qualified to
do business in the jurisdiction where the Mortgaged Property is located
and acceptable to FNMA or FHLMC and is in a form acceptable to FNMA or
FHLMC, which policy insures the Seller and successor owners of
indebtedness secured by the insured Mortgage, as to the first priority
lien of the Mortgage subject to the exceptions set forth in paragraph
(4) above; to the best of the Seller's knowledge, no claims have been
made under such mortgage title insurance policy and no prior holder of
the related Mortgage, including the Seller, has done, by act or
omission, anything which would impair the coverage of such mortgage
title insurance policy.
(13) Each Mortgage Loan was originated by an entity that
satisfied at the time of origination the requirements of Section
3(a)(41) of the Securities Exchange Act of 1934, as amended.
(14) To the best of the Seller's knowledge, all of the
improvements which were included for the purpose of determining the
Appraised Value of the Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon the Mortgaged
Property.
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<PAGE> 97
(15) To the best of the Seller's knowledge, no improvement
located on or being part of the Mortgaged Property is in violation of
any applicable zoning law or regulation. To the best of the Seller's
knowledge, all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities, unless the lack thereof would not have a
material adverse effect on the value of such Mortgaged Property, and the
Mortgaged Property is lawfully occupied under applicable law.
(16) The Mortgage Note and the related Mortgage are
genuine, and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms and under
applicable law. To the best of the Seller's knowledge, all parties to
the Mortgage Note and the Mortgage had legal capacity to execute the
Mortgage Note and the Mortgage and each Mortgage Note and Mortgage have
been duly and properly executed by such parties.
(17) The proceeds of the Mortgage Loan have been fully
disbursed, there is no requirement for future advances thereunder and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making, or
closing or recording the Mortgage Loans were paid.
(18) The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged
Property of the benefits of the security, including, (i) in the case of
a Mortgage designated as a deed of trust, by trustee's sale, and (ii)
otherwise by judicial foreclosure.
(19) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in
such Mortgage, and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
(20) Each Mortgage Note and each Mortgage is in
substantially one of the forms acceptable to FNMA or FHLMC, with such
riders as have been acceptable to FNMA or FHLMC, as the case may be.
(21) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made, and no escrow
deposits or payments of other charges or payments due the Seller have
been capitalized under the Mortgage or the related Mortgage Note.
(22) The origination, underwriting and collection
practices used by the Seller with respect to each Mortgage Loan have
been in all respects legal, prudent and customary in the mortgage
lending and servicing business.
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<PAGE> 98
(23) There is no pledged account or other security other
than real estate securing the Mortgagor's obligations.
(24) No Mortgage Loan has a shared appreciation feature,
or other contingent interest feature.
(25) Each Mortgage Loan contains a customary "due on sale"
clause.
(26) None of the Mortgage Loans provides for a prepayment
penalty.
[(27) Each Mortgage Loan which had a Loan-to-Value Ratio
at origination in excess of 80% is the subject of a Primary Insurance
Policy that insures that portion of the principal balance thereof that
exceeds the amount equal to 75% of the Appraised Value of the related
Mortgaged Property. Each such Primary Insurance Policy is issued by a
Qualified Insurer. All provisions of any such Primary Insurance Policy
have been and are being complied with, any such policy is in full force
and effect, and all premiums due thereunder have been paid. Any Mortgage
subject to any such Primary Insurance Policy obligates either the
Mortgagor or the mortgagee thereunder to maintain such insurance and to
pay all premiums and charges in connection therewith. The Mortgage Rate
for each Mortgage Loan is net of any such insurance premium.]
(28) At the Cut-off Date, the improvements upon each
Mortgaged Property are covered by a valid and existing hazard insurance
policy with a generally acceptable carrier that provides for fire and
extended coverage and coverage for such other hazards as are customary
in the area where the Mortgaged Property is located in an amount which
is at least equal to the lesser of (i) the maximum insurable value of
the improvements securing such Mortgage Loan or (ii) the greater of (a)
the outstanding principal balance of the Mortgage Loan and (b) an amount
such that the proceeds of such policy shall be sufficient to prevent the
Mortgagor and/or the mortgagee from becoming a co-insurer. If the
Mortgaged Property is a condominium unit, it is included under the
coverage afforded by a blanket policy for the condominium unit. All such
individual insurance policies and all flood policies referred to in item
(29) below contain a standard mortgagee clause naming the Seller or the
original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable
thereon have not been paid; the Mortgage obligates the Mortgagor
thereunder to maintain all such insurance including flood insurance at
the Mortgagor's cost and expense, and upon the Mortgagor's failure to do
so, authorizes the holder of the Mortgage to obtain and maintain such
insurance at the Mortgagor's cost and expense and to seek reimbursement
therefor from the Mortgagor.
(29) If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as
having special flood hazards, a flood insurance policy in a form meeting
the requirements of the current guidelines of the Flood Insurance
Administration is in effect with respect to such Mortgaged Property with
a generally acceptable carrier in an amount representing coverage not
less than the least of (A) the original outstanding principal balance of
the Mortgage Loan, (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis, or (C) the maximum amount of
insurance that is available under the Flood Disaster Protection Act of
1973, as amended.
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<PAGE> 99
(30) To the best of the Seller's knowledge, there is no
proceeding occurring, pending or threatened for the total or partial
condemnation of the Mortgaged Property.
(31) There is no material monetary default existing under
any Mortgage or the related Mortgage Note and, to the best of the
Seller's knowledge, there is no material event which, with the passage
of time or with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of acceleration
under the Mortgage or the related Mortgage Note; and the Seller has not
waived any default, breach, violation or event of acceleration.
(32) Each Mortgaged Property is improved by a one- to
four-family residential dwelling including condominium units and
dwelling units in PUDs, which, to the best of Seller's knowledge, does
not include cooperatives or mobile homes and does not constitute other
than real property under state law.
(33) Each Mortgage Loan is being serviced by the Master
Servicer.
(34) Any future advances made prior to the Cutoff Date
have been consolidated with the outstanding principal amount secured by
the Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term reflected on the Mortgage
Loan Schedule. The consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan. The Mortgage Note does
not permit or obligate the Master Servicer to make future advances to
the Mortgagor at the option of the Mortgagor.
(35) All taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or
ground rents which previously became due and owing have been paid, or an
escrow of funds has been established in an amount sufficient to pay for
every such item which remains unpaid and which has been assessed, but is
not yet due and payable. Except for (A) payments in the nature of escrow
payments, and (B) interest accruing from the date of the Mortgage Note
or date of disbursement of the Mortgage proceeds, whichever is later, to
the day which precedes by one month the Due Date of the first
installment of principal and interest, including without limitation,
taxes and insurance payments, the Master Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds
by a party other than the Mortgagor, directly or indirectly, for the
payment of any amount required by the Mortgage.
(36) Each Mortgage Loan was underwritten in all material
respects in accordance with the Seller's underwriting guidelines as set
forth in the Prospectus Supplement.
(37) Other than with respect to any [Streamlined
Documentation Mortgage Loan] as to which the loan-to-value ratio of the
related Original Mortgage Loan was less than 60% at the time of the
origination of such Original Mortgage Loan, prior to the approval of the
Mortgage Loan application, an appraisal of the related Mortgaged
Property was obtained from a qualified appraiser, duly appointed by the
originator, who had no interest, direct or indirect, in the Mortgaged
Property or in any loan made on the security thereof, and whose
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<PAGE> 100
compensation is not affected by the approval or disapproval of the
Mortgage Loan; such appraisal is in a form acceptable to FNMA and FHLMC.
(38) None of the Mortgage Loans is a graduated payment
mortgage loan or a growing equity mortgage loan, no more than five of
the Mortgage Loans are subject to a buydown or similar arrangement.
(39) Any leasehold estate securing a Mortgage Loan has a
term of not less than five years in excess of the term of the related
Mortgage Loan.
(40) The Mortgage Loans were selected from among the
outstanding [fixed-rate] one- to four-family mortgage loans in Seller's
portfolio at the Closing Date as to which the representations and
warranties made as to the Mortgage Loans set forth in this Schedule III
can be made. Such selection was not made in a manner that would
adversely affect the interests of Certificateholders.
(41) Except for ___ Mortgage Loans, each Mortgage Loan has
a payment date on or before the Due Date in the month of the first
Distribution Date.
(42) The Mortgage Loans, individually and in the
aggregate, conform in all material respects to the descriptions thereof
in the Prospectus Supplement.
9
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SCHEDULE IV
PRINCIPAL BALANCE SCHEDULES
10
<PAGE> 102
SCHEDULE V
Form of Monthly Master Servicer Report
LOAN LEVEL REPORTING SYSTEM
DATABASE STRUCTURE
[MONTH, YEAR]
<TABLE>
<CAPTION>
=============================================================
Field Number Field Name Field Type Field Width Dec
=============================================================
<S> <C> <C> <C> <C>
1 INVNUM Numeric 4
- -------------------------------------------------------------
2 INVBLK Numeric 4
- -------------------------------------------------------------
3 INACNU Numeric 8
- -------------------------------------------------------------
4 BEGSCH Numeric 15 2
- -------------------------------------------------------------
5 SCHPRN Numeric 13 2
- -------------------------------------------------------------
6 TADPRN Numeric 11 2
- -------------------------------------------------------------
7 LIQEPB Numeric 11 2
- -------------------------------------------------------------
8 ACTCOD Numeric 11
- -------------------------------------------------------------
9 ACTDAT Numeric 4
- -------------------------------------------------------------
10 INTPMT Numeric 8
- -------------------------------------------------------------
11 PRNPMT Numeric 13 2
- -------------------------------------------------------------
12 ENDSCH Numeric 13 2
- -------------------------------------------------------------
13 SCHNOT Numeric 13 2
- -------------------------------------------------------------
14 SCHPAS Numeric 7 3
- -------------------------------------------------------------
15 PRINPT Numeric 7 3
- -------------------------------------------------------------
16 PRIBAL Numeric 11 2
- -------------------------------------------------------------
17 LPIDTE Numeric 13 2
- -------------------------------------------------------------
18 DELPRN Numeric 7
- -------------------------------------------------------------
19 PPDPRN Numeric 11 2
- -------------------------------------------------------------
20 DELPRN Numeric 11 2
- -------------------------------------------------------------
21 NXTCHG Numeric 8
- -------------------------------------------------------------
22 ARMNOT Numeric 7 3
- -------------------------------------------------------------
23 ARMPAS Numeric 7 2
- -------------------------------------------------------------
24 ARMPMT Numeric 11 2
- -------------------------------------------------------------
25 ZZTYPE Character 2
- -------------------------------------------------------------
26 ISSUID Character 1
- -------------------------------------------------------------
</TABLE>
11
<PAGE> 103
<TABLE>
<CAPTION>
=============================================================
Field Number Field Name Field Type Field Width Dec
=============================================================
<S> <C> <C> <C> <C>
27 KEYNAME Character 8
- -------------------------------------------------------------
TOTAL 240
=============================================================
</TABLE>
Suggested Format: DBASE file
Modem transmission
12
<PAGE> 104
MASTER SERVICER
LOAN LEVEL REPORTING SYSTEM
INVESTOR NUMBER:
GENERAL INFORMATION CURRENT MONTH SCHEDULE INFORMATION
Beg. Total
End Pass-
Inv.# Blk# CFC# Investor# Balance Principal Curtailment Payoff Amt A/Code A/Date
Interest Principal Balance Note thru P&I
Loan Total
Count: Remittance:
MASTER SERVICER
LEVEL REPORTING SYSTEM
CUTOFF: [Date]
TRIAL BALANCE INFORMATION ARM LOANS ONLY
Del PPD Next Pass-
UPB LPI Prin. Prin. Chg. Note thru P&I
13
<PAGE> 105
STATEMENT OF DIFFERENCES
The section mark symbol shall be expressed as ss.
14
<PAGE> 106
EXHIBIT A
[FORM OF SENIOR CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE").]
Certificate No. :
Cut-off Date :
First Distribution Date :
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Certificate Balances
of all Certificates of
this Class : $
CUSIP :
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates, Series 199_-__
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of conventional mortgage loans (the
"Mortgage Loans") secured by first liens on one- to four-family
residential properties
1
<PAGE> 107
Morgan Stanley ABS Capital I Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Seller, the Master Servicer or the Trustee referred to below or any of their
respective affiliates. Neither this Certificate nor the Mortgage Loans are
guaranteed or insured by any governmental agency or instrumentality.
This certifies that __________ is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the denomination of
this Certificate by the aggregate Initial Certificate Balances of all
Certificates of the Class to which this Certificate belongs) in certain monthly
distributions with respect to a Trust Fund consisting primarily of the Mortgage
Loans deposited by Morgan Stanley ABS Capital I Inc. (the "Depositor"). The
Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as of
the Cut-off Date specified above (the "Agreement") among the Depositor,
________________________, as master servicer (in such capacity, the "Master
Servicer"), and ___________________, as trustee (the "Trustee"). To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
2
<PAGE> 108
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:________________, 19__
_____________________________
as Trustee
By___________________________
Countersigned:
By__________________________________
Authorized Signatory of
____________________________,
as Trustee
3
<PAGE> 109
EXHIBIT B
[FORM OF SUBORDINATED CERTIFICATE]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO CERTAIN CERTIFICATES AS
DESCRIBED IN THE AGREEMENT REFERRED TO HEREIN.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING THE
U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES UNDER THE CODE TO
THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS _______________, 199_.
THE INITIAL PER ANNUM RATE OF INTEREST ON THIS CERTIFICATE IS ____%. ASSUMING
THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT OF ____% PER
ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH $
_________ OF OID PER $1,000 OF THE ORIGINAL PRINCIPAL AMOUNT OF THIS
CERTIFICATE; THE ANNUAL YIELD TO MATURITY OF THIS CERTIFICATE FOR PURPOSES OF
COMPUTING THE ACCRUAL OF OID IS APPROXIMATELY ______% (COMPOUNDED MONTHLY); THE
AMOUNT OF OID ALLOCABLE TO THE SHORT FIRST ACCRUAL PERIOD IS $_________ PER
$1,000 OF THE ORIGINAL PRINCIPAL AMOUNT OF THIS CERTIFICATE COMPUTED USING THE
MONTHLY YIELD AND DAILY COMPOUNDING DURING THE SHORT ACCRUAL PERIOD. NO
REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON
THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE. THE ACTUAL YIELD TO MATURITY MAY
DIFFER FROM THAT SET FORTH ABOVE, AND THE ACCRUAL OF OID WILL BE ADJUSTED, IN
ACCORDANCE WITH SECTION 1272(a)(6) OF THE CODE, TO TAKE INTO ACCOUNT EVENTS
WHICH HAVE OCCURRED DURING ANY ACCRUAL PERIOD. THE PREPAYMENT ASSUMPTION IS
INTENDED TO BE THE PREPAYMENT ASSUMPTION REFERRED TO IN SECTION
1272(a)(6)(B)(iii) OF THE CODE.]
[THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE
WITHOUT REGISTRATION THEREOF UNDER THE ACT MAY
4
<PAGE> 110
ONLY BE MADE IN A TRANSACTION EXEMPTED FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE REPRESENTS TO THE TRUSTEE THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED, OR A PLAN SUBJECT TO SECTION 4975 OF THE CODE, OR DELIVERS TO THE
TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT
REFERRED TO HEREIN. [SUCH REPRESENTATION SHALL BE DEEMED TO HAVE BEEN MADE TO
THE TRUSTEE BY THE TRANSFEREE'S ACCEPTANCE OF A CERTIFICATE OF THIS CLASS AND BY
A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST IN A CERTIFICATE OF THIS CLASS.]
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY HEREIN, ANY PURPORTED TRANSFER OF
THIS CERTIFICATE TO OR ON BEHALF OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR
TO THE CODE WITHOUT THE OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE AS
DESCRIBED ABOVE SHALL BE VOID AND OF NO EFFECT.
Certificate No. :
Cut-off Date :
First Distribution Date :
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Certificate Balances
of all Certificates of
this Class : $
5
<PAGE> 111
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates, Series 199_-__
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of conventional loans (the "Mortgage
Loans") secured by first liens on one- to four-family residential
properties
Morgan Stanley ABS Capital I Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Seller, the Master Servicer or the Trustee referred to below or any of their
respective affiliates. Neither this Certificate nor the Mortgage Loans are
guaranteed or insured by any governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage Interest
evidenced by this Certificate ________________________(obtained by dividing the
denomination of this Certificate by the aggregate Initial Certificate Balances
of all Certificates of the Class to which this Certificate belongs) in certain
monthly distributions with respect to a Trust Fund consisting primarily of the
Mortgage Loans deposited by Morgan Stanley ABS Capital I Inc. (the "Depositor").
The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated
as of the Cut-off Date specified above (the "Agreement") among the Depositor,
____________________________, as master servicer (in such capacity, the "Master
Servicer"), and __________________, as trustee (the "Trustee").
To the extent not defined herein, the capitalized terms used herein have the
meanings assigned in the Agreement. This Certificate is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
[No transfer of a Certificate of this Class shall be made unless such
transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such laws. In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act and
such laws, in order to assure compliance with the Securities Act and such laws,
the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer. In the event that such a transfer is
to be made within three years from the date of the initial issuance of
Certificates pursuant hereto, there shall also be delivered (except in the case
of a transfer pursuant to Rule 144A of the Securities Act) to the Trustee an
Opinion of Counsel that such transfer may be made pursuant to an exemption from
the Securities Act and such state securities laws, which Opinion of Counsel
shall not be obtained at the expense of the Trustee, the Master Servicer or the
Depositor. The Holder hereof desiring to effect such transfer shall, and does
hereby agree to, indemnify the Trustee and the Depositor against any liability
that may result if the transfer is not so exempt or is not made in accordance
with such federal and state laws.]
6
<PAGE> 112
No transfer of a Certificate of this Class shall be made unless the
Trustee shall have received either (i) a representation [letter] from the
transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan subject to Section 406 of ERISA or Section 4975 of the
Code, nor a person acting on behalf of any such plan, which representation
letter shall not be an expense of the Trustee or the Master Servicer, (ii) if
the purchaser is an insurance company, a representation that the purchaser is an
insurance company which is purchasing such Certificates with funds contained in
an "insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under PTCE 95-60, or (iii)
in the case of any such Certificate presented for registration in the name of an
employee benefit plan subject to ERISA or Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan or any other person acting on behalf of any such plan, an Opinion of
Counsel satisfactory to the Trustee and the Master Servicer to the effect that
the purchase or holding of such Certificate will not result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee to
any obligation in addition to those undertaken in the Agreement, which Opinion
of Counsel shall not be an expense of the Trustee or the Master Servicer. [Such
representation shall be deemed to have been made to the Trustee by the
Transferee's acceptance of a Certificate of this Class and by a beneficial
owner's acceptance of its interest in a Certificate of this Class.]
Notwithstanding anything else to the contrary herein, any purported transfer of
a Certificate of this Class to or on behalf of an employee benefit plan subject
to ERISA or to the Code without the opinion of counsel satisfactory to the
Trustee as described above shall be void and of no effect.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
7
<PAGE> 113
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:________________, 19__
_____________________________
as Trustee
By___________________________
Countersigned:
By__________________________________
Authorized Signatory of
____________________________,
as Trustee
8
<PAGE> 114
EXHIBIT C
[FORM OF RESIDUAL CERTIFICATE]
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
PROPOSED TRANSFEREE DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN ACCORDANCE
WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
[THIS CERTIFICATE REPRESENTS THE "TAX MATTERS PERSON RESIDUAL INTEREST" ISSUED
UNDER THE POOLING AND SERVICING AGREEMENT REFERRED TO BELOW AND MAY NOT BE
TRANSFERRED TO ANY PERSON EXCEPT IN CONNECTION WITH THE ASSUMPTION BY THE
TRANSFEREE OF THE DUTIES OF THE SERVICER UNDER SUCH AGREEMENT.]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE EFFECT
THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A PLAN SUBJECT TO SECTION
4975 OF THE CODE, OR AN OPINION OF COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF
THE AGREEMENT REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY
HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION OF
COUNSEL SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.
Certificate No. :
Cut-off Date :
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Certificate Balances
of all Certificates of
this Class : $
CUSIP :
1
<PAGE> 115
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates, Series 199 -
evidencing the distributions allocable to the Class A-R Certificates
with respect to a Trust Fund consisting primarily of a pool of
conventional loans (the "Mortgage Loans") secured by first liens on one-
to four-family residential properties
Morgan Stanley ABS Capital I Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Seller, the Master Servicer or the Trustee referred to below or any of their
respective affiliates. Neither this Certificate nor the Mortgage Loans are
guaranteed or insured by any governmental agency or instrumentality.
This certifies that ____________________________ is the registered owner
of the Percentage Interest (obtained by dividing the Denomination of this
Certificate by the aggregate Initial Certificate Balances of all Certificates of
the Class to which this Certificate belongs) in certain monthly distributions
with respect to a Trust Fund consisting of the Mortgage Loans deposited by
Morgan Stanley ABS Capital I Inc. (the "Depositor"). The Trust Fund was created
pursuant to a Pooling and Servicing Agreement dated as of the Cut-off Date
specified above (the "Agreement") among the Depositor,
____________________________, as master servicer (in such capacity, the "Master
Servicer"), and ___________________, as trustee (the "Trustee"). To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
Any distribution of the proceeds of any remaining assets of the Trust
Fund will be made only upon presentment and surrender of this Class A-R
Certificate at the Corporate Trust Office or the office or agency maintained by
the Trustee in New York, New York.
No transfer of a Class A-R Certificate shall be made unless the Trustee
shall have received either (i) a representation letter from the transferee of
such Certificate, acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA or Section 4975 of the Code, nor a person acting
on behalf of any such plan, which representation letter shall not be an expense
of the Trustee or the Master Servicer, or (ii) in the case of any such Class A-R
Certificate presented for registration in the name of an employee benefit plan
subject to ERISA, or Section 4975 of the Code (or comparable provisions of any
subsequent enactments), or a trustee of any such plan or any other person acting
on behalf of any such plan, an Opinion of Counsel satisfactory to the Trustee
and the Master Servicer to the effect that the purchase or holding of such Class
A-R Certificate will not result in the assets of the Trust Fund being deemed to
be "plan assets" and subject to the prohibited transaction provisions of ERISA
and the Code and will not subject the Trustee or the Master Servicer to any
obligation in addition to those undertaken in this Agreement, which Opinion of
Counsel shall not be an expense of the Trustee or the Master Servicer.
Notwithstanding anything else to the contrary herein, any purported transfer of
a Class A-R Certificate to or on behalf of an employee benefit plan subject to
ERISA or to the Code
2
<PAGE> 116
without the opinion of counsel satisfactory to the Trustee as described above
shall be void and of no effect.
Each Holder of this Class A-R Certificate will be deemed to have agreed
to be bound by the restrictions of the Agreement, including but not limited to
the restrictions that (i) each person holding or acquiring any Ownership
Interest in this Class A-R Certificate must be a Permitted Transferee, (ii) no
Ownership Interest in this Class A-R Certificate may be transferred without
delivery to the Trustee of (a) a transfer affidavit of the proposed transferee
and (b) a transfer certificate of the transferor, each of such documents to be
in the form described in the Agreement, (iii) each person holding or acquiring
any Ownership Interest in this Class A-R Certificate must agree to require a
transfer affidavit and to deliver a transfer certificate to the Trustee as
required pursuant to the Agreement, (iv) each person holding or acquiring an
Ownership Interest in this Class A-R Certificate must agree not to transfer an
Ownership Interest in this Class A-R Certificate if it has actual knowledge that
the proposed transferee is not a Permitted Transferee and (v) any attempted or
purported transfer of any Ownership Interest in this Class A-R Certificate in
violation of such restrictions will be absolutely null and void and will vest no
rights in the purported transferee.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
3
<PAGE> 117
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:________________, 19
____________________________,
as Trustee
By___________________________
Countersigned:
By ______________
Authorized Signatory of
_____________________,
as Trustee
4
<PAGE> 118
EXHIBIT D
[FORM OF NOTIONAL AMOUNT CERTIFICATE]
[SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE").]
THIS CERTIFICATE HAS NO PRINCIPAL BALANCE AND IS NOT ENTITLED TO ANY
DISTRIBUTIONS IN RESPECT OF PRINCIPAL.
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSE OF APPLYING THE
U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES UNDER THE CODE TO
THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS _____________, 199____.
THE INITIAL PER ANNUM RATE OF INTEREST ON THIS CERTIFICATE IS ____%. ASSUMING
THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT OF ____% PER
ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH $____
OF OID ON THE INITIAL POOL STATED PRINCIPAL BALANCE; THE ANNUAL YIELD TO
MATURITY OF THIS CERTIFICATE FOR PURPOSES OF COMPUTING THE ACCRUAL OF OID IS
APPROXIMATELY ____% (COMPOUNDED MONTHLY); THE AMOUNT OF OID ALLOCABLE TO THE
SHORT FIRST ACCRUAL PERIOD IS $____ ON THE INITIAL POOL STATED PRINCIPAL
BALANCE; AND THE METHOD USED TO CALCULATE THE ANNUAL YIELD TO MATURITY AND THE
AMOUNT OF OID ALLOCABLE TO THE SHORT FIRST ACCRUAL PERIOD IS THE EXACT METHOD AS
DEFINED IN PROPOSED TREASURY REGULATIONS. NO REPRESENTATION IS MADE THAT THE
MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT
ANY OTHER RATE. THE ACTUAL YIELD TO MATURITY MAY DIFFER FROM THAT SET FORTH
ABOVE, AND THE ACCRUAL OF OID WILL BE ADJUSTED, IN ACCORDANCE WITH SECTION
1272(a)(6) OF THE CODE, TO TAKE INTO ACCOUNT EVENTS WHICH HAVE OCCURRED DURING
ANY ACCRUAL PERIOD. THE PREPAYMENT ASSUMPTION IS INTENDED TO BE THE PREPAYMENT
ASSUMPTION REFERRED TO IN SECTION 1272(a)(6)(B)(iii) OF THE CODE.]
Certificate No. :
Cut-off Date :
First Distribution Date :
Initial Notional Amount
of this Certificate
("Denomination") :
Initial Notional Amount
of all Certificates
of this Class :
CUSIP :
1
<PAGE> 119
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates, Series 199 -
Class [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of conventional loans (the "Mortgage
Loans") secured by first liens on one- to four-family residential
properties
Morgan Stanley ABS Capital I Inc., as Depositor
This Certificate does not evidence an obligation of, or an interest in,
and is not guaranteed by the Depositor, the Seller, the Master Servicer or the
Trustee referred to below or any of their respective affiliates. Neither this
Certificate nor the Mortgage Loans are guaranteed or insured by any governmental
agency or instrumentality.
This certifies that ________________________ is the registered owner of
the Percentage Interest evidenced by this Certificate specified above in certain
monthly distributions with respect to a Trust Fund consisting primarily of the
Mortgage Loans deposited by Morgan Stanley ABS Capital I Inc. (the "Depositor").
The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated
as of Cut-off Date specified above (the "Agreement") among the Depositor,
________________________, as master servicer (in such capacity, the "Master
Servicer"), and _________________, as trustee (the "Trustee"). To the extent not
defined herein, the capitalized terms used herein have the meanings assigned in
the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
2
<PAGE> 120
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated:________________, 19__
____________________________,
as Trustee
By___________________________
Countersigned:
By____________________________
Authorized Signatory of
_____________________,
as Trustee
3
<PAGE> 121
EXHIBIT E
[Form of Reverse of Certificates]
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates
This Certificate is one of a duly authorized issue of Certificates
designated as Morgan Stanley ABS Capital I Inc. Asset Backed Certificates, of
the Series specified on the face hereof (herein collectively called the
"Certificates"), and representing a beneficial ownership interest in the Trust
Fund created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.
This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced thereby, and the rights,
duties and immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month or, if such 25th day is not a Business Day, the
Business Day immediately following (the "Distribution Date"), commencing on the
first Distribution Date specified on the face hereof, to the Person in whose
name this Certificate is registered at the close of business on the applicable
Record Date in an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount required to be distributed to
Holders of Certificates of the Class to which this Certificate belongs on such
Distribution Date pursuant to the Agreement. The Record Date applicable to each
Distribution Date is the last Business Day of the month next preceding the month
of such Distribution Date.
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor, the Master Servicer and the Trustee with the consent of the
Holders of Certificates affected by such amendment evidencing the requisite
Percentage Interest, as provided in the Agreement. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange therefor or in lieu hereof whether or not
1
<PAGE> 122
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the Corporate Trust Office or the office or agency maintained by the
Trustee in New York, New York, accompanied by a written instrument of transfer
in form satisfactory to the Trustee and the Certificate Registrar duly executed
by the holder hereof or such holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of the same Class in authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Depositor, the Master Servicer and the Trustee and any agent of the
Depositor or the Trustee may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Depositor, the
Trustee, nor any such agent shall be affected by any notice to the contrary.
On any Distribution Date on which the Pool Stated Principal Balance is
less than 10% of the aggregate Cut-off Date Principal Balances of the Mortgage
Loans, the Master Servicer will have the option to repurchase, in whole, from
the Trust Fund all remaining Mortgage Loans and all property acquired in respect
of the Mortgage Loans at a purchase price determined as provided in the
Agreement. In the event that no such optional termination occurs, the
obligations and responsibilities created by the Agreement will terminate upon
the later of the maturity or other liquidation (or any advance with respect
thereto) of the last Mortgage Loan remaining in the Trust Fund or the
disposition of all property in respect thereof and the distribution to
Certificateholders of all amounts required to be distributed pursuant to the
Agreement. In no event, however, will the trust created by the Agreement
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants living at the date of the Agreement of a certain person named
in the Agreement.
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
2
<PAGE> 123
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust Fund.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
Dated:
__________________________________________________________
Signature by or on behalf of assignor
3
<PAGE> 124
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to__________________________________________________
________________________________________________________________________________
for the account of_____________________________________________________________,
account number______________________, or, if mailed by check, to________.
Applicable statements should be mailed to
_______________________________________________________________________________,
_______________________________________________________________________________,
This information is provided by_________________________________, the
assignee named above, or__________________________________________, as its
agent.
4
<PAGE> 125
STATE OF )
) ss.:
COUNTY OF )
On the ____ day of ____________, 19__ before me, a notary public
in and for said State, personally appeared __________________, known to me who,
being by me duly sworn, did depose and say that he executed the foregoing
instrument.
___________________________________
Notary Public
[Notarial Seal]
5
<PAGE> 126
EXHIBIT F
[RESERVED]
1
<PAGE> 127
EXHIBIT G
FORM OF INITIAL CERTIFICATION OF TRUSTEE
[date]
[Depositor]
[Master Servicer]
[Seller]
Re: Pooling and Servicing Agreement among
Morgan Stanley ABS Capital I Inc., as Depositor, ____________
______________, as Master Servicer, and _________________, as
Trustee, Asset Backed Certificates, Series 199 -
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that, as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or listed on the
attached schedule) it has received:
(i) the original Mortgage Note endorsed in the following form: "Pay to
the order of __________, without recourse"; and
(ii) a duly executed assignment of the Mortgage (which may be included
in a blanket assignment or assignments).
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to such
Mortgage Loan.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Pooling and Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
1
<PAGE> 128
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
________________________,
Trustee
By:______________________
Name:
Title:
2
<PAGE> 129
EXHIBIT H
FORM OF FINAL CERTIFICATION OF TRUSTEE
[date]
[Depositor]
[Master Servicer]
[Seller]
__________________
__________________
Re: Pooling and Servicing Agreement among
Morgan Stanley ABS Capital I Inc., as Depositor, _____________
_________________, as Master Servicer, and
____________________, as Trustee, Asset Backed
Certificates, Series 199 -
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or listed on the
attached Document Exception Report) it has received:
(i) the original Mortgage Note endorsed in the form provided in
Section 2.01(b) of the Pooling and Servicing Agreement, with all intervening
endorsements showing a complete chain of endorsement from the originator to the
Seller.
(ii) The original recorded Mortgage.
(iii) A duly executed assignment of the Mortgage in the form
provided in Section 2.01(b) of the Pooling and Servicing Agreement, or, if the
Depositor has certified or the Trustee otherwise knows that the related Mortgage
has not been returned from the applicable recording office, a copy of the
assignment of the Mortgage (excluding information to be provided by the
recording office).
(iv) The original or duplicate original recorded assignment or
assignments of the Mortgage showing a complete chain of assignment from the
originator to the Seller.
(v) The original or duplicate original lender's title policy and
all riders thereto or, any one of an original title binder, an original
preliminary title report or an original title commitment, or a copy thereof
certified by the title company.
Based on its review and examination and only as to the foregoing
documents, (a) such documents appear regular on their face and related to such
Mortgage Loan, and (b) the information
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<PAGE> 130
set forth in items (i), (ii), (iii), (iv), (vi), and (xi) of the definition of
the "Mortgage Loan Schedule" in Section 1.01 of the Pooling and Servicing
Agreement accurately reflects information set forth in the Mortgage File.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Pooling and Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
_______________________________________,
as Trustee
By:_____________________________________
Name:
Title:
4
<PAGE> 131
EXHIBIT I
TRANSFER AFFIDAVIT
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates
Series 199 -_
STATE OF )
) ss.:
COUNTY OF )
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is an officer of ____________________, the proposed
Transferee of an Ownership Interest in a Class A-R Certificate (the
"Certificate") issued pursuant to the Pooling and Servicing Agreement, (the
"Agreement"), relating to the above-referenced Series, by and among Morgan
Stanley ABS Capital I Inc., as depositor (the "Depositor"),
___________________________, as master servicer and ___________________, as
Trustee. Capitalized terms used, but not defined herein or in Exhibit 1 hereto,
shall have the meanings ascribed to such terms in the Agreement. The Transferee
has authorized the undersigned to make this affidavit on behalf of the
Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the date
of the Transfer, a Permitted Transferee. The Transferee is acquiring its
Ownership Interest in the Certificate either (i) for its own account or (ii) as
nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the same form as this affidavit. The
Transferee has no knowledge that any such affidavit is false.
3. The Transferee has been advised of, and understands that (i) a tax
will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (ii) such tax will be imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability for
the tax if the subsequent Transferee furnished to such Person an affidavit that
such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.
4. The Transferee has been advised of, and understands that a tax will
be imposed on a "pass-through entity" holding the Certificate if at any time
during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that such tax will not be imposed for any period with
respect to which the record holder furnishes to the pass-through entity an
affidavit that such record holder is a Permitted Transferee and the pass-through
entity does not have actual knowledge that such affidavit is false. (For this
purpose, a "pass-through entity" includes a regulated investment company, a real
estate investment trust or common trust fund, a partnership, trust or estate,
and certain cooperatives and, except as may be provided in Treasury Regulations,
persons holding interests in pass-through entities as a nominee for another
Person.)
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<PAGE> 132
5. The Transferee has reviewed the provisions of Section 5.02(c) of the
Agreement (attached hereto as Exhibit 2 and incorporated herein by reference)
and understands the legal consequences of the acquisition of an Ownership
Interest in the Certificate including, without limitation, the restrictions on
subsequent Transfers and the provisions regarding voiding the Transfer and
mandatory sales. The Transferee expressly agrees to be bound by and to abide by
the provisions of Section 5.02(c) of the Agreement and the restrictions noted on
the face of the Certificate. The Transferee understands and agrees that any
breach of any of the representations included herein shall render the Transfer
to the Transferee contemplated hereby null and void.
6. The Transferee agrees to require a Transfer Affidavit from any Person
to whom the Transferee attempts to Transfer its Ownership Interest in the
Certificate, and in connection with any Transfer by a Person for whom the
Transferee is acting as nominee, trustee or agent, and the Transferee will not
Transfer its Ownership Interest or cause any Ownership Interest to be
Transferred to any Person that the Transferee knows is not a Permitted
Transferee. In connection with any such Transfer by the Transferee, the
Transferee agrees to deliver to the Trustee a certificate substantially in the
form set forth as Exhibit J to the Agreement (a "Transferor Certificate") to the
effect that such Transferee has no actual knowledge that the Person to which the
Transfer is to be made is not a Permitted Transferee.
7. The Transferee does not have the intention to impede the assessment
or collection of any tax legally required to be paid with respect to the
Certificate.
8. The Transferee's taxpayer identification number is ______.
9. The Transferee is a U.S. Person as defined in Code Section
7701(a)(30).
10. The Transferee is aware that the Certificate may be a "noneconomic
residual interest" within the meaning of proposed Treasury regulations
promulgated pursuant to the Code and that the transferor of a noneconomic
residual interest will remain liable for any taxes due with respect to the
income on such residual interest, unless no significant purpose of the transfer
was to impede the assessment or collection of tax.
11. The Transferee is not an employee benefit plan that is subject to
ERISA or a plan that is subject to Section 4975 of the Code, and the Transferee
is not acting on behalf of such a plan.
* * *
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this day of ____________, 19__.
________________________________
PRINT NAME OF TRANSFEREE
By:_____________________________
Name:
Title:
2
<PAGE> 133
[Corporate Seal]
ATTEST:
_____________________________________
[Assistant] Secretary
Personally appeared before me the above-named ___________________, known
or proved to me to be the same person who executed the foregoing instrument and
to be the ___________________ of the Transferee, and acknowledged that he
executed the same as his free act and deed and the free act and deed of the
Transferee.
Subscribed and sworn before me this _____ day of _________, 19__.
_____________________________
NOTARY PUBLIC
My Commission expires the __
day of ____________, 19__.
3
<PAGE> 134
EXHIBIT 1
to EXHIBIT I
Certain Definitions
"Ownership Interest": As to any Certificate, any ownership interest in
such Certificate, including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.
"Permitted Transferee": Any Person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in Code Section 521) which is
exempt from tax imposed by Chapter 1 of the Code (including the tax imposed by
Code Section 511 on unrelated business taxable income) on any excess inclusions
(as defined in Code Section 860E(c)(1)) with respect to any Class A-R
Certificate, (iv) rural electric and telephone cooperatives described in Code
Section 1381(a)(2)(c), (v) a Person that is not a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States, and (vi) any other Person so designated by the Trustee based upon
an Opinion of Counsel that the Transfer of an Ownership Interest in a Class A-R
Certificate to such Person may cause the Trust Fund to fail to qualify as a
REMIC at any time that certain Certificates are Outstanding. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in Code Section 7701 or successor provisions. A corporation will not be
treated as an instrumentality of the United States or of any State or political
subdivision thereof if all of its activities are subject to tax, and, with the
exception of the FHLMC, a majority of its board of directors is not selected by
such governmental unit.
"Person": Any individual, corporation, partnership, joint venture, bank,
joint stock company, trust (including any beneficiary thereof), unincorporated
organization or government or any agency or political subdivision thereof.
"Transfer": Any direct or indirect transfer or sale of any Ownership
Interest in a Certificate, including the acquisition of a Certificate by the
Depositor.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
4
<PAGE> 135
EXHIBIT 2
to EXHIBIT I
Section 5.02(c) of the Agreement
(c) Each Person who has or who acquires any Ownership Interest in
a Class A-R Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions, and
the rights of each Person acquiring any Ownership Interest in a Class A-R
Certificate are expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership
Interest in a Class A-R Certificate shall be a Permitted Transferee and
shall promptly notify the Trustee of any change or impending change in
its status as a Permitted Transferee.
(ii) No Ownership Interest in a Class A-R Certificate may
be registered on the Closing Date or thereafter transferred, and the
Trustee shall not register the Transfer of any Class A-R Certificate
unless, in addition to the certificates required to be delivered to the
Trustee under subparagraph (b) above, the Trustee shall have been
furnished with an affidavit (a "Transfer Affidavit") of the initial
owner or the proposed transferee in the form attached hereto as Exhibit
I.
(iii) Each Person holding or acquiring any Ownership
Interest in a Class A-R Certificate shall agree (A) to obtain a Transfer
Affidavit from any other Person to whom such Person attempts to Transfer
its Ownership Interest in a Class A-R Certificate, (B) to obtain a
Transfer Affidavit from any Person for whom such Person is acting as
nominee, trustee or agent in connection with any Transfer of a Class A-R
Certificate and (C) not to Transfer its Ownership Interest in a Class
A-R Certificate or to cause the Transfer of an Ownership Interest in a
Class A-R Certificate to any other Person if it has actual knowledge
that such Person is not a Permitted Transferee.
(iv) Any attempted or purported Transfer of any Ownership
Interest in a Class A-R Certificate in violation of the provisions of
this Section 5.02(c) shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported transferee shall
become a Holder of a Class A-R Certificate in violation of the
provisions of this Section 5.02(c), then the last preceding Permitted
Transferee shall be restored to all rights as Holder thereof retroactive
to the date of registration of Transfer of such Class A-R Certificate.
The Trustee shall be under no liability to any Person for any
registration of Transfer of a Class A-R Certificate that is in fact not
permitted by Section 5.02(b) and this Section 5.02(c) or for making any
payments due on such Certificate to the Holder thereof or taking any
other action with respect to such Holder under the provisions of this
Agreement so long as the Transfer was registered after receipt of the
related Transfer Affidavit, Transferor Certificate and either the Rule
144A Letter or the Investment Letter. The Trustee shall be entitled but
not obligated to recover from any Holder of a Class A-R Certificate that
was in fact not a Permitted Transferee at the time it became a Holder
or, at such subsequent time as it became other than a Permitted
Transferee, all payments made on such Class A-R Certificate at and after
either such time. Any such payments so recovered by the Trustee shall be
paid and delivered by the Trustee to the last preceding Permitted
Transferee of such Certificate.
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<PAGE> 136
(v) The Depositor shall use its best efforts to make
available, upon receipt of written request from the Trustee, all
information necessary to compute any tax imposed under Section 860E(e)
of the Code as a result of a Transfer of an Ownership Interest in a
Class A-R Certificate to any Holder who is not a Permitted Transferee.
6
<PAGE> 137
EXHIBIT J
FORM OF TRANSFEROR CERTIFICATE
_____________________________
Date
Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, New York 10036
Attention: _______________
[Trustee]
___________________________
___________________________
Attention: ____________________________
______________
Re: [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset
Backed Pass-Through Certificates,
Series 199 -_, Class_______,
Ladies and Gentlemen:
In connection with our disposition of the above Certificates we
certify that (a) we understand that the Certificates have not been registered
under the Securities Act of 1933, as amended (the "Act"), and are being disposed
by us in a transaction that is exempt from the registration requirements of the
Act, (b) we have not offered or sold any Certificates to, or solicited offers to
buy any Certificates from, any person, or otherwise approached or negotiated
with any person with respect thereto, in a manner that would be deemed, or taken
any other action which would result in, a violation of Section 5 of the Act and
(c) to the extent we are disposing of a Class A-R Certificate, we have no
knowledge the Transferee is not a Permitted Transferee.
Very truly yours,
______________________________________
Print Name of Transferor
By:___________________________________
Authorized Officer
7
<PAGE> 138
EXHIBIT K
FORM OF INVESTMENT LETTER (NON-RULE 144A)
_____________________________
Date
Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, New York 10036
Attention: ________________
[Trustee]
____________________________
____________________________
Attention: _______________________________
_______________
Re: [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset Backed
Pass-Through Certificates,
Series 199 -_, Class __
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we
certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or
arrangement, nor are we using the assets of any such plan or arrangement to
effect such acquisition, (e) we are acquiring the Certificates for investment
for our own account and not with a view to any distribution of such Certificates
(but without prejudice to our right at all times to sell or otherwise dispose of
the Certificates in accordance with clause (g) below), (f) we have not offered
or sold any Certificates to, or solicited offers to buy any Certificates from,
any person, or otherwise approached or negotiated with any person with respect
thereto, or taken any other action which would result in a violation of Section
5 of the Act, and (g) we will not sell, transfer or otherwise dispose of any
Certificates unless (1) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide
an opinion of
1
<PAGE> 139
counsel satisfactory to the addressees of this Certificate that such sale,
transfer or other disposition may be made pursuant to an exemption from the Act,
(2) the purchaser or transferee of such Certificate has executed and delivered
to you a certificate to substantially the same effect as this certificate, and
(3) the purchaser or transferee has otherwise complied with any conditions for
transfer set forth in the Pooling and Servicing Agreement.
Very truly yours,
______________________________________
Print Name of Transferee
By:___________________________________
Authorized Officer
2
<PAGE> 140
EXHIBIT L
FORM OF RULE 144A LETTER
_____________________________
Date
Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, New York 10036
Attention: ________________
[Trustee]
____________________________
____________________________
Attention: _______________________________
______________
Re: [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset Backed
Pass-Through Certificates,
Series 199 -_, Class __
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we
certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we have
such knowledge and experience in financial and business matters that we are
capable of evaluating the merits and risks of investments in the Certificates,
(c) we have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or
arrangement, nor are we using the assets of any such plan or arrangement to
effect such acquisition, (e) we have not, nor has anyone acting on our behalf
offered, transferred, pledged, sold or otherwise disposed of the Certificates,
any interest in the Certificates or any other similar security to, or solicited
any offer to buy or accept a transfer, pledge or other disposition of the
Certificates, any interest in the Certificates or any other similar security
from, or otherwise approached or negotiated with respect to the Certificates,
any interest in the Certificates or any other similar security with, any person
in any manner, or made any general solicitation by means of general advertising
or in any other manner, or taken any other action, that would constitute a
distribution of the Certificates under the Securities Act or that would render
the disposition of the Certificates a violation of Section 5 of the Securities
Act or require registration pursuant thereto, nor will act, nor has authorized
or will authorize any person to
3
<PAGE> 141
act, in such manner with respect to the Certificates, (f) we are a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act and have completed either of the forms of certification to that effect
attached hereto as Annex 1 or Annex 2. We are aware that the sale to us is being
made in reliance on Rule 144A. We are acquiring the Certificates for our own
account or for resale pursuant to Rule 144A and further, understand that such
Certificates may be resold, pledged or transferred only (i) to a person
reasonably believed to be a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom notice
is given that the resale, pledge or transfer is being made in reliance on Rule
144A, or (ii) pursuant to another exemption from registration under the
Securities Act.
4
<PAGE> 142
ANNEX 1 TO EXHIBIT L
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees Other Than Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because (i) the Buyer owned
and/or invested on a discretionary basis either at least $100,000 in securities
or, if Buyer is a dealer, Buyer must own and/or invest on a discretionary basis
at least $10,000,000 in securities (except for the excluded securities referred
to below) as of the end of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A and (ii) the Buyer satisfies the
criteria in the category marked below.
___ Corporation, etc. The Buyer is a corporation (other than a
bank, savings and loan association or similar
institution), Massachusetts or similar business trust,
partnership, or charitable organization described in
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended.
___ Bank. The Buyer (a) is a national bank or banking
institution organized under the laws of any State,
territory or the District of Columbia, the business of
which is substantially confined to banking and is
supervised by the State or territorial banking commission
or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.
___ Savings and Loan. The Buyer (a) is a savings and loan
association, building and loan association, cooperative
bank, homestead association or similar institution, which
is supervised and examined by a State or Federal authority
having supervision over any such institutions or is a
foreign savings and loan association or equivalent
institution and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.
___ Broker-dealer. The Buyer is a dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934.
___ Insurance Company. The Buyer is an insurance company whose
primary and predominant business activity is the writing
of insurance or the reinsuring of risks underwritten by
insurance companies and which is subject to supervision
5
<PAGE> 143
by the insurance commissioner or a similar official or
agency of a State, territory or the District of Columbia.
___ State or Local Plan. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.
___ ERISA Plan. The Buyer is an employee benefit plan within
the meaning of Title I of the Employee Retirement Income
Security Act of 1974.
___ Investment Advisor. The Buyer is an investment advisor
registered under the Investment Advisors Act of 1940.
___ Small Business Investment Company. Buyer is a small
business investment company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958.
___ Business Development Company. Buyer is a business
development company as defined in Section 202(a)(22) of
the Investment Advisors Act of 1940.
3. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) securities issued or guaranteed by the U.S. or any
instrumentality thereof, (iv) bank deposit notes and certificates of deposit,
(v) loan participations, (vi) repurchase agreements, (vii) securities owned but
subject to a repurchase agreement and (viii) currency, interest rate and
commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (i) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934, as
amended.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
6. Until the date of purchase of the Rule 144A Securities, the
Buyer will notify each of the parties to which this certification is made of any
changes in the information and conclusions herein. Until such notice is given,
the Buyer's purchase of the Certificates will constitute a reaffirmation of this
certification as of the date of such purchase. In addition, if the Buyer is a
bank
6
<PAGE> 144
or savings and loan is provided above, the Buyer agrees that it will furnish to
such parties updated annual financial statements promptly after they become
available.
_____________________________________
Print Name of Buyer
By:__________________________________
Name:
Title:
Date:________________________________
7
<PAGE> 145
ANNEX 2 TO EXHIBIT L
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees That are Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a
Family of Investment Companies (as defined below), is such an officer of the
Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, as amended and (ii) as marked below, the Buyer alone, or the Buyer's
Family of Investment Companies, owned at least $100,000,000 in securities (other
than the excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year. For purposes of determining the amount of securities
owned by the Buyer or the Buyer's Family of Investment Companies, the cost of
such securities was used, except (i) where the Buyer or the Buyer's Family of
Investment Companies reports its securities holdings in its financial statements
on the basis of their market value, and (ii) no current information with respect
to the cost of those securities has been published. If clause (ii) in the
preceding sentence applies, the securities may be valued at market.
___ The Buyer owned $_____ in securities (other than the
excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
___ The Buyer is part of a Family of Investment Companies
which owned in the aggregate $_____ in securities (other
than the excluded securities referred to below) as of the
end of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).
3. The term "Family of Investment Companies" as used herein means
two or more registered investment companies (or series thereof) that have the
same investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) securities issued or guaranteed by
the U.S. or any instrumentality thereof, (iii) bank deposit notes and
certificates of deposit, (iv) loan participations, (v) repurchase agreements,
(vi) securities owned but subject to a repurchase agreement and (vii) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates are relying and will continue to
8
<PAGE> 146
rely on the statements made herein because one or more sales to the Buyer will
be in reliance on Rule 144A. In addition, the Buyer will only purchase for the
Buyer's own account.
6. Until the date of purchase of the Certificates, the
undersigned will notify the parties listed in the Rule 144A Transferee
Certificate to which this certification relates of any changes in the
information and conclusions herein. Until such notice is given, the Buyer's
purchase of the Certificates will constitute a reaffirmation of this
certification by the undersigned as of the date of such purchase.
_______________________________________
Print Name of Buyer or Adviser
By:____________________________________
Name:
Title:
IF AN ADVISER:
_______________________________________
Print Name of Buyer
Date:__________________________________
9
<PAGE> 147
EXHIBIT M
REQUEST FOR RELEASE
(for Trustee)
Morgan Stanley ABS Capital I Inc.
Asset Backed Certificates
Series 199 -_
Loan Information
Name of Mortgagor: ______________________________
Servicer
Loan No.: ______________________________
Trustee
Name: ______________________________
Address: ______________________________
______________________________
Trustee ______________________________
Mortgage File No.: ______________________________
The undersigned Master Servicer hereby acknowledges that it has received
from _______________________, as Trustee (the "Trustee") for the Holders of
Asset Backed Certificates, of the above-referenced Series, the documents
referred to below (the "Documents"). All capitalized terms not otherwise defined
in this Request for Release shall have the meanings given them in the Pooling
and Servicing Agreement (the "Pooling and Servicing Agreement") relating to the
above-referenced Series among the Trustee, __________________________, as Master
Servicer and Morgan Stanley ABS Capital I Inc., as Depositor.
( ) Mortgage Note dated ____________, 19__, in the original principal sum
of $__________, made by __________________. payable to, or endorsed to
the order of, the Trustee.
( ) Mortgage recorded on _________________ as instrument no.
________________ in the County Recorder's Office of the County of
___________________, State of _______________ in book/reel/docket
________________ of official records at page/image ________________.
( ) Deed of Trust recorded on __________________ as instrument
no.__________________ in the County Recorder's Office of the County of
________________, State of _______________ in book/reel/docket
_______________ of official records at page/image ________________.
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( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on
_________________ as instrument no. _____________ in the County
Recorder's Office of the County of __________, State of ________________
in book/reel/docket _________________ of official records at page/image
_______________.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( ) _______________________________________________
( ) _______________________________________________
( ) _______________________________________________
( ) _______________________________________________
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession of the
Documents in trust for the benefit of the Trustee, solely for the
purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit the
Documents to become subject to, or encumbered by, any claim, liens,
security interest, charges, writs of attachment or other impositions nor
shall the Servicer assert or seek to assert any claims or rights of
setoff to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document
previously requested from the Mortgage File to the Trustee when the need
therefor no longer exists, unless the Mortgage Loan relating to the
Documents has been liquidated and the proceeds thereof have been
remitted to the Certificate Account and except as expressly provided in
the Agreement.
(4) The Documents and any proceeds thereof, including any
proceeds of proceeds, coming into the possession or control of the
Master Servicer shall at all times be earmarked for the account of the
Trustee, and the Master Servicer shall keep the Documents and any
proceeds separate and distinct from all other property in the Master
Servicer's possession, custody or control.
[MASTER SERVICER]
By___________________________
Its__________________________
Date:_________________, 19__
2
<PAGE> 149
EXHIBIT N
REQUEST FOR RELEASE OF DOCUMENTS
To: ____________________ Attn: _______________
___________
Re: The Pooling & Servicing Agreement dated ___________ __,
199_ among _______________________, as Master Servicer,
Morgan Stanley ABS Capital I Inc. and ____________________
as Trustee
Ladies and Gentlemen:
In connection with the administration of the Mortgage Loans held by you
as Trustee for Morgan Stanley ABS Capital I Inc., we request the release of the
Mortgage Loan File for the Mortgage Loan(s) described below, for the reason
indicated.
FT Account#: Pool #:
Mortgagor's Name, Address and Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)
1. Mortgage Loan paid in full (_______________________, Inc. hereby
certifies that all amounts have been received.)
2. Mortgage Loan Liquidated (___________________________ hereby
certifies that all proceeds of foreclosure, insurance, or other
liquidation have been finally received.)
3. Mortgage Loan in Foreclosure.
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<PAGE> 150
4. Other (explain):
If item 1 or 2 above is checked, and if all or part of the Mortgage File
was previously released to us, please release to us our previous receipt on file
with you, as well as any additional documents in your possession relating to the
above-specified Mortgage Loan. If item 3 or 4 is checked, upon return of all of
the above documents to you as Trustee, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
_____________________________
_____________________________
_____________________________
By:______________________________
Name:____________________________
Title:___________________________
Date:____________________________
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By:______________________________
Name:____________________________
Title:___________________________
Date:____________________________
2
<PAGE> 1
Exhibit 4.3
Subject to Completion
Morgan Stanley ABS Capital I Inc.
Company
and
[---------------------------------]
Master Servicer
and
[---------------------------------]
Trustee
---------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ______________________, 19____
---------------------------
Mortgage Loan Asset-Backed Pass-Through Certificates
Series 199__-__
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.01. Certain Defined Terms................................................................ 3
Section 1.02. Provisions of General Application.................................................... 33
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance Of Mortgage Loans; Priority And Subordination Of
Ownership Interests.................................................................. 34
Section 2.02. Possession Of Mortgage Files; Access To Mortgage Files............................... 36
Section 2.03. Delivery Of Mortgage Loan Documents And Certificate Insurance
Policy............................................................................... 36
Section 2.04. Acceptance By Trustee Of The Trust Fund; Certain Substitutions;
Certification By Trustee............................................................. 37
Section 2.05. Execution Of Certificates............................................................ 39
Section 2.06. Further Action Evidencing Assignments................................................ 39
Section 2.07. Reserved............................................................................. 40
Section 2.08. Conveyance Of The Subsequent Mortgage Loans.......................................... 40
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations of the Master Servicer.................................................. 42
Section 3.02. Representations, Warranties And Covenants Of The Company................................ 43
Section 3.03. Purchase And Substitution............................................................... 44
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates..................................................................... 45
Section 4.02. Registration Of Transfer And Exchange Of Certificates................................ 45
Section 4.03. Mutilated, Destroyed, Lost Or Stolen Certificates.................................... 50
Section 4.04. Persons Deemed Owners................................................................ 51
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.01. Appointment Of The Master Servicer................................................... 51
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 5.02. Subservicing Agreements Between The Master Servicer And
Subservicers......................................................................... 52
Section 5.03. Collection Of Certain Mortgage Loan Payments; Collection Account..................... 53
Section 5.04. Permitted Withdrawals From The Collection Account.................................... 55
Section 5.05. Payment Of Taxes, Insurance And Other Charges........................................ 56
Section 5.06. Maintenance Of Casualty Insurance.................................................... 56
Section 5.07. Maintenance Of Mortgage Impairment Insurance Policy.................................. 57
Section 5.08. Fidelity Bond; Errors And Omissions Policy........................................... 58
Section 5.09. Collection Of Taxes, Assessments And Other Items; Servicing
Account.............................................................................. 58
Section 5.10. Periodic Filings With The Securities And Exchange Commission;
Additional Information............................................................... 58
Section 5.11. Enforcement Of Due-On-Sale Clauses; Assumption Agreements............................ 59
Section 5.12. Realization Upon Defaulted Mortgage Loans............................................ 59
Section 5.13. Trustee To Cooperate; Release Of Mortgage Files...................................... 62
Section 5.14. Servicing Fee; Servicing Compensation................................................ 63
Section 5.15. Reports To The Trustee And The Company; Collection Account
Statements........................................................................... 63
Section 5.16. Annual Statement As To Compliance.................................................... 63
Section 5.17. Annual Independent Public Accountants' Servicing Report.............................. 64
Section 5.18. Optional Purchase Of Defaulted Mortgage Loans........................................ 64
Section 5.19. Reports To Be Provided By The Master Servicer........................................ 64
Section 5.20. Adjustment of Servicing Compensation in Respect of Prepaid Mortgage
Loans................................................................................ 65
Section 5.21. Periodic Advances.................................................................... 65
Section 5.22. Third Party Claims................................................................... 65
Section 5.23. Maintenance Of Corporate Existence And Licenses; Merger Or
Consolidation Of The Master Servicer................................................. 65
Section 5.24. Assignment Of Agreement By Master Servicer; Master Servicer Not To
Resign............................................................................... 66
Section 5.25. Information Reports To Be Filed By The Master Servicer............................... 66
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS
Section 6.01. Establishment Of Certificate Accounts; Deposits To The Certificate
Accounts............................................................................. 66
Section 6.02. Permitted Withdrawals From The Certificate Accounts.................................. 67
Section 6.03. Collection Of Money.................................................................. 67
Section 6.04. The Certificate Insurance Policy..................................................... 68
Section 6.05. Distributions........................................................................ 69
Section 6.06. Investment Of Accounts............................................................... 72
Section 6.07. Reports By Trustee................................................................... 72
Section 6.08. Additional Reports By Trustee........................................................ 75
Section 6.09. Compensating Interest................................................................ 75
Section 6.10. Effect Of Payments By The Certificate Insurer; Subrogation........................... 75
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 6.11. Allocation Of Liquidated Loan Losses................................................. 76
Section 6.12. Pre-Funding Accounts................................................................. 76
Section 6.13. Interest Coverage Accounts........................................................... 77
ARTICLE VII
DEFAULT
Section 7.01. Events Of Default.................................................................... 79
Section 7.02. Trustee To Act; Appointment Of Successor............................................. 80
Section 7.03. Waiver Of Defaults................................................................... 82
Section 7.04. Mortgage Loans, Trust Fund And Accounts Held For Benefit OF The
Certificate Insurer.................................................................. 82
ARTICLE VIII
TERMINATION
Section 8.01. Termination.......................................................................... 83
Section 8.02. Additional Termination Requirements.................................................. 84
Section 8.03. Accounting Upon Termination Of Master Servicer....................................... 85
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01. Duties Of Trustee.................................................................... 85
Section 9.02. Certain Matters Affecting The Trustee................................................ 87
Section 9.03. Trustee Not Liable For Certificates or Mortgage Loans................................ 88
Section 9.04. Trustee May Own Certificates......................................................... 88
Section 9.05. Payment Of Trustee's Fees............................................................ 88
Section 9.06. Eligibility Requirements For Trustee................................................. 89
Section 9.07. Resignation and Removal of The Trustee............................................... 89
Section 9.08. Successor Trustee.................................................................... 90
Section 9.09. Merger or Consolidation of Trustee................................................... 90
Section 9.10. Appointment Of Co-Trustee Or Separate Trustee........................................ 91
Section 9.11. Limitation of Liability.............................................................. 92
Section 9.12. Trustee May Enforce Claims Without Possession of Certificates........................ 92
Section 9.13. Suits For Enforcements............................................................... 92
Section 9.14. Waiver Of Inventory, Accounting And Appraisal Requirements........................... 92
ARTICLE X
REMIC PROVISIONS
Section 10.01. Remic Administration................................................................. 92
Section 10.02 Prohibited Transactions and ACTIVITIES............................................... 95
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 10.03. Master Servicer and Trustee Indemnification.......................................... 96
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Limitation on Liability of The Company and The Master Servicer....................... 96
Section 11.02. Acts of Certificateholders........................................................... 97
Section 11.03. Amendment............................................................................ 97
Section 11.04. Recordation of Agreement............................................................. 98
Section 11.05. Notices.............................................................................. 99
Section 11.06. Severability of Provisions........................................................... 99
Section 11.07. Counterparts......................................................................... 99
Section 11.08. Successors and Assigns............................................................... 99
Section 11.09. Headings............................................................................. 99
Section 11.10 Certificate Insurer Default.......................................................... 99
Section 11.11. Third Party Beneficiary.............................................................. 99
Section 11.12. Intent of the Parties................................................................100
Section 11.13. Notice to Rating Agencies and Certificateholder......................................100
Section 11.14. Governing Law........................................................................100
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A-1 Group I Certificate Insurance Policy
EXHIBIT A-2 Group II Certificate Insurance Policy
EXHIBIT B-1 Form of Class [A-1][A-2][A-3][A-4][I S][II S] Certificate
EXHIBIT B-2 Form of Class [R] Certificate
EXHIBIT C Mortgage File
EXHIBIT D-1 Mortgage Loan Schedule
EXHIBIT D-2 Mortgage Loan Schedule
EXHIBIT E Trustee's Acknowledgment of Receipt
EXHIBIT F Initial Certification of Trustee
EXHIBIT G Final Certification of the Trustee
EXHIBIT H Request for Release of Documents
EXHIBIT I Form of Transfer Affidavit and Agreement
EXHIBIT J Form of Transferor Certificate
EXHIBIT K
EXHIBIT L [RESERVED]
EXHIBIT M Certificate Re: Prepaid Loans
EXHIBIT N Subsequent Transfer Instrument
EXHIBIT O Form of Investor Representation Letter
EXHIBIT P Form of Transferor Representation Letter
EXHIBIT Q [Form of Rule 144A Investment Representation]
EXHIBIT R Premium Exhibit
EXHIBIT S Form of Erisa Representation Letter
</TABLE>
iv
<PAGE> 6
POOLING AND SERVICING AGREEMENT, dated as of
______________________, 19____ (the "Cut-off Date"), by and among Morgan Stanley
ABS Capital I Inc., a Delaware corporation, in its capacity as company (the
"Company"), [_________________________________], a ______________ corporation,
in its capacity as master servicer (the "Master Servicer"), and
[_________________________________], a ___________________________, in its
capacity as trustee (the "Trustee").
PRELIMINARY STATEMENT:
The Company intends to sell mortgage pass-through certificates
(collectively, the "Certificates"), to be issued hereunder in five classes
(each, a "Class"), which in the aggregate will evidence the entire beneficial
ownership interest in the Trust Fund (as defined herein), consisting primarily
of the Mortgage Loans, the Pre-Funding Accounts and the Interest Coverage
Accounts (each, as defined herein). As provided herein, the Trustee will make an
election to treat the Trust Fund (other than the Pre-Funding Accounts and the
Interest Coverage Accounts) as a real estate mortgage investment conduit (a
"REMIC") for federal income tax purposes. The Class A Certificates (as defined
herein) and Class S Certificates (as defined herein) will represent ownership of
"regular interests" in the REMIC, and the Class R Certificates will constitute
the sole Class of "residual interest" in the REMIC for purposes of the REMIC
Provisions (as defined herein) under federal income tax law.
The following table sets forth the designation, type,
aggregate Original Certificate Principal Balance (as defined herein), maturity
date, initial ratings and certain features for each Class of Certificates
comprising the interests in the Trust Fund created hereunder.
<TABLE>
<CAPTION>
AGGREGATE
DESIGNATION ORIGINAL
- ----------------------- CERTIFICATE
[DC]R [MOODY'S] TYPE PRINCIPAL BALANCE FEATURES MATURITY DATE [S&P]
- -------- ------------- --------------- ----------------------- --------------- --------------------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
The Group I Loans (as defined herein) have an aggregate
Principal Balance (as defined herein) as of the Cut-off Date equal to
$____________________. The Group II Loans (as defined herein) have an aggregate
Principal Balance as of the Cut-off Date equal to $_________________. The amount
deposited by the Company in the Pre-Funding Account on the Closing Date is
$__________________ for Loan Group I and $_________________________ for Loan
Group II.
In consideration of the mutual agreements herein contained,
the Company, the Master Servicer and the Trustee agree as follows:
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<PAGE> 7
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. Whenever used herein, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings.
"Accepted Servicing Practices": The Master Servicer's normal
servicing practices, which in general will conform to the mortgage servicing
practices of prudent mortgage lending institutions which service for their own
account mortgage loans of the same type as the Mortgage Loans in the
jurisdictions in which the related Mortgaged Properties are located.
"Account": Any Eligible Account established pursuant to
Sections 5.03, 5.09, 6.01, 6.04, 6.12 or 6.13 hereof.
"Accrual Period": With respect to (i) the Class A-1
Certificates, the "Accrual Period" is the period commencing on the Distribution
Date immediately preceding the month on which such Distribution Date occurs and
ending on the calendar day immediately preceding such Distribution Date, except
with respect to the first Distribution Date, which has an accrual period from
___________________, 199___ to _____________________, 199___ and (ii) with
respect to the Class A-2 Certificates, the "Accrual Period" is the previous
calendar month.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust Fund pursuant to Section 2.08 of this Agreement, a
notice, substantially in the form of Exhibit N, which shall be given not later
than two Business Days prior to the related Subsequent Transfer Date, of the
Company's designation of Subsequent Mortgage Loans to be sold to the Trust Fund
and the aggregate principal balance as of the Subsequent Cut-off Date of such
Subsequent Mortgage Loans.
"Affiliate": With respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement": This Pooling and Servicing Agreement, including
the Exhibits, and all amendments and supplements.
"Amortized Group I Subordinated Amount Requirement": As of any
Distribution Date, the product of (i) ________% and (ii) the aggregate
outstanding Group I Certificate Principal Balance immediately preceding such
Distribution Date.
"Amortized Group II Subordinated Amount Requirement": As of
any Distribution Date, the product of (i) ________% and (ii) the aggregate
outstanding Group II Certificate Principal Balance immediately preceding such
Distribution Date.
"Appraised Value": As to any Mortgaged Property, the lesser of
(i) the appraised value of such Mortgaged Property based upon the appraisal made
at the time of the origination of the related Mortgage Loan, and (ii) the sales
price of the Mortgaged Property at such time of origination, except in the case
of a Mortgaged Property securing a refinanced or modified Mortgage Loan as to
which it is the
2
<PAGE> 8
lesser of the appraised value determined above or the appraised value determined
in an appraisal at the time of refinancing or modification, as the case may be.
"Assignment Of Mortgage": With respect to each Mortgage Loan,
an assignment of the Mortgage, notice of transfer or equivalent instrument, in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the sale of the
Mortgage to the Trustee for the benefit of the Certificateholders.
"Authorized Denominations": With respect to each class of
Class A Certificates, the minimum Percentage Interest corresponding to a minimum
denomination of [$25,000] and integral multiples of $[1] in excess thereof. With
respect to each class of Class S Certificates and Class R Certificates, a
minimum Percentage Interest of ________% and integral multiples of _______% in
excess thereof.
"Available Funds Shortfall": With respect to the Group I Loans
and any Distribution Date, an amount equal to the sum of (a) the Group I Class A
Interest Distribution Amount minus the Group I Available Funds for such
Distribution Date and (b) the Group I Subordination Deficit. With respect to the
Group II Loans and any Distribution Date, an amount equal to the sum of (a) the
Group II Class A Interest Distribution Amount minus the Group II Available Funds
for such Distribution Date and (b) the Group II Subordination Deficit.
"Balloon Mortgage Loan": Any Mortgage Loan that provided on
the date of origination for an amortization schedule extending beyond its stated
maturity date.
"Balloon Payment": With respect to any Balloon Mortgage Loan,
as of any date of determination, the Monthly Payment payable on the stated
maturity date of such Mortgage Loan.
"Business Day": Any day other than (a) a Saturday or Sunday,
or (b) a day on which banking institutions in the State of Delaware, the State
of New York or the state where the Trustee's corporate trust office is located
are authorized or obligated by law or executive order to be closed.
"Certificate": Any Class A Certificate, Class S Certificate or
Class R Certificate executed by the Trustee on behalf of the Trust Fund and
authenticated by the Trustee.
"Certificate Account": The Group I Certificate Account or the
Group II Certificate Account, as applicable.
"Certificateholder or Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that, neither a
Disqualified Organization nor a Non-United States Person shall be a Holder of a
Class R Certificate for any purposes hereof and, solely for the purposes of
giving any consent (except any consent required to be obtained pursuant to
Section 11.03), waiver, request or demand pursuant to this Agreement, any
Certificate registered in the name of the Company or the Master Servicer or any
Affiliate thereof shall be deemed not to be outstanding and the rights to which
it is entitled shall not be taken into account in determining whether the
requisite percentage of rights necessary to effect any such consent has been
obtained, except as otherwise provided in Section 11.03. The Trustee shall be
entitled to rely upon a certification of the Company or the Master Servicer in
determining if any Certificates are registered in the name of a respective
Affiliate. Any Certificates on which payments are made under the Certificate
Insurance Policy shall be deemed to be outstanding and held by the Certificate
Insurer to the extent of such payment.
3
<PAGE> 9
"Certificate Insurance Payments Account": The Certificate
Insurance Payments Account established in accordance with Section 6.04(c) hereof
and maintained by the Trustee.
"Certificate Insurance Policy": As the context requires,
either (i) the Group I Certificate Insurance Policy and the Group II Certificate
Insurance Policy together or (ii) the Group I Certificate Insurance Policy or
the Group II Certificate Insurance Policy, as applicable.
"Certificate Insurer": __________________________, a stock
insurance company organized and created under the laws of the State of
_______________, and any successors thereto.
"Certificate Insurer Default": The failure by the Certificate
Insurer to make a payment required under any one of the Group I or Group II
Certificate Insurance Policies in accordance with its terms.
"Certificate Principal Balance": With respect to each class of
Class A Certificates, as determined separately, as of any time of determination,
the related Original Certificate Principal Balance less any amounts distributed
in reduction of the Certificate Principal Balance thereof pursuant to Section
6.05 on all prior Distribution Dates. With respect to each class of Class S
Certificates, as determined separately, as of any date of determination, the
related Original Certificate Principal Balance, plus the portion of the related
Class S Interest Distribution Amount added to the Certificate Principal Balance
thereof on each Distribution Date prior to such date pursuant to Section 6.05
less any amounts distributed in reduction of the Certificate Principal Balance
thereof pursuant to Section 6.05 on all prior Distribution Dates and less any
losses allocated thereto pursuant to Section 6.11. The Class R Certificates do
not have a "Certificate Principal Balance".
"Certificate Register": As described in Section 4.02(a).
"Civil Relief Act": The Soldiers' and Sailors' Civil Relief
Act of 1940, as amended.
"Civil Relief Act Interest Shortfall": With respect to any
Distribution Date, for any Mortgage Loan as to which there has been a reduction
in the amount of interest collectible thereon for the most recently ended Due
Period as a result of the application of the Civil Relief Act, the amount, if
any, by which (a) interest collectible on such Mortgage Loan during the most
recently ended calendar month is less than (b) interest accrued for the related
Accrual Period on the Principal Balance of such Mortgage Loan, calculated at a
rate equal to the sum of (A)(1) with respect to a Group I Loan, the Group I
Class A Pass-Through Rate on the Class A-1 Certificates or (2) with respect to a
Group II Loan, the weighted average of the Group II Class A Pass-Through Rates
on the Class A-2 Certificates, weighted on the basis of the Certificate
Principal Balances of such Certificates, in each case for such Distribution Date
and (B) the per annum rates at which the related Servicing Fee and Trustee Fee
accrue and the related Premium Percentage.
"Class A Certificate": Any of the Class A-1 Certificates or
Class A-2 Certificates.
"Class A Certificateholder": A Holder of a Class A
Certificate.
"Class A-1 Certificate": Any Certificate designated as a
"Class A-1 Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions and primarily evidencing an
interest in Loan Group I.
4
<PAGE> 10
"Class A-2 Certificate": Any Certificate designated as a
"Class A-2 Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions and primarily evidencing an
interest in Loan Group II.
"Class I S Certificate": Any Certificate designated as a
"Class I S Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions and primarily evidencing an
interest in Loan Group I.
"Class II S Certificate": Any Certificate designated as a
"Class II S Certificate" on the face thereof, in the form of Exhibit B-1 hereto,
and authenticated by the Trustee in accordance with the procedures set forth
herein and evidencing an interest designated as a "regular interest" in the
REMIC for the purposes of the REMIC Provisions and primarily evidencing an
interest in Loan Group II.
"Class R Certificate": Any one of the Class R Certificates
executed by the Trustee and authenticated by the Trustee substantially in the
form annexed hereto as Exhibit B-2, subordinate to the Class A Certificates in
right of payment to the extent set forth herein and evidencing an interest
designated as a "residual interest" in the REMIC for purposes of the REMIC
Provisions.
"Class R Certificateholder": A Holder of a Class R
Certificate.
"Class S Certificate": Any of the Class I S or Class II S
Certificates.
"Class S Certificateholder": A Holder of a Class S
Certificate.
"Class S Interest Distribution Amount": With respect to each
class of Class S Certificates for any Distribution Date, the aggregate amount of
interest accrued for the related Accrual Period on the related Notional Amount
immediately prior to such Distribution Date at the related Class S Pass-Through
Rate (based on a 360-day year and the actual number of days in the prior
calendar month in the case of the Class I S Certificates and a 360-day year and
a 30-day month in the case of the Class II S Certificates).
"Class S Pass-Through Rate": With respect to the Class I S
Certificates and any Distribution Date, a rate equal to the weighted average,
expressed as a percentage, of the related Pool Strip Rates of all of the Group I
Loans in the Trust Fund as of the Due Date in the month immediately preceding
the month in which such Distribution Date occurs, weighted on the basis of the
respective Principal Balances of such Mortgage Loans at the beginning of the
related Due Period. With respect to the Class II S Certificates and any
Distribution Date, a rate equal to the weighted average, expressed as a
percentage, of the related Pool Strip Rates of all of the Group II Loans in the
Trust Fund as of the Due Date in the month immediately preceding the month in
which such Distribution Date occurs, weighted on the basis of the respective
Principal Balances of such Mortgage Loans at the beginning of the related Due
Period.
"Closing Date": _________________, 199___.
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Account": The Eligible Account established and
maintained by the Master Servicer pursuant to Section 5.03.
5
<PAGE> 11
"Combined Loan-to-Value Ratio": With respect to any Mortgage
Loan secured by a second lien on the related Mortgaged Property, as of any date,
the fraction, expressed as a percentage, the numerator of which is the sum of
(i) the original principal balance of such Mortgage Loan and (ii) the original
aggregate principal balance of the related Senior Mortgage Loans (if any) at the
date of determination, and the denominator of which is the Appraised Value of
the related Mortgaged Property.
"Commission": The Securities and Exchange Commission.
"Company": [Morgan Stanley ABS Capital I Inc.], a Delaware
corporation, and any successor thereto.
"Compensating Interest": As defined in Section 6.09 hereof.
"Curtailment": With respect to a Mortgage Loan, any payment of
principal received during a Due Period as part of a payment that is in excess of
the amount of the Monthly Payment due for such Due Period and which is not
intended to satisfy the Mortgage Loan in full, nor is intended to cure a
delinquency.
"Custodian": As defined in Section 2.02(c).
"Cut-off Date": ______________________, 19____.
["DCR": Duff & Phelps Credit Rating Co., or its successor in
interest.]
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan in a proceeding under the United States Bankruptcy Code,
except such a reduction that constitutes a Deficient Valuation or a permanent
forgiveness of principal.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the United
States Bankruptcy Code.
"Deleted Mortgage Loan": A Mortgage Loan replaced by or to be
replaced by a Qualified Substitute Mortgage Loan.
"Delinquent": A Mortgage Loan is "delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Depository": The Depository Trust Company, 55 Water Street,
New York, New York 10041 and any successor Depository hereafter named. The
nominee of the initial Depository for purposes of registering those Certificates
that are to be book-entry Certificates is Cede & Co. The Depository shall at all
times be a "clearing corporation" as defined in Section 8-102(3) of the Uniform
Commercial Code
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<PAGE> 12
of the State of New York and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
"Direct Participant": Any broker-dealer, bank or other
financial institution for which the Depository holds Class A Certificates from
time to time as a securities depositary.
"Disqualified Organization": Any of (i) the United States, any
State or political subdivision thereof, any possession of the United States, or
any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (unless such organization is subject to the tax imposed by
Section 511 of the Code on unrelated business taxable income), or rural electric
and telephone cooperatives described in Section 1381(a)(2)(C) of the Code and
(iv) any other Person so designated by the Trustee based upon an Opinion of
Counsel provided to the Trustee that the holding of an ownership interest in a
Class R Certificate by such Person may cause the REMIC or any Person having an
ownership interest in any Class of Certificates (other than such Person) to
incur liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the transfer of an ownership interest in the Class
R Certificate to such Person. The terms "United States," "State" and
"international organization" shall have the meanings set forth in Section 7701
of the Code.
"Distribution Date": The 25th day of any month or if such 25th
day is not a Business Day, the first Business Day immediately following,
commencing on ______________, 199___.
"Due Date": The first day of each calendar month.
"Due Period": With respect to each Distribution Date, the
period beginning on the opening of business on the second day of the calendar
month preceding the calendar month in which such Distribution Date occurs, and
ending at the close of business on the first day of the calendar month in which
such Distribution Date occurs.
"Eligible Account": Either (a) an account or accounts
maintained with an institution (which may include the Trustee, provided such
institution otherwise meets these requirements) whose deposits are insured by
the FDIC, the unsecured and uncollateralized debt obligations of which
institution shall be rated [AA] or better by [S&P] and [DCR] and [Aa2] or better
by [Moody's] and in the highest short term rating by the Rating Agencies, and
which is (i) a federal savings and loan association duly organized, validly
existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association
(including the Trustee) duly organized, validly existing and in good standing
under the federal banking laws, (iv) a principal subsidiary of a bank holding
company, or (v) approved in writing by the Certificate Insurer and the Rating
Agencies or (B) a trust account or accounts maintained with the corporate trust
department of a federal or state chartered depository institution acceptable to
each Rating Agency and the Certificate Insurer (the Trustee shall be deemed
acceptable, provided that the Trustee otherwise meets these requirements),
having capital and surplus of not less than $50,000,000, acting in its fiduciary
capacity.
"ERISA": As defined in Section 4.02(m) hereof.
"Event of Default": One or more of the events described in
Section 7.01 hereof.
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<PAGE> 13
"FDIC": The Federal Deposit Insurance Corporation and any
successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation and any
successor thereto.
"FNMA": Federal National Mortgage Association and any
successor thereto.
"Foreclosure Profits": As to any Distribution Date, (i) Net
Liquidation Proceeds in respect of each Mortgage Loan that became a Liquidated
Mortgage Loan during the month immediately preceding the month of such
Distribution Date minus (ii) the sum of the unpaid principal balance of each
such Liquidated Mortgage Loan plus accrued and unpaid interest at the applicable
Mortgage Interest Rate on the unpaid principal balance thereof from the Due Date
to which interest was last paid by the Mortgagor (or, in the case of a
Liquidated Mortgage Loan that had been an REO Mortgage Loan, from the Due Date
to which interest was last deemed to have been paid pursuant to Section 5.12) to
the first day of the month following the month in which such Mortgage Loan
became a Liquidated Mortgage Loan.
"Funding Period": As determined separately for Loan Group I
and Loan Group II, the period beginning on the Closing Date and ending on the
earlier of the date on which (a) the amount on deposit in the related
Pre-Funding Account is less than $________________ or (b) the close of business
on ___________________, 199___.
"GAAP": Generally accepted accounting principles.
"Gross Margin": As to each Group I Loan, the fixed percentage
set forth in the related Mortgage Note and indicated in the related Mortgage
Loan Schedules as the "Gross Margin," which percentage is added to the related
Index on each Rate Adjustment Date to determine (subject to rounding, the
Periodic Cap, Lifetime Floor and the Lifetime Cap) the Mortgage Interest Rate on
such Mortgage Loan until the next Rate Adjustment Date.
"Group I Available Funds": As defined in Section 6.04(a).
"Group II Available Funds": As defined in Section 6.04(a).
"Group I Certificate Account": The Certificate Account
established with respect to the Group I Certificates in accordance with Section
6.01(a) hereof and maintained by the Trustee.
"Group II Certificate Account": The Certificate Account
established with respect to the Group II Certificates in accordance with Section
6.01(a) hereof and maintained by the Trustee.
"Group I Certificate Insurance Policy": The certificate
guaranty insurance policy No. _____, and all endorsements thereto dated the
Closing Date, issued by the Certificate Insurer for the benefit of the Group I
Certificateholders, a copy of which is attached hereto as Exhibit A-1.
"Group II Certificate Insurance Policy": The certificate
guaranty insurance policy No. _____, and all endorsements thereto dated the
Closing Date, issued by the Certificate Insurer for the benefit of the Group II
Certificateholders, a copy of which is attached hereto as Exhibit A-2.
"Group I Certificates": Collectively, the Class A-1
Certificates, the Class I S Certificates and the Class R Certificates.
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<PAGE> 14
"Group II Certificates": Collectively, the Class A-2
Certificates, the Class II S Certificates and the Class R Certificates.
"Group I Class A Available Funds Cap Carry-Forward Amount": As
of any Distribution Date, an amount equal to (x) the sum of (i) the excess, if
any, of (a) the aggregate amount of interest due on the Class A Certificates on
each Distribution Date, calculated at the Group I Class A Formula Pass-Through
Rate applicable to each such Distribution Date over (b) the aggregate amount of
interest due on the Class A-1 Certificates on such Distribution Dates,
calculated at the Group I Class A Pass-Through Rate applicable to each such
Distribution Date, and (ii) the interest accrued during the prior Accrual Period
on the amount of any Group I Class A Available Funds Cap Carry-Forward Amount
immediately prior to such Distribution Date, calculated on the basis of a
360-day year and the actual number of days elapsed and using the Group I Class A
Formula Pass-Through Rate applicable to such Distribution Date minus (y) the
aggregate of all amounts distributed to the Class A-1 Certificateholders on all
prior Distribution Dates pursuant to Section 6.05(b)(ix) hereof.
"Group I Class A Available Funds Pass-Through Rate": As of any
Distribution Date, the per annum rate equal to (i) the weighted average of the
Mortgage Interest Rates of the Group I Loans, minus (ii) the sum of the rates
per annum used to determine the Servicing Fee, the Trustee Fee and the Premium
Percentage and minus (iii) commencing on the seventh Distribution Date, ____%
per annum.
"Group II Class A Available Funds Pass-Through Rate": As of
any Distribution Date, the per annum rate equal to (i) the weighted average of
the Mortgage Interest Rates of the Group II Loans, minus (ii) the sum of the
rates per annum used to determine the Servicing Fee, the Trustee Fee and the
Premium Percentage.
"Group I Class A Carry-Forward Amount": As of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Group I Insured
Distribution Amount as of the immediately preceding Distribution Date exceeded
(ii) the amount actually distributed to the Holders of the Class A-1
Certificates on such Distribution Date in respect thereof (including, without
limitation, any Insured Payments paid to the Holders of the Class A-1
Certificates by the Certificate Insurer as described in Sections 6.04 and 6.05
hereof) and (b) interest accrued for the related Accrual Period on the amount
described in clause (a), calculated at an interest rate equal to the Group I
Class A Pass-Through Rate on the Class A-1 Certificates applicable to such
Distribution Date. Any Group I Class A Carry-Forward Amount shall be deemed to
be allocated first to any related Group I Subordination Deficit and second to
any related Group I Class A Interest Distribution Amount.
"Group II Class A Carry-Forward Amount": As of any
Distribution Date, the sum of (a) the amount, if any, by which (i) the Group II
Insured Distribution Amount as of the immediately preceding Distribution Date
exceeded (ii) the amount actually distributed to the Holders of the Class A-2
Certificates on such Distribution Date in respect thereof (including, without
limitation, any Insured Payments paid to the Holders of the Class A-2
Certificates by the Certificate Insurer as described in Sections 6.04 and 6.05
hereof) and (b) interest accrued for the related Accrual Period on the amount
described in clause (a), calculated at an interest rate equal to the weighted
average of the Group II Class A Pass-Through Rate applicable to such
Distribution Date, weighted on the basis of the Certificate Principal Balances
of such Certificates. Any Group II Class A Carry-Forward Amount shall be deemed
to be allocated first to any related Group II Subordination Deficit and second
to any related Group II Class A Interest Distribution Amount.
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<PAGE> 15
"Group I Class A Formula Pass-Through Rate": As of any
Distribution Date, is the lesser of (x) the rate described in clause (i) of the
definition of "Group I Class A Pass-Through Rate" for such Distribution Date and
(y) the weighted average of the Net Lifetime Caps of the Group I Loans.
"Group I Class A Interest Distribution Amount": With respect
to the Class A-1 Certificates for any Distribution Date the sum of (i) (a) the
aggregate amount of interest accrued for the related Accrual Period on the
related Certificate Principal Balance immediately prior to such Distribution
Date at the related Group I Class A Pass-Through Rate (based on a 360-day year
and the actual number of days in the prior calendar month if clause (i) of the
definition of Group I Class A Pass-Through Rate is used with respect to such
Distribution Date, or a 360-day year and a 30-day month if clause (ii) of the
definition of Group I Class A Pass-Through Rate is used with respect to such
Distribution Date) minus (b) the aggregate related Mortgage Loan Interest
Shortfall for such Distribution Date and (ii) the portion of any related Group I
Class A Carry-Forward Amount which relates to a shortfall (other than a related
Mortgage Loan Interest Shortfall) in a distribution of a Group I Class A
Interest Distribution Amount in respect of such Class A-1 Certificates, in each
case as of such Distribution Date.
"Group II Class A Interest Distribution Amount": With respect
to the Class A-2 Certificates for any Distribution Date, the sum of (i) (a) the
aggregate amount of interest accrued for the related Accrual Period on the
related Certificate Principal Balance immediately prior to such Distribution
Date at the related Class A Pass-Through Rate, based on 360-day year and a
30-day month minus (b) the aggregate related Mortgage Loan Interest Shortfall
for such Distribution Date and (ii) the portion of any related Group II Class A
Carry-Forward Amount which relates to a shortfall (other than a related Mortgage
Loan Interest Shortfall) in a distribution of a Group II Class A Interest
Distribution Amount in respect of such Class A-2 Certificates, as of such
Distribution Date.
"Group I Class A Pass-Through Rate": With respect to the Class
A-1 Certificates, for each Distribution Date, the per annum rate equal to the
lesser of:
(i) with respect to (a) any Distribution Date which
occurs on or prior to the date on which the Pool
Principal Balance is less than ___% of the Original
Pool Principal Balance, One-Month LIBOR plus
_________% or (b) any Distribution Date thereafter
One-Month LIBOR plus ______%; and
(ii) the Group I Class A Available Funds Pass-Through Rate
for such Distribution Date.
"Group II Class A Pass-Through Rate": With respect to the
Class A-2 Certificates, for each Distribution Date, the per annum rate equal
with respect to (a) any Distribution Date which occurs on or prior to the date
on which the Pool Principal Balance is less than ______% of the Original Pool
Principal Balance, ________%, or (b) any Distribution Date thereafter, _______%.
"Group I Class A Principal Distribution Amount": With respect
to the Group I Certificates for any Distribution Date, the lesser of:
(a) the excess of (i) the sum, as of such Distribution Date, of
(A) the Group I Available Funds and (B) any related Insured
Payment over (ii) the Group I Class A Interest Distribution
Amount; and
(b) the sum, without duplication, of:
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<PAGE> 16
(i) the portion of any Group I Class A Carry-Forward
Amount which relates to a shortfall in a distribution
of a Group I Subordination Deficit,
(ii) all scheduled installments of principal in respect of
the Group I Loans received or advanced during the
related Due Period, together with all unscheduled
recoveries of principal in respect of the Group I
Loans received by the Master Servicer during the
prior calendar month,
(iii) the Principal Balance of each Group I Loan that was
repurchased by the Seller, by an Affiliate of the
Seller or by the Company,
(iv) any Substitution Adjustments delivered by the Company
on the related Master Servicer Remittance Date in
connection with a substitution of a Group I Loan,
(v) the Net Liquidation Proceeds collected by the Master
Servicer of all Group I Loans during the related Due
Period (to the extent such Net Liquidation Proceeds
related to principal),
(vi) the amount of any Group I Subordination Deficit for
such Distribution Date,
(vii) the proceeds received by the Trustee with respect to
the Group I Loans from any termination of the Trust
Fund (to the extent such proceeds are related to
principal),
(viii) the amount of any Group I Subordination Increase
Amount for such Distribution Date, and
(ix) with respect to the Distribution Date occurring in
________________, 199___, any amounts in the Group I
Pre-Funding Account after giving effect to any
purchase of related Subsequent Mortgage Loans;
MINUS
(x) the amount of any Group I Subordination Reduction
Amount for such Distribution Date.
"Group II Class A Principal Distribution Amount": With respect
to the Class A-2 Certificates for any Distribution Date, the lesser of:
(a) the excess of (i) the sum, as of such Distribution Date, of
(a) the Group II Available Funds and (B) any related Insured
Payment over (ii) the Group II Class A Interest Distribution
Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Group II Class A Carry-Forward
Amount which relates to a shortfall in a distribution
of a Group II Subordination Deficit,
(ii) all scheduled installments of principal in respect of
the Group II Loans received or advanced during the
related Due Period, together with all unscheduled
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<PAGE> 17
recoveries of principal in respect of the Group II
Loans received by the Master Servicer during the
prior calendar month,
(iii) the Principal Balance of each Group II Loan that
either was repurchased by the Seller, by an Affiliate
of the Seller or by the Company,
(iv) any Substitution Adjustments delivered by the Company
on the related Master Servicer Remittance Date in
connection with a substitution of a Group II Loan,
(v) the Net Liquidation Proceeds collected by the Master
Servicer of all Group II Loans during the related Due
Period (to the extent such Net Liquidation Proceeds
related to principal),
(vi) the amount of any Group II Subordination Deficit for
such Distribution Date,
(vii) the proceeds received by the Trustee with respect to
the Group II Loans of any termination of the Trust
Fund (to the extent such proceeds are related to
principal),
(viii) the amount of any Group II Subordination Increase
Amount for such Distribution Date, and
(ix) with respect to the Distribution Date occurring in
_________________, 199___, any amounts in the Group
II Pre-Funding Account after giving effect to any
purchase of related Subsequent Mortgage Loans;
MINUS
(x) the amount of any Group II Subordination Reduction
Amount for such Distribution Date.
"Group I Excess Subordinated Amount": With respect to any
Distribution Date, the difference, if any, between (a) the Group I Subordinated
Amount that would exist on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (exclusive of any reductions
thereto attributable to Group I Subordination Reduction Amounts on such
Distribution Date) and (b) the Group I Required Subordinated Amount for such
Distribution Date.
"Group II Excess Subordinated Amount": With respect to any
Distribution Date, the difference, if any, between (a) the Group II Subordinated
Amount that would exist on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (exclusive of any reductions
thereto attributable to Group II Subordination Reduction Amounts on such
Distribution Date) and (b) the Group II Required Subordinated Amount for such
Distribution Date.
"Group I Insured Distribution Amount": With respect to any
Distribution Date, the sum of (a) the Group I Class A Interest Distribution
Amount with respect to such Distribution Date and (b) the Group I Subordination
Deficit, if any, as of such Distribution Date.
"Group II Insured Distribution Amount": With respect to any
Distribution Date, the sum of (a) the Group II Class A Interest Distribution
Amount with respect to such Distribution Date and (b) the Group II Subordination
Deficit, if any, as of such Distribution Date.
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<PAGE> 18
"Group I Interest Coverage Account": With respect to Loan
Group I, the Account established and maintained pursuant to Section 6.13, which
must be an Eligible Account.
"Group II Interest Coverage Account": With respect to Loan
Group II, the Account established and maintained pursuant to Section 6.13, which
must be an Eligible Account.
"Group I Loans" or "Loan Group I": The group of Mortgage Loans
identified on Exhibit D-1 from time to time.
"Group II Loans" or "Loan Group II": The group of Mortgage
Loans identified on Exhibit D-2 from time to time.
"Group I Net Monthly Excess Cashflow": As of any Distribution
Date, an amount equal to (x) the Group I Available Funds minus (y) the sum of
(i) sum of the Group I Class A Interest Distribution Amount and the amount
described in clause (b) of the definition of Group I Class A Principal
Distribution Amount (calculated for this purpose without regard to any Group I
Subordination Increase Amount, Group I Subordination Reduction Amount or portion
thereof included therein) and (ii) the Group I Reimbursement Amount, if any, for
such Distribution Date.
"Group II Net Monthly Excess Cashflow": As of any Distribution
Date, an amount equal to (x) the Group II Available Funds minus (y) the sum of
(i) the sum of the Group II Class A Interest Distribution Amount and the amount
described in clause (b) of the definition of Group II Class A Principal
Distribution Amount (calculated for this purpose without regard to any Group II
Subordination Increase Amount, Group II Subordination Increase Amount or portion
thereof included therein) and (ii) the Group II Reimbursement Amount, if any,
for such Distribution Date.
"Group I Pool Principal Balance": The sum of the aggregate
Principal Balances of the Group I Loans in the Trust Fund and the Group I
Pre-Funded Amount as of any date of determination.
"Group II Pool Principal Balance": The sum of the aggregate
Principal Balances of the Group II Loans in the Trust Fund and the Group II
Pre-Funded Amount as of any date of determination.
"Group I Pre-Funded Amount": With respect to any date of
determination, the amount on deposit in the Group I Pre-Funding Account.
"Group II Pre-Funded Amount": With respect to any date of
determination, the amount on deposit in the Group II Pre-Funding Account.
"Group I Pre-Funding Account": The account established and
maintained pursuant to Section 6.12 as defined therein.
"Group II Pre-Funding Account": The account established and
maintained pursuant to Section 6.12 as defined therein.
"Group I Principal Remittance Amount": As of any Distribution
Date, the sum, without duplication of the amounts specified in clauses (b)(ii)
through (v), (vii) and (viii) of the definition of Group I Class A Principal
Distribution Amount.
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<PAGE> 19
"Group II Principal Remittance Amount": As of any Distribution
Date, the sum, without duplication of the amounts specified in clauses (b)(ii)
through (v), (vii) and (viii) of the definition of Group II Class A Principal
Distribution Amount.
["Group I Reimbursement Amount": As of any Distribution Date,
the sum of (a)(i) all Group I Insured Payments (as defined in the Group I
Certificate Insurance Policy) previously paid by the Certificate Insurer and in
each case not previously repaid to the Certificate Insurer pursuant to Sections
6.05(b) or 6.05(c) hereof plus (ii) interest accrued on each such Group I
Insured Payment and Group I Preference Payments not previously repaid calculated
at the Group I Class A Pass-Through Rate from the date such Group I Insured
Payment or Group I Preference Amount was made and (b)(i) any amounts then due
and owing to the Certificate Insurer under the Insurance Agreement, as certified
to the Trustee by the Certificate Insurer plus (ii) interest on such amounts at
the Late Payment Rate (as defined in the Insurance Agreement). The Certificate
Insurer shall notify the Trustee and the Company of the amount of any Group I
Reimbursement Amount.
"Group II Reimbursement Amount": As of any Distribution Date,
the sum of (a)(i) all Group II Insured Payments (as defined in the Group II
Certificate Insurance Policy) previously paid by the Certificate Insurer and in
each case not previously repaid to the Certificate Insurer pursuant to Sections
6.05(b) or 6.05(c) hereof plus (ii) interest accrued on each such Group II
Insured Payment and Group II Preference Payments not previously repaid
calculated at the Group II Class A Pass-Through Rate from the date such Group II
Insured Payment or Group II Preference Amount was made and (b)(i) any amounts
then due and owing to the Certificate Insurer under the Insurance Agreement, as
certified to the Trustee by the Certificate Insurer plus (ii) interest on such
amounts at the Late Payment Rate (as defined in the Insurance Agreement). The
Certificate Insurer shall notify the Trustee and the Company of the amount of
any Group II Reimbursement Amount.]
"Group I Required Subordinated Amount": For each Distribution
Date, the amount determined as follows:
(a) for any Distribution Date occurring during the period
commencing on the Closing Date and ending on the later of (x)
the date upon which principal payments on the Group I Loans
equal to one-half of the Original Group I Pool Principal
Balance have been received and (y) the thirtieth Distribution
Date following the Closing Date, the greater of the following:
(i) the Initial Group I Specified Subordinated Amount;
and
(ii) two times an amount equal to (x) one-half of the
aggregate Principal Balances of all Group I Loans
which are 91 or more days Delinquent (including REO
Properties) minus (y) three times the Group I Net
Monthly Excess Cashflow for such Distribution Date;
and
(b) for any Distribution Date occurring after the end of the
period in clause (a) above, the greatest of the following:
(i) the lesser of (a) the Initial Group I Specified
Subordinated Amount and (B) two times the Amortized
Group I Subordinated Amount Requirement,
(ii) two times the difference of (a) one-half of the
aggregate Principal Balances of all Group I Loans
which are 91 or more days Delinquent (including REO
Properties)
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<PAGE> 20
and (B) three times the Group I Net Monthly Excess
Cashflow for such Distribution Date
(iii) an amount equal to ________% of the Original Group I
Pool Principal Balance and
(iv) the sum of the then outstanding Principal Balances of
the Group I Loans with the four largest outstanding
Principal Balances.
Notwithstanding anything to the contrary set forth in clauses
(a) or (b) above, on or after any Distribution Date on which a Group I Insured
Payment is made, or any Distribution Date on which an Event of Default has
occurred and is continuing, the Group I Required Subordinated Amount shall be
equal to the Group I Required Subordinated Amount as of the Distribution Date
immediately prior to the Distribution Date on which either such event occurred.
"Group II Required Subordinated Amount": For each Distribution
Date, the amount determined as follows:
(a) for any Distribution Date occurring during the period
commencing on the Closing Date and ending on the later of (x)
the date upon which principal payments on the Group II Loans
equal to one-half of the Original Group II Pool Principal
Balance have been received and (y) the thirtieth Distribution
Date following the Closing Date, the greater of the following:
(i) the Initial Group II Specified Subordinated Amount;
and (ii) two times an amount equal to (x) one-half of
the aggregate Principal Balances of all Group II
Loans which are 91 or more days Delinquent (including
REO Properties) minus (y) three times the Group II
Net Monthly Excess Cashflow for such Distribution
Date; and
(b) for any Distribution Date occurring after the end of the
period in clause (a) above, the greatest of the following:
(i) the lesser of (a) the Initial Group II Specified
Subordinated Amount and (B) two times the Amortized
Group II Subordinated Amount Requirement,
(ii) two times the difference of (a) one-half of the
aggregate Principal Balances of all Group II Loans
which are 91 or more days Delinquent (including REO
Properties) and (B) three times the Group II Net
Monthly Excess Cashflow for such Distribution Date,
(iii) an amount equal to ______% of the Original Group II
Pool Principal Balance and
(iv) the sum of the then outstanding Principal Balances of
the Group II Loans with the four largest outstanding
Principal Balances.
Notwithstanding anything to the contrary set forth in clauses
(a) or (b) above, on or after any Distribution Date on which a Group II Insured
Payment is made, or any Distribution Date on which an Event of Default has
occurred and is continuing, the Group II Required Subordinated Amount shall
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<PAGE> 21
be equal to the Group II Required Subordinated Amount as of the Distribution
Date immediately prior to the Distribution Date on which either such event
occurred.
"Group I Subordinated Amount": As of any Distribution Date,
the difference, if any, between (a) the Group I Pool Principal Balance as of the
close of business on the last day of the related Due Period and (b) the
aggregate Certificate Principal Balance of the Class A-1 Certificates as of such
Distribution Date (after taking into account the payment of the Group I
Principal Remittance Amount related to such Distribution Date); PROVIDED,
HOWEVER, that such amount shall not be less than zero.
"Group II Subordinated Amount": As of any Distribution Date,
the difference, if any, between (a) the Group II Pool Principal Balance as of
the close of business on the last day of the related Due Period and (b) the
aggregate Certificate Principal Balance of the Class A-2 Certificates as of such
Distribution Date (after taking into account the payment of the Group II
Principal Remittance Amount related to such Distribution Date); PROVIDED,
HOWEVER, that such amount shall not be less than zero.
"Group I Subordination Deficiency Amount": With respect to any
Distribution Date, the amount, if any, by which (a) the Group I Required
Subordinated Amount applicable to such Distribution Date exceeds (b) the Group I
Subordinated Amount applicable to such Distribution Date prior to taking into
account the payment of any related Group I Subordination Increase Amounts on
such Distribution Date.
"Group II Subordination Deficiency Amount": With respect to
any Distribution Date, the amount, if any, by which (a) the Group II Required
Subordinated Amount applicable to such Distribution Date exceeds (b) the Group
II Subordinated Amount applicable to such Distribution Date prior to taking into
account the payment of any related Group II Subordination Increase Amounts on
such Distribution Date.
"Group I Subordination Deficit": As of any Distribution Date,
the amount, if any, by which (a) the aggregate Certificate Principal Balance of
the Class A-1 Certificates (after taking into account the payment of the Group I
Class A Principal Distribution Amount (other than payments made with respect
thereto pursuant to clause (vi) of the definition of Group I Class A Principal
Distribution Amount from amounts drawn under the Group I Certificate Insurance
Policy)) on such date exceeds (b) the Group I Pool Principal Balance determined
as of the end of the immediately preceding Due Period.
"Group II Subordination Deficit": As of any Distribution Date,
the amount, if any, by which (a) the aggregate Certificate Principal Balance of
the Class A-2 Certificates (after taking into account the payment of the Group
II Class A Principal Distribution Amount (other than payments made with respect
thereto pursuant to clause (vi) of the definition of Group II Class A Principal
Distribution Amount from amounts drawn under the Group II Certificate Insurance
Policy)) on such date exceeds (b) the Group II Pool Principal Balance determined
as of the end of the immediately preceding Due Period.
"Group I Subordination Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Group I Subordination Deficiency Amount
as of such Distribution Date (after taking into account the payment of the Group
I Class A Principal Distribution Amount on such Distribution Date (other than
clause (viii) thereof)) and (b) the amount of Group I Net Monthly Excess
Cashflow on such Distribution Date.
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"Group II Subordination Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Group II Subordination Deficiency
Amount as of such Distribution Date (after taking into account the payment of
the Group II Class A Principal Distribution Amount on such Distribution Date
(other than clause (viii) thereof)) and (b) the amount of Group II Net Monthly
Excess Cashflow on such Distribution Date.
"Group I Subordination Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Group I Excess
Subordinated Amount for such Distribution Date and (b) the Group I Principal
Remittance Amount for the prior Due Period.
"Group II Subordination Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Group II Excess
Subordinated Amount for such Distribution Date and (b) the Group II Principal
Remittance Amount for the prior Due Period.
"Index": As to any Group I Loan, a rate per annum equal to the
average of the interbank offered rates for six month United States dollar
deposits in the London market as published in the Western Edition of THE WALL
STREET JOURNAL, as most recently available as of the first business day
forty-five, thirty or five days prior to any Rate Adjustment Date, as specified
in the related Mortgage Note.
"Indirect Participant": Any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"Initial Group I Loan": A Group I Loan assigned and
transferred to the Trustee on the Closing Date, as listed on the Mortgage Loan
Schedule attached hereto as Exhibit D-1.
"Initial Group II Loan": A Group II Loan assigned and
transferred to the Trustee on the Closing Date, as listed on the Mortgage Loan
Schedule attached hereto as Exhibit D-2.
"Initial Group I Specified Subordinated Amount": An amount
equal to ______% of the Original Group I Pool Principal Balance.
"Initial Group II Specified Subordinated Amount": An amount
equal to _______% of the Original Group II Pool Principal Balance.
"Initial Mortgage Loan": Any Initial Group I Loan or Initial
Group II Loan.
"Insurance Agreement": The Insurance Agreement dated as of
______________________, 19____ among the Certificate Insurer, the Company, the
Master Servicer, the Trustee and ___________________________________, as such
agreement may be amended or supplemented in accordance with the provisions
thereof.
"Insurance Proceeds: Proceeds paid by any insurer pursuant to
any insurance policy covering a Mortgage Loan to the extent such proceeds are
not applied to the restoration of the related Mortgaged Property or released to
the related Mortgagor in accordance with Accepted Servicing Practices.
"Insurance Proceeds" do not include "Insured Payments."
"Insured Payment": As determined separately for the Class A-1
Certificates and Class A-2 Certificates, the sum of (i) with respect to each
Distribution Date, the related Available Funds Shortfall and (ii) any related
unpaid Preference Amount.
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"Interest Coverage Account": The Group I Interest Coverage
Account or the Group II Interest Coverage Account, as applicable.
"Interest Coverage Addition": With respect to Loan Group I and
Loan Group II, as to any Distribution Date, an amount equal to the lesser of
(A) interest accrued for the related Accrual Period on an amount equal
to (i) the related Original Pre-Funded Amount minus (ii) the aggregate
Principal Balance of any related Subsequent Mortgage Loans transferred
prior to the first day of the month in which such Distribution Date
occurs, calculated at a rate equal to the sum of (a)(1) with respect to
the Group I Certificates, the Group I Class A Pass-Through Rate for
such Distribution Date, or (2) with respect to the Group II
Certificates, the weighted average of the Group II Class A Pass-Through
Rates for such Distribution Date, weighted on the basis of the
Certificate Principal Balances of such Certificates, (b) ______%; and
(B) the related Available Funds Shortfall (calculated without regard to
the Interest Coverage Addition component of Group I Available Funds or
Group II Available Funds, as applicable).
"Interest Coverage Amount": With respect to Loan Group I and
Loan Group II, the amount to be paid by the Company to the Trustee for deposit
into the related Interest Coverage Account pursuant to Section 6.13(a) on the
Closing Date, which amount is $____________ for Loan Group I and
$_________________ for Loan Group II.
"Interest Determination Date": With respect to any Accrual
Period, the second London Business Day preceding the commencement of such
Accrual Period.
"Lifetime Cap": As to any Mortgage Loan in Loan Group I, the
maximum Mortgage Interest Rate set forth in the related Mortgage Note and
indicated in the Mortgage Loan Schedule, which rate may be applicable to such
Mortgage Loan at any time during the life of such Mortgage Loan.
"Lifetime Floor": As to any Mortgage Loan in Loan Group I the
minimum Mortgage Interest Rate set forth in the related Mortgage Note and
indicated in the Mortgage Loan Schedule, which rate may be applicable to such
Mortgage Loan at any time during the life of such Mortgage Loan.
"Liquidated Loan Loss": With respect to any Distribution Date,
the aggregate of the amount of losses with respect to each Mortgage Loan which
became a Liquidated Mortgage Loan during the Due Period preceding such
Distribution Date, equal to (i) the unpaid principal balance of each such
Liquidated Mortgage Loan, plus accrued interest thereon in accordance with the
amortization schedule at the time applicable thereto at the applicable Mortgage
Interest Rate from the Due Date as to which interest was last paid with respect
thereto through the last day of the month in which such Mortgage Loan became a
Liquidated Mortgage Loan, minus (ii) Net Liquidation Proceeds with respect to
such Liquidated Mortgage Loan.
"Liquidated Mortgage Loan": A Mortgage Loan with respect to
which the related Mortgaged Property has been acquired, liquidated or foreclosed
and with respect to which the Master Servicer determines that all Liquidation
Proceeds which it expects to recover have been recovered.
"Liquidation Expenses": Expenses incurred by the Master
Servicer or any Subservicer in connection with the liquidation of any defaulted
Mortgage Loan or property acquired in respect thereof (including, without
limitation, legal fees and expenses, committee or referee fees, and, if
applicable,
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brokerage commissions and conveyance taxes), any unreimbursed amount expended by
the Master Servicer pursuant to Sections 5.05, 5.06 and 5.12 respecting the
related Mortgage Loan and any unreimbursed expenditures for real property taxes
or for property restoration or preservation of the related Mortgaged Property.
Liquidation Expenses shall not include any previously incurred expenses in
respect of an REO Mortgage Loan which have been netted against related REO
Proceeds.
"Liquidation Proceeds": Amounts received by the Master
Servicer (including Insurance Proceeds) 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
such Mortgage Loans received from the Mortgagor, other than amounts required to
be paid to the Mortgagor pursuant to the terms of the applicable Mortgage or to
be applied otherwise pursuant to law.
"Loan Repurchase Price": As defined in Section 2.04(b).
"Loan-to-Value Ratio or LTV": With respect to any Mortgage
Loan, the fraction, expressed as a percentage, the numerator of which is the
principal balance of such Mortgage Loan, as of the date of origination of the
Mortgage Loan, divided by the Appraised Value of the related Mortgaged Property.
"London Business Day": Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
"Majority Certificateholders": With respect to each Loan
Group, the Holder or Holders of Class A Certificates evidencing Percentage
Interests in excess of 51% in the aggregate.
"Master Servicer": [_________________________________], a
_________________ corporation, or any successor appointed as herein provided.
"Master Servicer Remittance Amount": With respect to any
Master Servicer Remittance Date, an amount equal to the sum of (i) all
unscheduled collections of principal and interest on the Mortgage Loans
(including Principal Prepayments in Full and Curtailments, Net REO Proceeds and
Net Liquidation Proceeds, if any) collected by the Master Servicer during the
prior calendar month and all scheduled Monthly Payments due on the related Due
Date and received on or prior to the Business Day preceding such Master Servicer
Remittance Date, (ii) all Periodic Advances made by the Master Servicer with
respect to payments due to be received on the Mortgage Loans on the related Due
Date and (iii) any other amounts required to be placed in the Collection Account
by the Master Servicer pursuant to this Agreement but excluding the following:
(a) amounts received on particular Mortgage Loans as late
payments of principal or interest and respecting which the Master Servicer has
previously made an unreimbursed Periodic Advance;
(b) those portions of each payment of interest on a particular
Mortgage Loan which represent the Servicing Fee;
(c) that portion of Liquidation Proceeds and REO Proceeds
which represents any unpaid Servicing Fee;
(d) all income from Permitted Investments that is held in the
Collection Account for the account of the Master Servicer;
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(e) all amounts in respect of late fees, assumption fees,
prepayment fees and similar fees;
(f) certain other amounts which are reimbursable to the Master
Servicer, as provided in this Agreement; and
(g) Net Foreclosure Profits.
"Master Servicer Remittance Date": With respect to any
Distribution Date, the 18th of the month in which such Distribution Date occurs,
or if such 18th day is not a Business Day, the Business Day preceding such 18th
day.
"Monthly Payment": As to any Mortgage Loan (including any REO
Mortgage Loan) and any Due Date, the scheduled payment of principal and interest
due thereon for such Due Date (after adjustment for any Curtailments and
Deficient Valuations occurring prior to such Due Date but before any adjustment
to such amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period).
"Moody's": Moody's Investors Service, Inc., or any successor
thereto.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien or second lien on the Mortgaged Property.
"Mortgage File": The mortgage documents listed in Exhibit C
attached hereto pertaining to a particular Mortgage Loan and any additional
documents required to be added to the Mortgage File pursuant to this Agreement;
provided that whenever the term "Mortgage File" is used to refer to documents
actually received by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actually so added.
"Mortgage Impairment Insurance Policy": As defined in Section
5.07.
"Mortgage Interest Rate": As to any Group I Loan, the per
annum rate at which interest accrues on the unpaid principal balance thereof, as
adjusted from time to time in accordance with the provisions of the related
Mortgage Note, which rate is (a) prior to the first related Rate Adjustment Date
occurring after the Cut-off Date, the initial Mortgage Interest Rate for such
Mortgage Loan indicated on the Mortgage Loan Schedule and (b) from and after
such first Rate Adjustment Date, the sum of the related Index applicable to the
most recent Rate Adjustment Date, and the Gross Margin, rounded as set forth in
such Mortgage Note, subject to the Periodic Cap, the Lifetime Cap and Lifetime
Floor set forth in the related Mortgage Note that may be applicable to such
Mortgage Loan at any time during the life of such Mortgage Loan. As to any Group
II Loan, the fixed per annum rate at which interest accrued on the unpaid
principal balance thereof, which rate is the Mortgage Interest Rate for such
Group II Loan indicated on the related Mortgage Loan Schedule.
"Mortgage Loan": An individual mortgage loan which is assigned
and transferred to the Trustee pursuant to this Agreement, together with the
rights and obligations of a holder thereof and payments thereon and proceeds
therefrom (other than payments of interest that accrued on each Mortgage Loan up
to and including the Due Date therefor occurring, with respect to the Mortgage
Loans prior to the Cut-off Date), the Mortgage Loans originally subject to this
Agreement being identified on the Mortgage Loan Schedule. As applicable,
Mortgage Loan shall be deemed to refer to the related REO Property.
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"Mortgage Loan Group": The Group I Loans or Group II Loans.
References herein to "Mortgage Loan Group" when used with respect to any
Certificate shall mean (i) Group I Loans, in the case of the Group I
Certificates, and (ii) Group II Loans, in the case of the Group II Certificates.
"Mortgage Loan Interest Shortfall": With respect to any
Distribution Date, as to the Mortgage Loans in either Loan Group, the sum of (a)
any Civil Relief Act Interest Shortfalls in respect of such Mortgage Loans for
such Distribution Date and (b) any related Master Servicer Default Prepayment
Interest Shortfall. A "Master Servicer Default Prepayment Interest Shortfall"
will only exist on a Distribution Date with respect to which the Master Servicer
has defaulted on its obligations under Sections 5.20 and 6.09 with respect to
Prepayment Interest Shortfalls and on such a Distribution Date will equal, for
Loan Group I and Loan Group II in the aggregate, the excess of (i) the aggregate
maximum amount of Compensating Interest required pursuant to Sections 5.20 and
6.09 to have been paid by the Master Servicer or a Subservicer or netted against
the Master Servicer's aggregate Servicing Fee for such Distribution Date over
(ii) the amount of Compensating Interest actually paid by the Master Servicer or
a Subservicer or actually netted against the Master Servicer's aggregate
Servicing Fee for such Distribution Date.
"Mortgage Loan Schedule": The lists of the Mortgage Loans
transferred to the Trustee on or before the Closing Date or Subsequent Transfer
Date as part of the Trust Fund and attached hereto as Exhibits D-1 and D-2 and
delivered in computer readable format, which list shall set forth at a minimum
the following information as to each Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the city, state and zip code of the Mortgaged
Property;
(iii) the type of property;
(iv) the current Monthly Payment as of the Cut-off Date;
(v) the original number of months to maturity;
(vi) the scheduled maturity date;
(vii) the Principal Balance as of the Cut-off Date (with
respect to an Initial Mortgage Loan) or Subsequent
Cut-off Date (with respect to a Subsequent Mortgage
Loan);
(viii) the Loan-to-Value Ratio or Combined Loan-to-Value
Ratio at origination;
(ix) the Mortgage Interest Rate as of the Cut-off Date
(with respect to an Initial Mortgage Loan) or
Subsequent Cut-off Date (with respect to a Subsequent
Mortgage Loan);
(x) the Mortgage Interest Rate at origination;
(xi) the Gross Margin (with respect to Group I Loans) and
the frequency of the adjustment thereof;
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(xii) the first Rate Adjustment Date (with respect to Group
I Loans) after the Cut-off Date (with respect to an
Initial Mortgage Loan) or Subsequent Cut-off Date
(with respect to a Subsequent Mortgage Loan);
(xiii) the first Rate Adjustment Date after origination and
the frequency of adjustment (with respect to Group I
Loans);
(xiv) the Lifetime Cap (with respect to Group I Loans);
(xv) the Lifetime Floor (with respect to Group I Loans);
(xvi) the Appraised Value;
(xvii) the stated purpose of the loan at origination;
(xviii) the type of occupancy at origination;
(xix) the documentation type (as described in the
Underwriting Guidelines);
(xx) the Periodic Cap (with respect to Group I Loans);
(xxi) the loan classification (as described in the
Underwriting Guidelines);
(xxii) the related Index (with respect to Group I Loans) and
the look-back period for such Mortgage Loan;
(xxiii) the Servicing Fee with respect to such Mortgage Loan,
expressed as a rate per annum; and
(xxiv) whether such Mortgage Loan is secured by a first lien
or second lien.
Such schedule may consist of multiple reports that collectively set forth all of
the information required.
"Mortgage Note": The original, executed note or other evidence
of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage
Loan.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, consisting of a fee simple estate in a single parcel of land
improved by a Residential Dwelling.
"Mortgagor": The obligor on a Mortgage Note.
"Net Foreclosure Profits": As to any Distribution Date, an
amount equal to (i) the aggregate Foreclosure Profits with respect to such
Distribution Date minus (ii) Liquidated Loan Losses with respect to such
Distribution Date.
"Net Lifetime Cap": With respect to each Mortgage Loan in
Group I at any time of determination, a sum equal to (i) the Lifetime Cap on
such Mortgage Loan minus (ii) the sum of the per annum rates used to determine
the related Servicing Fee and Trustee Fee and the Premium Percentage.
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"Net Liquidation Proceeds": As to any Liquidated Mortgage
Loan, Liquidation Proceeds net of Liquidation Expenses and net of any
unreimbursed Periodic Advances and unreimbursed Servicing Advances made by the
Master Servicer. For all purposes of this Agreement, Net Liquidation Proceeds
shall be allocated first to accrued and unpaid interest on the related Mortgage
Loan and then to the unpaid principal balance thereof.
"Net Mortgage Interest Rate": With respect to each Mortgage
Loan at any time of determination, a rate equal to (i) the Mortgage Interest
Rate on such Mortgage Loan minus (ii) the sum of the per annum rates used to
determine the related Servicing Fee and Trustee Fee and the Premium Percentage.
Any regular monthly computation of interest at such rate shall be based upon
annual interest at such rate on the applicable amount divided by twelve.
"Net REO Proceeds": As to any REO Mortgage Loan, REO Proceeds
net of any related expenses of the Master Servicer.
"Nonrecoverable Advances": With respect to any Mortgage Loan,
(a) any Periodic Advance or Servicing Advance previously made and not reimbursed
from late collections pursuant to Section 5.04(b), or (b) a Periodic Advance or
Servicing Advance proposed to be made in respect of a Mortgage Loan or REO
Property either of which, in the good faith business judgment of the Master
Servicer, as evidenced by an Officer's Certificate delivered to the Certificate
Insurer and the Trustee would not be ultimately recoverable pursuant to Sections
5.04 and Section 6.02.
"Non-United States Person": Any Person other than a United
States Person.
"Notional Amount": As of any Distribution Date, with respect
to the Class I S Certificates, an amount equal to the aggregate Principal
Balance of the Group I Loans immediately prior to such date. As of any
Distribution Date, with respect to the Class II S Certificates, an amount equal
to the aggregate Principal Balance of the Group II Loans immediately prior to
such date.
"Officer's Certificate": A certificate signed by the Chairman
of the Board, the President or a Vice President and the Treasurer, the Secretary
or one of the Assistant Treasurers or Assistant Secretaries of the Seller and/or
the Master Servicer, or the Company, as required by this Agreement.
"One-Month LIBOR": With respect to any Accrual Period, the
rate determined by the Trustee on the related Interest Determination Date on the
basis of the offered rates of the Reference Banks for one-month United States
dollar deposits, as such rates appear on the Telerate Screen Page 3750 as of
11:00 A.M., London, England time, on the Interest Determination Date. If such
rate does not appear on such page (or such other page as may replace that page
on that service, or if such service is no longer offered, such other service for
displaying One-Month LIBOR or comparable rates as may be reasonably selected by
the Trustee), the rate will be the Reference Bank Rate. If no such quotations
can be obtained and no Reference Bank Rate is available, One-Month LIBOR will be
One-Month LIBOR applicable to the preceding Distribution Date.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be counsel for the Seller, the Master Servicer, the Trustee,
a Certificateholder or a Certificateholder's prospective transferee or the
Certificate Insurer (including except as otherwise provided herein, in-house
counsel) reasonably acceptable to each addressee of such opinion and experienced
in matters relating to the subject of such opinion; except that any opinion of
counsel relating to (a) the qualification of the Trust Fund as a REMIC or (b)
compliance with the REMIC Provisions must be an opinion of counsel who (i) is in
fact independent of the Seller, the Master Servicer and the Trustee, (ii) does
not have any direct
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financial interest or any material indirect financial interest in the Seller or
the Master Servicer or the Trustee or in an Affiliate thereof, (iii) is not
connected with the Seller or the Master Servicer or the Trustee as an officer,
employee, director or person performing similar functions and (iv) is reasonably
acceptable to the Certificate Insurer.
"Original Group I Pool Principal Balance": The Group I Pool
Principal Balance as of the Cut-off Date, which is $_______________________.
"Original Group II Pool Principal Balance": The Group II Pool
Principal Balance as of the Cut-off Date, which is $_______________________.
"Original Certificate Principal Balance": As of the Startup
Day and as to the Class A-1 Certificates, $______________________, as to the
Class A-2 Certificates, $___________________, and as to the each class of Class
S Certificates, $[0.00]. The Class R Certificates do not have an Original
Certificate Principal Balance.
"Original Pool Principal Balance": The Pool Principal Balance
as of the Cut-off Date, which is $_______________________.
"Original Pre-Funded Amount": With respect to Loan Group I and
Loan Group II, the amount deposited by the Company in the Pre-Funding Account on
the Closing Date, which amount is $_______________________ for Loan Group I and
$_____________________ for Loan Group II.
"Outstanding Mortgage Loan": As to any Due Date, a Mortgage
Loan (including an REO Mortgage Loan) which was not the subject of a Principal
Prepayment in Full prior to such Due Date, which did not become a Liquidated
Mortgage Loan prior to such Due Date, which was not repurchased by the Seller
prior to such Due Date pursuant to Section 2.04 and which was not repurchased by
an Affiliate of the Seller pursuant to Section 5.18.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Owner-Occupied Mortgaged Property": A Residential Dwelling as
to which (a) the related Mortgagor represented an intent to occupy as such
Mortgagor's primary, secondary or vacation residence at the origination of the
Mortgage Loan, and (b) the Seller has no actual knowledge that such Residential
Dwelling is not so occupied.
"Percentage Interest": With respect to a Class A Certificate
and any date of determination, the portion evidenced by such Certificate,
expressed as a percentage rounded to four decimal places, equal to a fraction
the numerator of which is the initial Authorized Denomination represented by
such Certificate and the denominator of which is the Original Certificate
Principal Balance of such Certificate. With respect to a Class S or Class R
Certificate and any date of determination, the portion evidenced thereby as
stated on the face of such Certificate.
"Periodic Advance": The aggregate of the advances with respect
to Mortgage Loans and REO Properties required to be made by the Master Servicer
on any Master Servicer Remittance Date pursuant to Section 5.21 hereof, the
amount of any such advances being equal to the sum of: (i) with respect to the
Mortgage Loans (other than Balloon Mortgage Loans with delinquent Balloon
Payments as described in clause (iii) below and other than REO Properties as
described in clauses (ii) and
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(iv) below), all Monthly Payments (net of the related Servicing Fee) on such
Mortgage Loans that were delinquent as of the close of business on the Business
Day preceding the related Master Servicer Remittance Date, plus (ii) with
respect to each REO Property (other than any REO Property relating to a Balloon
Mortgage Loan with a delinquent Balloon Payment as described in clause (iv)
below), which REO Property was acquired during or prior to the related Due
Period and as to which an REO Disposition did not occur during the related Due
Period, an amount equal to the Monthly Payment (net of the related Servicing
Fee) for the most recently ended Due Period for the related Mortgage Loan minus
the net income from such REO Property transferred to the related Certificate
Account for such Distribution Date, plus (iii) with respect to each Balloon
Mortgage Loan with a delinquent Balloon Payment (other than any related REO
Property as described in clause (iv) below), an amount equal to the assumed
monthly principal and interest payment (net of the related Servicing Fee) that
would have been due on the related Due Date based on the original principal
amortization schedule for such Balloon Mortgage Loan, plus (iv) with respect to
each REO Property relating to a Balloon Mortgage Loan with a delinquent Balloon
Payment, which REO Property was acquired during or prior to the related Due
Period and as to which an REO Disposition did not occur during the related Due
Period, an amount equal to the assumed monthly principal and interest payment
(net of the related Servicing Fee) that would have been due on the related Due
Date based on the original principal amortization schedule for the related
Balloon Mortgage Loan minus the net income from such REO Property transferred to
the related Certificate Account for such Distribution Date, minus (v) the amount
of any advance otherwise required for such Distribution Date pursuant to clauses
(i) through (iv) above which the Master Servicer has determined to be a
Nonrecoverable Advance.
"Periodic Cap": With respect to each Group I Loan, the
provision in the related Mortgage Note that provides for an absolute maximum
amount by which the Mortgage Interest Rate therein may increase or decrease on a
Rate Adjustment Date above or below the Mortgage Interest Rate previously in
effect.
"Permitted Investments": As used herein, Permitted Investments
shall include the following:
(a) direct general obligations of, or obligations
fully and unconditionally guaranteed as to the timely payment
of principal and interest by, the United States or any agency
or instrumentality thereof, provided such obligations are
backed by the full faith and credit of the United States and
any obligation of, or guaranties by, FHLMC or FNMA (other than
senior debt obligations and mortgage pass-through certificates
guaranteed by FHLMC or FNMA) shall be a Permitted Investment;
PROVIDED THAT at the time of such investment, such investment
is acceptable to the Certificate Insurer, but excluding any of
such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption;
(b) federal funds and certificates of deposit, time
and demand deposits and banker's acceptances issued by any
bank or trust company incorporated under the laws of the
United States or any state thereof and subject to supervision
and examination by federal or state banking authorities,
provided that at the time of such investment or contractual
commitment providing for such investment the short-term debt
obligations of such bank or trust company at the date of
acquisition thereof have been rated in its highest rating by
each Rating Agency;
(c) commercial paper (having original maturities of
not more than 180 days) rated in its highest rating by each
Rating Agency;
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(d) investments in money market funds rated in its
highest rating by each Rating Agency; and
(e) investments approved by the Rating Agencies and
the Certificate Insurer in writing delivered to the Trustee;
provided that each such Permitted Investment shall be a "permitted investment"
within the meaning of Section 860G(a)(5) of the Code and that no instrument
described hereunder shall evidence either the right to receive (x) only interest
with respect to the obligations underlying such instrument or (y) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provided a
yield to maturity at par greater than [120]% of the yield to maturity at par of
the underlying obligations; and provided, further, that no instrument described
hereunder may be purchased at a price greater than par.
"Permitted Transferee": Any transferee of a Class R
Certificate other than a Non-United States Person or Disqualified Organization.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, national banking association,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan": Any employee benefit plan and certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
and Keogh plans, and bank collective investment funds and insurance company
general or separate accounts in which such plans, accounts or arrangements are
invested, that are subject to the prohibited transaction and fiduciary
responsibility provisions of ERISA and Section 4975 of the Code.
["Policy Business Day": A Business Day as defined in the
Certificate Insurance Policy.]
"Pool Principal Balance": The sum of the Group I Pool
Principal Balance and the Group II Pool Principal Balance as of any date of
determination.
"Pool Strip Rate": With respect to the Class I S Certificates
and the Mortgage Loans in Loan Group I, a per annum rate equal to the weighted
average of the related Net Mortgage Interest Rates, weighted on the basis of the
related Principal Balances of such Mortgage Loans at the beginning of the
related Due Period, minus the Group I Class A Pass-Through Rate. With respect to
the Class II S Certificates and the Mortgage Loans in Loan Group II, a per annum
rate equal to the related Net Mortgage Interest Rate minus ______%. The Pool
Strip Rates are also designated on the related Mortgage Loan Schedule as the
"Class I S Strip" or the "Class II S Strip" as applicable for such Mortgage Loan
and the related Class S Certificates.
"Preference Amount": Any amount previously distributed to a
Class A Certificateholder that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
"Preference Claim": As defined in Section 6.04(f).
"Pre-Funding Account": The Group I Pre-Funding Account or the
Group II Pre-Funding Account, as applicable.
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"Premium Amount": With respect to (i) the first two
Distribution Dates, $___________, and (ii) the third Distribution Date and each
Distribution Date thereafter, the product of 1/12 of the Premium Percentage and
the Certificate Principal Balance for Class A-1 Certificates and the Class A-2
Certificates, as applicable, immediately prior to the related Distribution Date.
"Premium Exhibit": The document attached hereto as Exhibit R.
"Premium Percentage": With respect to any Group I Loan or
Group II Loan, the rate per annum set forth in the Premium Exhibit.
"Prepayment Assumption": With respect to (i) the Group I
Certificates, a constant prepayment rate of [25]% and (ii) the Group II
Certificates, a [115]% Prepayment Assumption (i.e. a [100]% Prepayment
Assumption multiplied by [1.15]), used solely for determining the accrual of
original issue discount, market discount and premium, if any, on the
Certificates for federal income tax purposes. A [100]% Prepayment Assumption
assumes a constant prepayment rate of [4]% per annum for the first month,
increasing each month by an additional approximate [1.45]% (precisely [16/11])
(expressed as a percentage per annum) until such rate reaches [20.00]% (on the
twelfth month) and remaining level at [20.00]% thereafter.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was the subject during the
related Due Period of a Principal Prepayment in Full or Curtailment, an amount
equal to (a) 30 days' interest on the Principal Balance of such Mortgage Loan at
a per annum rate equal to the Mortgage Interest Rate (or at such lower rate as
may be in effect for such Mortgage Loan pursuant to application of the Civil
Relief Act, any Deficient Valuation and/or any Debt Service Reduction) minus the
rate at which the Servicing Fee is calculated minus (b) the amount of interest
actually remitted by the Mortgagor in connection with such Principal Prepayment
in Full or Curtailment less the Servicing Fee for such Mortgage Loan in such
month.
"Principal Balance": As to any Mortgage Loan and Distribution
Date, the principal balance of such Mortgage Loan as of the Due Date preceding
such date of determination as specified for such Due Date in the amortization
schedule (before any adjustment to such amortization schedule by reason of any
bankruptcy (other than Deficient Valuations) or similar proceeding or any
moratorium or similar waiver or grace period) after giving effect to Principal
Prepayments in Full or Curtailments received prior to such Due Date, Deficient
Valuations incurred prior to such Due Date, to any Curtailments applied by the
Master Servicer in reduction of the unpaid principal balance of such Mortgage
Loan as of such Due Date and to the payment of principal due on such Due Date
and irrespective of any delinquency in payment by the related Mortgagor. The
Principal Balance of a Mortgage Loan which becomes a Liquidated Mortgage Loan
prior to such Due Date shall be zero.
"Principal Prepayment in Full": Any payment or other recovery
of principal on a Mortgage Loan equal to the outstanding principal balance
thereof, received in advance of the final scheduled Due Date which is not
intended as an advance payment of a scheduled Monthly Payment.
"Purchase Agreement": The Mortgage Loan Purchase Agreement,
dated as of the date hereof, between the Seller and the Company relating to the
sale of the Mortgage Loans to the Company.
"Qualified Mortgage": "Qualified Mortgage" shall have the
meaning set forth from time to time in the definition thereof at Section
860G(a)(3) of the Code (or any successor statute thereto).
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"Qualified Substitute Mortgage Loan": A mortgage loan or
mortgage loans substituted for a Deleted Mortgage Loan pursuant to Section 2.04
or 3.03 hereof, which (a)(i) with respect to a Group I Loan, has or have the
same interest rate index, a margin over such index and a maximum interest rate
at least equal to those applicable to the Deleted Mortgage Loan and (ii) with
respect to a Group II Loan, has the same or greater interest rate, (b) relates
or relate to a detached one-family residence or to the same type of Residential
Dwelling as the Deleted Mortgage Loan and in each case has or have the same or a
better lien priority as the Deleted Mortgage Loan and has the same occupancy
status or is an Owner Occupied Mortgaged Property, (c) matures or mature no
later than (and not more than one year earlier than) the Deleted Mortgage Loan
(except during the first 90 days after the Cut-off Date), (d) has or have a
Loan-to-Value Ratio or Loan-to-Value Ratios (or Combined Loan-to-Value Ratio or
Combined Loan-to-Value Ratios, with respect to a Second Mortgage Loan) at the
time of such substitution no higher than the Loan-to-Value Ratio (or Combined
Loan-to-Value Ratio, with respect to a Second Mortgage Loan) of the Deleted
Mortgage Loan, (e) has or have a principal balance or principal balances (after
application of all payments received on or prior to the date of substitution)
not substantially less and not more than the Principal Balance of the Deleted
Mortgage Loan as of such date, (f) satisfies or satisfy the criteria set forth
from time to time in the definition of "qualified replacement mortgage" at
Section 860G(a)(4) of the Code (or any successor statute thereto) and (g)
complies or comply as of the date of substitution with each representation and
warranty set forth in Sections 3.01 and 3.02 of the Purchase Agreement.
"Rate Adjustment Date": The date on which the Mortgage
Interest Rate is adjusted with respect to each Group I Loan. The first Rate
Adjustment Date for each Group I Loan is set forth on the Mortgage Loan
Schedule.
"Rating Agency": [S&P, DCR or Moody's].
"Record Date": With respect to any Distribution Date, the
close of business on the last Business Day of the month immediately preceding
the month of such Distribution Date.
"Reference Bank Rate": With respect to any Accrual Period, as
follows: the arithmetic mean (rounded upwards, if necessary, to the nearest one
sixteenth of a percent) of the offered rates for United States dollar deposits
for one month which are offered by the Reference Banks as of 11:00 A.M., London,
England time, on the Interest Determination Date to prime banks in the London
interbank market for a period of one month in amounts approximately equal to the
aggregate outstanding Certificate Principal Balance of the Class A Certificates;
PROVIDED that at least two such Reference Banks provide such rate. If fewer than
two offered rates appear, the Reference Bank Rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by the
Trustee, as of 11:00 a.m., New York time, on such date for loans in U.S. Dollars
to leading European Banks for a period of one month in amounts approximately
equal to the aggregate outstanding Certificate Principal Balance of the Class A
Certificates. If no such quotations can be obtained, the Reference Bank Rate
shall be the Reference Bank Rate applicable to the preceding Distribution Date.
"Reference Banks": [Bankers Trust Company, Barclay's Bank PLC
and National Westminster Bank PLC].
"Released Mortgaged Property Proceeds": As to any Mortgage
Loan, proceeds received by the Master Servicer in connection with (a) a taking
of an entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (b) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which are not
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released to the Mortgagor in accordance with applicable law, Accepted Servicing
Practices and this Agreement.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter I of the Code, and related
provisions, and temporary and final regulations promulgated thereunder and
published rulings, notices and announcements, as the foregoing may be in effect
from time to time.
"REO Acquisition": The acquisition of any REO Property
pursuant to Section 5.12.
"REO Disposition": The final sale by the Master Servicer of a
Mortgaged Property acquired by the Master Servicer in foreclosure or by deed in
lieu of foreclosure.
"REO Mortgage Loan": Any Mortgage Loan which is not a
Liquidated Mortgage Loan and as to which the indebtedness evidenced by the
related Mortgage Note is discharged and the related Mortgaged Property is held
as part of the Trust Fund.
"REO Proceeds": Proceeds received in respect of any REO
Mortgage Loan (including, without limitations, proceeds from the rental of the
related Mortgaged Property).
"REO Property": As described in Section 5.12.
"Representation Letter": Letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Certificate Register under the nominee name of
the Depository.
"Request for Release": A request for release in substantially
the form attached as Exhibit H hereto.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/16%) of the three-month United States dollar lending rates which
New York City banks selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or (ii) in the event that the Trustee can determine no
such arithmetic mean, the lowest three-month United States dollar lending rate
which New York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residential Dwelling": A one- to four-family dwelling, a unit
in a planned unit development, a unit in a condominium development, a townhouse
or a manufactured housing unit which is non-mobile.
"Responsible Officer": When used with respect to the Trustee,
any officer assigned to the Corporate Trust Division (or any successor thereto),
including any Vice President, Senior Trust Officer, Trust Officer, Assistant
Trust Officer, any Assistant Secretary, any trust officer or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and to whom, with respect to a particular
matter, such matter is referred because of
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such officer's knowledge of and familiarity with the particular subject. When
used with respect to the Seller or the Master Servicer, the President or any
Vice President, Assistant Vice President, or any Secretary or Assistant
Secretary.
"S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or any successor thereto.
"Second Mortgage Loan": Any Mortgage Loan secured by a second
lien on the related Mortgaged Property.
"Seller": ___________________________________, or its
successor.
"Senior Mortgage Loan": With respect to any Second Mortgage
Loan, a mortgage loan on the related Mortgaged Property that is senior to the
lien provided by such Second Mortgage Loan.
"Servicing Account": The account created and maintained
pursuant to Section 5.09.
"Servicing Advances": All reasonable and customary
"out-of-pocket" costs and expenses relating to a borrower default or delinquency
or other unanticipated event incurred by the Master Servicer in the performance
of its servicing obligations, including, but not limited to, the cost of (a) the
preservation, restoration and protection of the Mortgaged Property including,
without limitation, taxes and insurance costs, (b) any enforcement or judicial
proceedings, including foreclosures, (c) the management and liquidation of the
REO Property, including reasonable fees paid to any independent contractor in
connection therewith, (d) compliance with the obligations under Sections 5.02
(limited solely to the reasonable and customary out-of-pocket expenses of the
subservicer), 5.05, 5.07, 5.09 or 5.10, all of which reasonable and customary
out-of-pocket costs and expenses are reimbursable to the Master Servicer to the
extent provided in Section 5.04(a) and (b).
"Servicing Compensation": The Servicing Fee and other amounts
to which the Master Servicer is entitled pursuant to Section 5.14.
"Servicing Fee": As to each Mortgage Loan, the annual fee
payable to the Master Servicer and the related Subservicer, if any, as indicated
on the related Mortgage Loan Schedule. Such fee shall be _______% per annum.
Such fee shall be calculated and payable monthly only from the amounts received
in respect of interest on such Mortgage Loan and shall be computed on the basis
of the same principal amount and for the period respecting which any related
interest payment on a Mortgage Loan is computed. The Servicing Fee includes any
servicing fees owed or payable to any Subservicer.
"Servicing Officer": Any officer of the Master Servicer
involved in, or responsible for, the administration and servicing of the
Mortgage Loans whose name and specimen signature appear on a list of servicing
officers furnished to the Trustee and the Certificate Insurer by the Master
Servicer, as such list may from time to time be amended.
"Startup Day": The day designated as such pursuant to Section
10.01(b) hereof.
"Subsequent Cut-off Date": With respect to those Subsequent
Mortgage Loans which are sold to the Trust Fund pursuant to a Subsequent
Transfer Instrument, the close of business on the day prior to the related
Subsequent Transfer Date.
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"Subsequent Mortgage Loan": A Mortgage Loan sold by the
Company to the Trust Fund pursuant to Section 2.08, such Mortgage Loan being
identified on the Mortgage Loan Schedule attached to a Subsequent Transfer
Instrument.
"Subsequent Transfer Date": With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust Fund.
"Subsequent Transfer Instrument": Each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Trustee and
the Company substantially in the form of Exhibit N, by which Subsequent Mortgage
Loans are sold to the Trust Fund.
"Subservicer": Any Person with whom the Master Servicer has
entered into a Subservicing Agreement and who satisfies the requirements set
forth in Section 5.02(a) hereof in respect of the qualification of a
Subservicer.
"Subservicing Agreement": Any agreement between the Master
Servicer and any Subservicer relating to subservicing and/or administration of
certain Mortgage Loans as provided in Section 5.02, a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
Certificate Insurer.
"Substitution Adjustment": As to any date on which a
substitution occurs pursuant to Sections 2.04 or 3.03, the amount (if any) by
which the aggregate principal balances (after application of principal payments
received on or before the date of substitution of any Qualified Substitute
Mortgage Loans as of the date of substitution), are less than the aggregate of
the Principal Balances of the related Deleted Mortgage Loans.
"Tax Matters Person": The Person or Persons appointed pursuant
to Section 10.01(c) from time to time to act as the "tax matters person" (within
the meaning of the REMIC Provisions) of the Trust Fund.
"Tax Return": The federal income tax return on Internal
Revenue Service Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income
Tax Return," including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provision of federal, state or local tax laws in
connection with the Trust Fund.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"Transfer Affidavit And Agreement": As defined in Section
4.02(j).
"Transferee": Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer any
Ownership Interest in a Certificate.
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"Trustee": [_________________________________], or its
successor in interest, or any successor trustee appointed as herein provided.
"Trustee Fee": As to any Distribution Date, the fee payable to
the Trustee in respect of its services as Trustee that accrues at a monthly rate
equal to 1/12 of _____% of the sum of the Principal Balance of each Mortgage
Loan, the Group I Pre-Funded Amount and the Group II Pre-Funded Amount as of the
immediately preceding Due Date.
"Trustee Remittance Report": As defined in Section 6.07.
"Trust Fund": The segregated pool of assets subject hereto,
constituting the trust created hereby and to be administered hereunder,
consisting of: (a) such Mortgage Loans as from time to time are subject to this
Agreement, together with the Mortgage Files relating thereto and all collections
thereon and proceeds thereof after the Cut-off Date, (b) such assets as from
time to time are identified as deposited in the Certificate Accounts, (c) such
assets as from time to time are identified as REO Property and collections
thereon and proceeds thereof, assets that are deposited in the Accounts,
including amounts on deposit in the Accounts and invested in Permitted
Investments, (d) the Trustee's rights with respect to the Mortgage Loans under
all insurance policies required to be maintained pursuant to this Agreement
(including the Certificate Insurance Policy) and any Insurance Proceeds (and any
proceeds of the Certificate Insurance Policy), (e) Liquidation Proceeds, (f)
Released Mortgaged Property Proceeds, (g) the representations and warranties of
the Seller pursuant to the Purchase Agreement and (h) amounts on deposit in the
Interest Coverage Accounts and the Pre-Funding Accounts.
"12 Month Loss Amount": With respect to any Distribution Date,
an amount equal to the aggregate of all Liquidation Loan Losses on the Mortgage
Loans which became Liquidated Mortgage Loans during the 12 preceding Due
Periods.
"UCC": The Uniform Commercial Code in effect in the applicable
jurisdiction.
"UCC Financing Statement": A financing statement executed and
filed pursuant to the UCC.
"Underwriter": Morgan Stanley & Co. Incorporated.
"Underwriting Guidelines": The underwriting guidelines of the
Seller.
"United States Person": A citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States.
"Unpaid REO Amortization": As to any REO Mortgage Loan and any
month, the aggregate of the installments of principal and accrued interest
(adjusted to the related Net Mortgage Interest Rate) deemed to be due in such
month and in any prior months that remain unpaid, calculated in accordance with
Section 5.12.
Section 1.02. Provisions of General Application. (c) All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
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(d) The terms defined in this Article include the plural as
well as the singular.
(e) The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole. All references to
Articles and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(f) Reference to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute to which
reference is made and all regulations promulgated pursuant to such statutes.
(g) All calculations of interest (other than with respect to
the Mortgage Loans, or as otherwise specifically set forth herein) provided for
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in the related period. All calculations of interest with respect to
any Mortgage Loan provided for herein shall be made in accordance with the terms
of the related Mortgage Note and Mortgage or, if such documents do not specify
the basis upon which interest accrues thereon, on the basis of a 360-day year
and the actual number of days elapsed in the related period, to the extent
permitted by applicable law.
(h) Any Mortgage Loan payment is deemed to be received on the
date such payment is actually received by the Master Servicer, provided,
however, that for purposes of calculating distributions on the Certificates,
prepayments with respect to any Mortgage Loan are deemed to be received on the
date they are applied in accordance with customary servicing practices
consistent with the terms of the related Mortgage Note and Mortgage to reduce
the outstanding principal balance of such Mortgage Loan on which interest
accrues.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance Of Mortgage Loans; Priority And
Subordination Of Ownership Interests. (i) The Company does hereby sell,
transfer, assign, set over and convey to the Trustee without recourse but
subject to the provisions in this Section 2.01 and the other terms and
provisions of this Agreement, all of the right, title and interest of the
Company in and to the Mortgage Loans (other than payment of interest and
principal due thereon on or before the Cut-off Date), and all other assets
included or to be included in the Trust Fund for the benefit of the
Certificateholders and the Certificate Insurer. In connection with such transfer
and assignment, and pursuant to Section ______ of the Purchase Agreement, the
Company does hereby also irrevocably transfer, assign, set over and otherwise
convey to the Trustee all of its rights under the Purchase Agreement including,
without limitation, its right to exercise the remedies created by Sections _____
and _______ of the Purchase Agreement for breaches of representations and
warranties, agreements and covenants of the Seller contained in Sections
_________ and ________ of the Purchase Agreement.
(j) The rights of the Certificateholders to receive payments
with respect to the Mortgage Loans in respect of the Certificates, and all
ownership interests of the Certificateholders in such payments, shall be as set
forth in this Agreement. In this regard, (i) all rights of the Class R and Class
I S Certificateholders to receive payments in respect of the Class R and Class I
S Certificates, are subject and subordinate to the preferential rights of the
Class A-1 Certificateholders to receive payments in respect of the Class A-1
Certificates and to the Certificate Insurer's rights to be reimbursed for Group
I
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Insured Payments together with interest thereon at the rate specified herein or
in the Insurance Agreement and (ii) all rights of the Class R and Class II S
Certificateholders to receive payments in respect of the Class R and Class II S
Certificates, are subject and subordinate to the preferential rights of the
Class A-2 Certificateholders to receive payments in respect of the Class A-2
Certificates and to the Certificate Insurer's rights to be reimbursed for Group
II Insured Payments together with interest thereon at the rate specified herein
or in the Insurance Agreement. In accordance with the foregoing, (i) the
ownership interest of the Class R and Class I S Certificateholders in amounts
deposited in the Group I Certificate Account from time to time shall not vest
unless and until such amounts are distributed in respect of the Class R and
Class I S Certificates in accordance with the terms of this Agreement and (ii)
the ownership interest of the Class R and Class II S Certificateholders in
amounts deposited in the Group II Certificate Account from time to time shall
not vest unless and until such amounts are distributed in respect of the Class R
and Class II S Certificates in accordance with the terms of this Agreement.
(k) It is intended that the conveyance of the Mortgage Loans
by the Company to the Trustee as provided in this Section be, and be construed
as, a sale of the Mortgage Loans by the Company to the Trustee for the benefit
of the Certificateholders. It is, further, not intended that such conveyance be
deemed a pledge of the Mortgage Loans by the Company to the Trustee to secure a
debt or other obligation of the Company. However, in the event that the Mortgage
Loans are held to be property of the Company, or if for any reason this
Agreement is held or deemed to create a security interest in the Mortgage Loans,
then it is intended that, (a) this Agreement shall also be deemed to be a
security agreement within the meaning of Articles 8 and 9 of the New York
Uniform Commercial Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section shall be deemed to
be (1) a grant by the Company to the Trustee of a security interest in all of
the Company's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (a) the Mortgage
Loans, including the Mortgage Notes, the Mortgages, any related insurance
policies and all other documents in the related Mortgage Files, (B) all amounts
payable to the holders of the Mortgage Loans in accordance with the terms
thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property, including
without limitation all amounts from time to time held or invested in the
Certificate Accounts or the Collection Account, whether in the form of cash,
instruments, securities or other property and (2) an assignment by the Company
to the Trustee of any security interest in any and all of the Seller's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clauses (1)(a) through (C) granted by the Seller to the Company pursuant to the
Purchase Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" or possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Sections 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law. The
Company and, at the written direction of the Company, the Seller and the Trustee
shall, to the extent consistent with this Agreement, take such reasonable
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Mortgage Loans, such security interest would
be deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of the Agreement.
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Section 2.02. Possession Of Mortgage Files; Access To Mortgage
Files. (l) Upon the issuance of the Certificates, the ownership of each Mortgage
Note, the Mortgage and the contents of the Mortgage File related to each Initial
Mortgage Loan is vested in the Trustee for the benefit of the Certificateholders
and the Certificate Insurer.
(m) Pursuant to Section ________ of the Purchase Agreement,
the Company has delivered or caused to be delivered the Mortgage File related to
each Initial Mortgage Loan to the Trustee.
(n) The Trustee may enter into a custodial agreement pursuant
to which the Trustee will appoint a custodian (a "Custodian") to hold the
Mortgage Files in trust for the benefit of all present and future
Certificateholders and the Certificate Insurer; provided, however, that the
custodian so appointed shall in no event be the Company or the Master Servicer
or any Person known to a Responsible Officer of the Trustee to be an Affiliate
of the Company or the Master Servicer. The Trustee hereby appoints
[_________________________________] as the initial Custodian.
(o) The Custodian shall afford the Company, the Certificate
Insurer and the Master Servicer reasonable access to all records and
documentation regarding the Mortgage Loans relating to this Agreement, such
access being afforded at customary charges, upon reasonable request and during
normal business hours at the offices of the Custodian.
Section 2.03. Delivery Of Mortgage Loan Documents And
Certificate Insurance Policy. (p) In connection with each conveyance pursuant to
Section 2.01 hereof, the Company has delivered or does hereby agree to deliver
or cause to be delivered to the Trustee on or before the Closing Date, the
Certificate Insurance Policy, the Mortgage Loan Schedule and each of the
following documents for each Mortgage Loan sold by the Seller to the Company and
sold by the Company to the Trust Fund:
(i) The original Mortgage Note bearing all
intervening endorsements showing a complete chain of endorsements from
the originator of such Mortgage Loan to the Seller, endorsed by the
Seller without recourse in the following form: "Pay to the order of ,
without recourse" and signed in the name of the Seller by an authorized
officer;
(ii) The original Mortgage with evidence of recording
indicated thereon;
(iii) An original assignment of the original
Mortgage, in suitable form for recordation in the jurisdiction in which
the related Mortgaged Property is located, such assignment to be in
blank and signed in the name of the Seller by an authorized officer;
(iv) The originals of all intervening assignments of
the Mortgage (with evidence of recording thereon) showing a complete
chain of assignments from the originator of such Mortgage Loan to the
Seller;
(v) Any assumption, modification (with evidence of
recording thereon), consolidation or extension agreements;
(vi) The original policy of title insurance (or a
commitment for title insurance, if the policy is being held by the
title insurance company pending recordation of the Mortgage); and
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(vii) The certificate of primary mortgage guaranty
insurance, if any, issued with respect to such Mortgage Loan;
PROVIDED, HOWEVER, that as to certain Mortgages or assignments thereof which
have been delivered or are being delivered to recording offices for recording
and have not been returned to the Seller in time to permit their delivery
hereunder at the time of such transfer, in lieu of delivering such original
documents, the Company shall deliver to the Trustee a true copy thereof with a
certification by the Seller on the face of such copy substantially as follows:
"certified true and correct copy of original which has been transmitted for
recordation". The Company will cause the Seller to deliver such original
documents, together with any related policy of title insurance not previously
delivered, on behalf of the Company to the Trustee promptly after they are
received, but in any event no later than 120 days after the Closing Date. The
Company agrees, at its own expense, to complete each assignment to the Trustee
and to record (or to provide the Trustee with evidence of recordation thereof)
each assignment referred to in clause (iii) above promptly after the Closing
Date in the appropriate public office for real property records, provided that
such assignments are redelivered by the Trustee to the Seller upon the Seller's
written request and at the Seller's expense, unless the Seller (at its expense)
furnishes to the Trustee, the Certificate Insurer and the Rating Agencies an
unqualified Opinion of Counsel reasonably acceptable to the Trustee to the
effect that recordation of such assignment is not necessary under applicable
state law to preserve the Trustee's interest in the related Mortgage Loan
against the claim of any subsequent transferee of such Mortgage Loan or any
successor to, or creditor of, the Seller.
Within a period of 14 days from the Closing Date, the
Trustee shall complete the endorsement of each Mortgage Note such that the final
endorsement appears in the following form:
"Pay to the order of [_________________________________], as
Trustee under that certain Pooling and Servicing Agreement
dated as of ______________________, 19____, for
______________________________, Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__, without recourse."
Within a period of 14 days from the Closing Date, the
Trustee shall also complete each Assignment of Mortgage such that the final
Assignment of Mortgage appears in the following form:
"[_________________________________], as Trustee under that
certain Pooling and Servicing Agreement dated as of
______________________, 19____, for
_______________________________________________, Mortgage Loan
Asset Backed Pass-Through Certificates, Series 199__- __."
(q) In the event that any such original document is required
pursuant to the terms of this Section 2.03 to be a part of a Mortgage File, such
document shall be delivered promptly by the Company to the Trustee. In acting as
custodian of any such original document, the Master Servicer agrees further that
it does not and will not have or assert any beneficial ownership interest in the
Mortgage Loans or the Mortgage Files.
Section 2.04. Acceptance By Trustee Of The Trust Fund; Certain
Substitutions; Certification By Trustee. (r) The Trustee agrees to execute and
deliver to the Company, the Certificate Insurer, the Master Servicer and the
Seller on or prior to the Closing Date an acknowledgment of receipt of the
Certificate Insurance Policy and, with respect to each Mortgage Loan, on or
prior to the Closing Date, an acknowledgement of receipt of the original
Mortgage Note (with any exceptions noted), in the
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form attached as Exhibit E hereto and declares that it will hold such documents
and any amendments, replacements or supplements thereto, as well as any other
assets included in the definition of Trust Fund and delivered to the Trustee, as
Trustee in trust upon and subject to the conditions set forth herein for the
benefit of the Certificateholders and the Certificate Insurer. The Trustee
agrees, for the benefit of the Certificateholders and the Certificate Insurer,
to review (or cause to be reviewed) each Mortgage File within 45 Business Days
after the Closing Date or related Subsequent Transfer Date (with respect to the
Mortgage Loans), and to deliver to the Seller, the Master Servicer, the Company
and the Certificate Insurer a certification in the form attached hereto as
Exhibit F to the effect that, as to each Mortgage Loan or Subsequent Mortgage
Loan listed in the related Mortgage Loan Schedule (other than any Mortgage Loan
or Subsequent Mortgage Loan paid in full or any Mortgage Loan or Subsequent
Mortgage Loan specifically identified in such certification as not covered by
such certification), (i) all documents required to be delivered to it pursuant
to Section 2.03 are in its possession, (ii) each such document has been reviewed
by it and has not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections shall not constitute physical
alteration if initialled by the Mortgagor), appears regular on its face and
relates to such Mortgage Loan or Subsequent Mortgage Loan, and (iii) based on
its examination and only as to the foregoing documents, the information set
forth on the Mortgage Loan Schedule as to the information set forth in (i),
(ii), (v), (vi), (x), (xi), (xiii), (xiv), (xv), (xx) and (xxii) of the
definition of "Mortgage Loan Schedule" set forth herein accurately reflects the
information set forth in the Mortgage File delivered on such date. The Trustee
makes no representations as to and shall not be responsible to verify (i) the
validity, legality, enforceability, sufficiency, due authorization,
recordability or genuineness of any of the documents contained in each Mortgage
File or of any of the Mortgage Loans or Subsequent Mortgage Loans or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan or Subsequent Mortgage Loan.
By ________________, 199____, or within 90 days following the
related Subsequent Transfer Date, if later, the Trustee shall deliver (or cause
to be delivered) to the Master Servicer, the Seller, the Company and the
Certificate Insurer a final certification in the form attached hereto as Exhibit
G to the effect that, as to each Mortgage Loan or Subsequent Mortgage Loan
listed in the Mortgage Loan Schedule (other than any Mortgage Loan or Subsequent
Mortgage Loan paid in full or any Mortgage Loan or Subsequent Mortgage Loan
specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to it pursuant to
Section 2.03 are in its possession, (ii) each such document has been reviewed by
it and has not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections shall not constitute physical
alteration if initialled by the Mortgagor), appears regular on its face and
relates to such Mortgage Loan or Subsequent Mortgage Loan, and (iii) based on
its examination and only as to the foregoing documents, the information set
forth in (i), (ii), (v), (vi), (x), (xi), (xiii), (xiv), (xv), (xx) and (xxii)
of the definition of "Mortgage Loan Schedule" set forth herein accurately
reflects the information set forth in the Mortgage File delivered on such date.
(s) If the Certificate Insurer or the Trustee during the
process of reviewing the Mortgage Files finds any document constituting a part
of a Mortgage File which is not executed, has not been received, is unrelated to
the Mortgage Loan identified in the related Mortgage Loan Schedule, or does not
conform to the requirements of Section 2.03 or the description thereof as set
forth in the related Mortgage Loan Schedule, the Trustee or the Certificate
Insurer, as applicable, shall promptly so notify the Master Servicer, the
Seller, the Certificate Insurer and the Trustee. In performing any such review,
the Trustee may conclusively rely on the Seller as to the purported genuineness
of any such document and any signature thereon. It is understood that the scope
of the Trustee's review of the Mortgage Files is limited solely to confirming
that the documents listed in Section 2.03 have been executed and received and
relate to the Mortgage Files identified in the related Mortgage Loan Schedule
and such documents conform to the standard set forth in clause (ii) of the
paragraph directly above. The Trustee shall request
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that the Seller cure any such defect within 60 days from the date on which the
Seller was notified of such defect, and if the Seller does not cure such defect
in all material respects during such period, request that the Seller (i)
substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan in
the manner and subject to the conditions set forth in Section 3.03 or (ii)
purchase such Mortgage Loan on the next succeeding Master Servicer Remittance
Date at a purchase price equal to the actual stated principal balance of such
Mortgage Loan as of the date of purchase, plus all accrued and unpaid interest
on such principal balance computed at the Mortgage Interest Rate, plus the
amount of any unpaid Servicing Fees, unreimbursed Periodic Advances and
unreimbursed Servicing Advances made by the Master Servicer with respect to such
Mortgage Loan, which purchase price shall be deposited in the Collection Account
on the same Business Day, after deducting therefrom any amounts received in
respect of such repurchased Mortgage Loan or Loans and being held in the
Collection Account for future distribution to the extent such amounts have not
yet been applied to principal or interest on such Mortgage Loan (the "Loan
Repurchase Price"). It is understood and agreed that the obligation of the
Seller to so cure or purchase any Mortgage Loan as to which a material defect in
or omission of a constituent document exists shall constitute the sole remedy
respecting such defect or omission available to Certificateholders or the
Trustee on behalf of Certificateholders. In addition, it is understood and
agreed that the Company has assigned to the Trustee all of its rights under the
Purchase Agreement and the right to enforce any remedy against the Seller as
provided in Section ______ of the Purchase Agreement. For purposes of
calculating the amount the Master Servicer is required to remit on the Master
Servicer Remittance Date following such repurchase or substitution, any Loan
Repurchase Price or Substitution Adjustment that is paid and deposited in the
related Collection Account as provided above shall be deemed to have been
deposited in the related Collection Account in the Due Period preceding such
Master Servicer Remittance Date.
(t) Upon receipt by the Trustee of a certification of a
Servicing Officer of such substitution or purchase and, in the case of a
substitution, upon receipt of the related Mortgage File, and the deposit of the
amounts described above in the Collection Account (which certification shall be
in the form of Exhibit H hereto), the Trustee shall release to the Master
Servicer for release to the Seller the related Mortgage File and shall execute,
without recourse, and deliver such instruments of transfer furnished by the
Seller as may be necessary to transfer such Mortgage Loan to the Seller. The
Trustee shall notify the Certificate Insurer if the Seller fails to repurchase
or substitute for a Mortgage Loan in accordance with the foregoing.
Section 2.05. Execution Of Certificates. The Trustee
acknowledges the assignment to it of the Mortgage Loans and the delivery of the
Mortgage Files relating thereto to it and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Company, in
exchange for the Mortgage Loans, the Mortgage Files and the other assets
included in the definition of Trust Fund, Certificates duly authenticated by the
Trustee in Authorized Denominations evidencing the entire ownership of the Trust
Fund.
Section 2.06. Further Action Evidencing Assignments. (u) The
Company agrees that, from time to time, at the Seller's expense, the Company
shall cause the Seller promptly to execute and deliver all further instruments
and documents, and take all further action, that may be necessary or
appropriate, or that the Master Servicer or the Trustee may reasonably request,
in order to perfect, protect or more fully evidence the transfer of ownership of
the Trust Fund or to enable the Trustee to exercise or enforce any of its rights
hereunder. Without limiting the generality of the foregoing, the Company will,
upon the request of the Master Servicer or of the Trustee execute and file (or
cause to be executed and filed) such real estate filings, financing or
continuation statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or appropriate.
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(v) The Company hereby grants to the Master Servicer and the
Trustee powers of attorney to execute all documents on its behalf under this
Agreement and the Purchase Agreement as may be necessary or desirable to
effectuate the foregoing.
Section 2.07. Reserved.
Section 2.08. Conveyance Of The Subsequent Mortgage Loans.
(w) Subject to the conditions set forth in paragraph (b) below
in consideration of the Trustee's delivery on the related Subsequent Transfer
Dates to or upon the order of the Company of all or a portion of the balance of
funds in one of the Pre-Funding Accounts, the Company shall on any Subsequent
Transfer Date sell, transfer, assign, set over and convey without recourse to
the Trust Fund but subject to the other terms and provisions of this Agreement
all of the right, title and interest of the Company in and to (i) the Subsequent
Mortgage Loans identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument delivered by the Company on such Subsequent
Transfer Date, (ii) principal due and interest accruing on the Subsequent
Mortgage Loans after the related Subsequent Cut-off Date and (iii) all items
with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.03 above and the other items in the related Mortgage Files; PROVIDED,
HOWEVER, that the Company reserves and retains all right, title and interest in
and to principal received and interest accruing on the Subsequent Mortgage Loans
prior to the related Subsequent Cut-off Date. The transfer to the Trustee for
Loan Group I or Loan Group II, as applicable, by the Company of the Subsequent
Mortgage Loans identified on the Mortgage Loan Schedule shall be absolute and is
intended by the Company, the Master Servicer, the Trustee and the
Certificateholders to constitute and to be treated as a sale of the Subsequent
Mortgage Loans by the Company to the Trust Fund for Loan Group I or Loan Group
II, as applicable. The related Mortgage File for each Subsequent Mortgage Loan
shall be delivered to the Trustee two Business Days prior to the Subsequent
Transfer Date.
The purchase price paid by the Trustee from amounts released
from the Pre-Funding Account shall be [one-hundred percent (100%)] of the
aggregate principal balances of the Subsequent Mortgage Loans so transferred (as
identified on the Mortgage Loan Schedule provided by the Company). This
Agreement shall constitute a fixed-price purchase contract in accordance with
Section 860G(a)(3)(A)(ii) of the Code.
(x) The Company shall transfer to the Trustee for Loan Group I
or Loan Group II the Subsequent Mortgage Loans and the other property and rights
related thereto described in Section 2.08 (a) above, and the Trustee shall
release funds from the related Pre-Funding Account, only upon the satisfaction
of each of the following conditions on or prior to the related Subsequent
Transfer Date:
(i) the Company shall have provided the Trustee and the
Certificate Insurer with a timely Addition Notice and shall have
provided any information reasonably requested by the Trustee or the
Certificate Insurer with respect to the Subsequent Mortgage Loans;
(ii) the Company shall have delivered to the Trustee a duly
executed Subsequent Transfer Instrument, which shall include a Mortgage
Loan Schedule, listing the Subsequent Mortgage Loans;
(iii) as of each Subsequent Transfer Date, as evidenced by
delivery of the Subsequent Transfer Instrument in the form of Exhibit
N, the Company shall not be insolvent nor shall it have been made
insolvent by such transfer nor shall it be aware of any pending
insolvency;
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(iv) such sale and transfer shall not result in a material
adverse tax consequence to the Trust Fund or the Certificateholders;
(v) the Funding Period shall not have terminated;
(vi) the Company shall have delivered to the Trustee a
Subsequent Transfer Instrument substantially in the form of Exhibit N,
confirming the satisfaction of each condition precedent and
representations specified in this Section 2.08(b) and Section 2.08(c)
following and in the related Subsequent Transfer Instrument;
(vii) the Certificate Insurer shall have delivered to the
Trustee an Officer's Certificate confirming that the Subsequent
Mortgage Loans conform to the representations and warranties of Section
_______ of the Insurance Agreement; and
(viii) the Company shall have delivered to the Trustee and the
Certificate Insurer Opinions of Counsel addressed to the Certificate
Insurer, the Rating Agencies and the Trustee with respect to the
transfer of the Subsequent Mortgage Loans substantially in the form of
the Opinions of Counsel delivered to the Certificate Insurer and the
Trustee on the Closing Date regarding certain bankruptcy, corporate and
tax matters.
(y) The obligation of the Trust Fund to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the following
representations and warranties of the Company with respect to such Subsequent
Mortgage Loan being satisfied: (i) such Subsequent Mortgage Loan may not be 30
or more days contractually delinquent as of the related Subsequent Cut-off Date;
(ii) the stated term to maturity of such Subsequent Mortgage Loan will not
exceed 360 months; (iii) such Subsequent Mortgage Loan may not provide for
negative amortization; (iv) such Subsequent Mortgage Loan will be underwritten
in accordance with the Underwriting Guidelines; (v) such Subsequent Mortgage
Loan will not have a Loan-to Value Ratio (or Combined Loan-to-Value Ratio in the
case of second lien Mortgage Loans) greater than [100.00%]; (vi) such Subsequent
Mortgage Loans will have as of the end of the related Funding Period, a weighted
average term since origination not in excess of [six months]; and (vii) such
Subsequent Mortgage Loan, if in Loan Group II, will not have a Net Mortgage
Interest Rate less than _______%. In addition, following the purchase of any
Subsequent Mortgage Loans by the Trust Fund, the Group I and Group II Loans, as
determined separately (including the related Subsequent Mortgage Loans) as of
the end of the related Funding Period will (a) have a weighted average original
term to stated maturity of not more than 360 months; (b) have a weighted average
Loan-to-Value Ratio (or weighted average Combined Loan-to-Value Ratio in the
case of second lien Mortgage Loans) of not more than ______% with respect to the
Group I Loans, and ________% with respect to Group II Loans, each by aggregate
principal balance of the related Mortgage Loans; (c) have no Mortgage Loan with
a principal balance in excess of $____________; (d) have a weighted average
Gross Margin not less than _______% with respect to the Group I Loans; and (e)
not have a concentration of second lien Mortgage Loans in excess of _______%
with respect to Loan Group II, by aggregate principal balance of the related
Mortgage Loans. In the sole discretion of the Certificate Insurer, Subsequent
Mortgage Loans with characteristics varying from those set forth above may be
purchased by the Trust Fund (except that no Subsequent Mortgage Loan in Loan
Group II shall have a Net Mortgage Interest Rate less than _________%);
provided, however, that the addition of such Mortgage Loans will not materially
affect the aggregate characteristics of the Group I Loans or Group II Loans.
(z) Within five Business Days after the end of the Funding
Period, the Company shall deliver to [DCR, Moody's and S&P] a copy of the
updated Mortgage Loan Schedule including the Subsequent Mortgage Loans in
electronic format.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations of the Master Servicer. The
Master Servicer hereby represents and warrants to the Trustee, the Company, the
Certificate Insurer and the Certificateholders as of the Closing Date:
(aa) The Master Servicer is a ___________ corporation duly
organized, validly existing and in good standing under the laws of the
state of its incorporation and is in compliance with the laws of each
state in which any Mortgaged Property is located to the extent
necessary to enable it to perform its obligations under the terms of
this Agreement; the Master Servicer has the full corporate power and
authority to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this
Agreement by the Master Servicer and the consummation of the
transactions contemplated hereby have been duly and validly authorized;
this Agreement evidences the valid, binding and enforceable obligation
of the Master Servicer; and all requisite corporate action has been
taken by the Master Servicer to make this Agreement valid and binding
upon the Master Servicer in accordance with its terms;
(ab) Neither the execution and delivery of this Agreement, nor
the fulfillment of or compliance with the terms and conditions of this
Agreement, will conflict with or result in a breach of any of the
terms, conditions or provisions of the Master Servicer's charter or
by-laws or any legal restriction or any agreement or instrument to
which the Master Servicer is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which the Master Servicer or its property
is subject, or impair the ability of the Trustee (or the Master
Servicer as the agent of the Trustee) to realize on the Mortgage Loans,
or impair the value of the Mortgage Loans;
(ac) The Master Servicer is an approved seller/servicer of
conventional residential mortgage loans for FNMA and FHLMC;
(ad) There is no action, suit, proceeding or investigation
pending or, to the knowledge of the Master Servicer, threatened against
the Master Servicer which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of the Master
Servicer, or in any material impairment of the right or ability of the
Master Servicer to carry on its business substantially as now
conducted, or of any action taken or to be taken in connection with the
obligations of the Master Servicer contemplated herein, or which would
materially impair the ability of the Master Servicer to perform under
the terms of this Agreement;
(ae) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Master Servicer of or compliance by the Master
Servicer with this Agreement or the Mortgage Loans or the consummation
of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to the Closing Date; and
(af) Neither this Agreement nor any statement, report or other
document furnished by the Master Servicer pursuant to this Agreement or
in connection with the transactions
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contemplated hereby contains any untrue statement of material fact
regarding the Master Servicer or omits to state a material fact
necessary to make the statements regarding the Master Servicer
contained herein or therein not misleading.
It is understood and agreed that the representations and warranties set forth in
this Section 3.01 shall survive the delivery of the respective Mortgage Files to
the Trustee or to a custodian, as the case may be, and inure to the benefit of
the Trustee, the Certificateholders and the Certificate Insurer.
Section 3.02. Representations, Warranties And Covenants Of The
Company. The Company hereby represents, warrants and covenants to the Trustee,
the Certificateholders and the Certificate Insurer that as of the date of this
Agreement or as of such date specifically provided herein:
(ag) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(ah) The Company has the corporate power and authority to
convey the Mortgage Loans and to execute, deliver and perform, and to
enter into and consummate transactions contemplated by, this Agreement;
(ai) This Agreement has been duly and validly authorized,
executed and delivered by the Company, all requisite corporate action
having been taken, and, assuming the due authorization, execution and
delivery hereof by the Master Servicer and the Trustee, constitutes or
will constitute the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity
principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(aj) No consent, approval, authorization or order of or
registration or filing with, or notice to, any governmental authority
or court is required for the execution, delivery and performance of or
compliance by the Company with this Agreement or the consummation by
the Company of any of the transactions contemplated hereby, except as
have been made on or prior to the Closing Date;
(ak) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this
Agreement, (i) conflicts or will conflict with or results or will
result in a breach of, or constitutes or will constitute a default or
results or will result in an acceleration under (a) the charter or
bylaws of the Company, or (B) of any term, condition or provision of
any material indenture, deed of trust, contract or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of its subsidiaries is bound; (ii) results or
will result in a violation of any law, rule, regulation, order,
judgment or decree applicable to the Company of any court or
governmental authority having jurisdiction over the Company or its
subsidiaries; or (iii) results in the creation or imposition of any
lien, charge or encumbrance which would have a material adverse effect
upon the Mortgage Loans or any documents or instruments evidencing or
securing the Mortgage Loans;
(al) There are no actions, suits or proceedings before or
against or investigations of, the Company pending, or to the knowledge
of the Company, threatened, before any court, administrative agency or
other tribunal, and no notice of any such action, which, in the
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Company's reasonable judgment, might materially and adversely affect
the performance by the Company of its obligations under this Agreement,
or the validity or enforceability of this Agreement; and
(am) The Company is not in default with respect to any order
or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency that would materially
and adversely affect its performance hereunder.
It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.02 shall survive delivery of the respective Mortgage
Files to the Trustee or to a custodian, as the case may be, and shall inure to
the benefit of the Trustee, the Certificateholders and the Certificate Insurer.
Section 3.03. Purchase And Substitution. (an) It is understood
and agreed that the representations and warranties set forth in Sections ______
and _______ of the Purchase Agreement shall survive delivery of the Certificates
to the Certificateholders. Pursuant to the Purchase Agreement, with respect to
any representation or warranty contained in Sections _______ and _______ of the
Purchase Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Master Servicer, any Subservicer, the Trustee, the Certificate
Insurer or any Certificateholder that the substance of such representation and
warranty was inaccurate as of the Closing Date and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan, then
notwithstanding the Seller's lack of knowledge with respect to the inaccuracy at
the time the representation or warranty was made, such inaccuracy shall be
deemed a breach of the applicable representation or warranty. Upon discovery by
the Seller, the Master Servicer, any Subservicer, the Trustee or the Certificate
Insurer of a breach of any of such representations and warranties which
materially and adversely affects the value of the Mortgage Loans or the interest
of the Certificateholders or the Certificate Insurer, or which materially and
adversely affects the interests of the Certificate Insurer or the
Certificateholders in the related Mortgage Loan in the case of a representation
and warranty relating to a particular Mortgage Loan (notwithstanding that such
representation and warranty was made to the Seller's best knowledge), the party
discovering such breach shall give prompt written notice to the others. Subject
to the last paragraph of this Section 3.03, within 60 days of the earlier of its
discovery or its receipt of notice of any breach of a representation or
warranty, pursuant to the Purchase Agreement, the Seller shall be required to
(a) promptly cure such breach in all material respects, or (b) purchase such
Mortgage Loan on the next succeeding Master Servicer Remittance Date, in the
manner and at the price specified in Section 2.04(b), or (c) remove such
Mortgage Loan from the Trust Fund (in which case it shall become a Deleted
Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans;
provided, that, such substitution is effected not later than the date which is
two years after the Startup Day or at such later date, if the Trustee and the
Certificate Insurer receive an Opinion of Counsel to the effect set forth below
in this Section . Pursuant to the Purchase Agreement, any such substitution
shall be accompanied by payment by the Seller of the Substitution Adjustment, if
any, to be deposited in the Collection Account.
(ao) As to any Deleted Mortgage Loan for which the Seller
substitutes a Qualified Substitute Mortgage Loan or Loans, the Seller shall be
required pursuant to the Purchase Agreement to effect such substitution by
delivering to the Trustee a certification in the form attached hereto as Exhibit
H, executed by a Servicing Officer and the documents described in Sections
2.03(a)(i)-(vi) for such Qualified Substitute Mortgage Loan or Loans.
(ap) The Master Servicer shall deposit in the Collection
Account all payments received in connection with such Qualified Substitute
Mortgage Loan or Loans after the date of such substitution. Monthly Payments
received with respect to Qualified Substitute Mortgage Loans on or before the
date of substitution will be retained by the Seller. The Trust Fund will own all
payments received on the
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Deleted Mortgage Loan on or before the date of substitution, and the Seller
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Mortgage Loan. The Master Servicer shall give written
notice to the Trustee and the Certificate Insurer that such substitution has
taken place and shall amend the Mortgage Loan Schedule to reflect the removal of
such Deleted Mortgage Loan from the terms of this Agreement and the substitution
of the Qualified Substitute Mortgage Loan. Upon such substitution, such
Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of
this Agreement in all respects.
(aq) It is understood and agreed that the obligations of the
Seller set forth in Sections ________ and ________ of the Purchase Agreement to
cure, purchase or substitute for a defective Mortgage Loan as provided in
Sections 2.05 and 3.04 constitute the sole remedies of the Trustee, the
Certificate Insurer and the Certificateholders respecting a breach of the
representations and warranties of the Seller set forth in Sections _______ and
_______ of the Purchase Agreement. In addition, it is understood and agreed that
the Company has assigned to the Trustee all of its rights under the Purchase
Agreement and the right to enforce any remedy against the Seller as provided in
Section ______ of the Purchase Agreement. The Trustee shall give prompt written
notice to the Certificate Insurer and the Rating Agencies of any repurchase or
substitution made pursuant to this Section 3.03 or Section 2.04(b).
(ar) Upon discovery by the Master Servicer, the Trustee, the
Certificate Insurer or any Certificateholder that any Mortgage Loan does not
constitute a Qualified Mortgage, the party discovering such fact shall promptly
(and in any event within five days of the discovery) give written notice thereof
to the other parties. In connection therewith, pursuant to the Purchase
Agreement, the Seller shall be required to repurchase or substitute a Qualified
Substitute Mortgage Loan for the affected Mortgage Loan within 90 days of the
earlier of such discovery by any of the foregoing parties, or the Trustee's or
the Seller's receipt of notice, in the same manner as it would a Mortgage Loan
for a breach of representation or warranty contained in Section ________ or
______ of the Purchase Agreement. The Trustee shall reconvey to the Seller the
Mortgage Loan to be released pursuant hereto in the same manner, and on the same
terms and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section _______ or _______ of the
Purchase Agreement.
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates. The Certificates shall be
substantially in the forms annexed hereto as Exhibits B-1 and B-2. The
Certificates shall be issued in Authorized Denominations only. All Certificates
shall be executed by manual or facsimile signature on behalf of the Trustee by
an authorized officer and authenticated by the manual or facsimile signature of
an authorized officer. Certificates bearing the signatures of individuals who
were at the time of the execution of the Certificates the authorized officers of
the Trustee shall bind the Trustee, notwithstanding that such individuals or any
of them have ceased to hold such offices prior to the delivery of such
Certificates or did not hold such offices at the date of such Certificates. All
Certificates issued hereunder shall be dated the date of their authentication.
Section 4.02. Registration Of Transfer And Exchange Of
Certificates. (as) The Trustee, as registrar, shall cause to be kept a register
(the "Certificate Register") in which, subject to such reasonable regulations as
it may prescribe, the Trustee shall provide for the registration of Certificates
and the registration of transfer of Certificates. The Trustee is hereby
appointed registrar for the purpose of registering Certificates and transfers of
Certificates as herein provided. The Certificate Insurer shall
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be entitled to inspect and verify the Certificate Register and the records of
the Trustee relating to the Certificates during normal business hours upon
reasonable notice.
(at) All Certificates issued upon any registration of transfer
or exchange of Certificates shall be valid evidence of the same ownership
interests in the Trust Fund and entitled to the same benefits under this
Agreement as the Certificates surrendered upon such registration of transfer or
exchange.
(au) Every Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Trustee duly
executed by the Holder thereof or his attorney duly authorized in writing.
(av) No service charge shall be made to a Holder for any
registration of transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates; any other expenses in connection with such transfer or
exchange shall be an expense of the Trust Fund.
(aw) It is intended that the Class A Certificates be
registered so as to participate in a global book-entry system with the
Depository, as set forth herein. The Class A Certificates shall, except as
otherwise provided in the next paragraph, be initially issued in the form of a
single fully registered Class A Certificate with a denomination equal to the
Original Certificate Principal Balance. Upon initial issuance, the ownership of
each such Class A Certificate shall be registered in the Certificate Register in
the name of Cede & Co., or any successor thereto, as nominee for the Depository.
The Company and the Trustee are hereby authorized to execute and deliver the
Representation Letter with the Depository. With respect to Class A Certificates
registered in the Certificate Register in the name of Cede & Co., as nominee of
the Depository, the Company, each Seller, the Master Servicer, the Trustee and
the Certificate Insurer shall have no responsibility or obligation to Direct or
Indirect Participants or beneficial owners for which the Depository holds Class
A Certificates from time to time as a Depository. Without limiting the
immediately preceding sentence, the Company, each Seller, the Master Servicer,
the Trustee and the Certificate Insurer shall have no responsibility or
obligation with respect to (i) the accuracy of the records of the Depository,
Cede & Co., or any Direct or Indirect Participant with respect to any Ownership
Interest, (ii) the delivery to any Direct or Indirect Participant or any other
Person, other than a Certificateholder, of any notice with respect to the Class
A Certificates or (iii) the payment to any Direct or Indirect Participant or any
other Person, other than a Certificateholder, of any amount with respect to any
distribution of principal or interest on the Class A Certificates. No Person
other than a Certificateholder shall receive a certificate evidencing such Class
A Certificate. Upon delivery by the Depository to the Trustee of written notice
to the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts to the Certificateholders
appearing as Certificateholders at the close of business on a Record Date, the
name "Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
(ax) In the event that (i) the Depository or the Company
advises the Trustee in writing that the Depository is no longer willing or able
to discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Company or the Depository is unable
to locate a qualified successor or (ii) the Company at its sole option elects to
terminate the book-entry system through the Depository, the Class A Certificates
shall no longer be restricted to being registered in the Certificate Register in
the name of Cede & Co. (or a successor nominee) as nominee of the Depository. At
that time, the Company may determine that the Class A Certificates shall be
registered in the name of and deposited with a successor depository operating a
global book-entry system, as may be acceptable
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to the Company, or such depository's agent or designee but, if the Company does
not select such alternative global book-entry system, then the Class A
Certificates may be registered in whatever name or names Certificateholders
transferring Class A Certificates shall designate, in accordance with the
provisions hereof; provided, however, that any such reregistration shall be at
the expense of the Company.
(ay) Notwithstanding any other provision of this Agreement to
the contrary, so long as any Class A Certificate is registered in the name of
Cede & Co., as nominee of the Depository, all distributions of principal or
interest on such Class A Certificates as the case may be and all notices with
respect to such Class A Certificates as the case may be shall be made and given,
respectively, in the manner provided in the Representation Letter.
(az) Except as provided in Section 4.02(i), no transfer, sale,
pledge or other disposition of a Class S or Class R Certificate shall be made
unless such transfer, sale, pledge or other disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
and any applicable state securities laws or is made in accordance with said Act
and laws. In the event that a transfer of a Class S or Class R Certificate is to
be made under this Section 4.02(h), (i) the Company may direct the Trustee to
require an Opinion of Counsel acceptable to and in form and substance
satisfactory to the Trustee and the Company that such transfer shall be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and laws,
which Opinion of Counsel shall not be an expense of the Trustee, the Company or
the Master Servicer, provided that such Opinion of Counsel will not be required
in connection with the initial transfer of any such Certificate by the Company
or any Affiliate thereof, to a non-affiliate of the Company and (ii) the Trustee
shall require the transferee to execute a representation letter, substantially
in the form of Exhibit O hereto, and the Trustee shall require the transferor to
execute a representation letter, substantially in the form of Exhibit P hereto,
each acceptable to and in form and substance satisfactory to the Company and the
Trustee certifying to the Company and the Trustee the facts surrounding such
transfer, which representation letters shall not be an expense of the Trustee,
the Company or the Master Servicer, provided that such representation letter
will not be required in connection with any transfer of any such Certificate by
the Company to an Affiliate of the Company. Any such Certificateholder desiring
to effect such transfer shall, and does hereby agree to, indemnify the Trustee,
the Company and the Master Servicer against any liability that may result if the
transfer is not so exempt or is not made in accordance with such applicable
federal and state laws.
(ba) Transfers of Class S or Class R Certificates may be made
in accordance with this Section 4.02(i) if the prospective transferee of a
Certificate provides the Trustee and the Company with an investment letter
substantially in the form of Exhibit Q attached hereto, which investment letter
shall not be an expense of the Trustee, the Company or the Master Servicer, and
which investment letter states that, among other things, such transferee is a
"qualified institutional buyer" as defined under Rule 144A. Such transfers shall
be deemed to have complied with the requirements of Section 4.02(h) hereof;
provided, however, that no Transfer of any of the Certificates may be made
pursuant to this Section 4.02(i) by the Company. Any such Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Company and the Master Servicer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
applicable federal and state laws.
(bb) Each Person who has or who acquires any Ownership
Interest in a Class R Certificate shall be deemed by the acceptance or
acquisition of such Ownership Interest to have agreed to be bound by the
following provisions and to have irrevocably appointed the Company or its
designee as its attorney-in-fact to negotiate the terms of any mandatory sale
under clause (8) below and to execute
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all instruments of transfer and to do all other things necessary in connection
with any such sale, and the rights of each Person acquiring any Ownership
Interest in a Class R Certificate are expressly subject to the following
provisions:
(1) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall be a Permitted Transferee and shall
promptly notify the Trustee of any change or impending change in its
status as a Permitted Transferee.
(2) In connection with any proposed Transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery
to it, and shall not register the Transfer of any Class R Certificate
until its receipt of, an affidavit and agreement (a "Transfer Affidavit
and Agreement") attached hereto as Exhibit I from the proposed
Transferee, in form and substance satisfactory to the Trustee,
representing and warranting, among other things, that such Transferee
is a Permitted Transferee, that it is not acquiring its Ownership
Interest in the Class R Certificate that is the subject of the proposed
Transfer as a nominee, trustee or agent for any Person that is not a
Permitted Transferee, that for so long as it retains its Ownership
Interest in a Class R Certificate, it will endeavor to remain a
Permitted Transferee, and that it has reviewed the provisions of this
Section 4.02(j) and agrees to be bound by them.
(3) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (2) above, if the
Trustee has actual knowledge that the proposed Transferee is not a
Permitted Transferee, no Transfer of an Ownership Interest in a Class R
Certificate to such proposed Transferee shall be effected.
(4) Each Person holding or acquiring any Ownership Interest in
a Class R Certificate shall agree (x) to require a Transfer Affidavit
and Agreement from any other Person to whom such Person attempts to
transfer its Ownership Interest in a Class R Certificate and (y) not to
transfer its Ownership Interest unless it provides a Transferor
Certificate to the Trustee stating that, among other things, it has no
actual knowledge that such other Person is not a Permitted Transferee.
(5) Each Person holding or acquiring an Ownership Interest in
a Class R Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee written notice that it is a
"pass-through interest holder" within the meaning of temporary Treasury
regulation Section 1.67-3T(a)(2)(i)(a) immediately upon acquiring an
Ownership Interest in a Class R Certificate, if it is, or is holding an
Ownership Interest in a Class R Certificate on behalf of, a
"pass-through interest holder".
(6) The Trustee will register the Transfer of any Class R
Certificate only if it shall have received the Transfer Affidavit and
Agreement and all of such other documents as shall have been reasonably
required by the Trustee as a condition to such registration. In
addition, no Transfer of a Class R Certificate shall be made unless the
Trustee shall have received a representation letter from the Transferee
of such Certificate to the effect that such Transferee is a United
States Person and is not a Disqualified Organization. Transfers of the
Class R Certificates to Non-United States Persons and Disqualified
Organizations are prohibited.
(7) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section 4.02 shall be absolutely null and void and shall vest no
rights in the purported transferee. If any purported transferee shall
become a Holder of a Class R Certificate in violation of the provisions
of this Section 4.02, then the last
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preceding Permitted Transferee shall be restored to all rights as
Holder thereof retroactive to the date of registration of transfer of
such Class R Certificate. The Trustee shall notify the Company upon
receipt of written notice or discovery by a Responsible Officer that
the registration of transfer of a Class R Certificate was not in fact
permitted by this Section 4.02. Knowledge shall not be imputed to the
Trustee with respect to an impermissible transfer in the absence of
such a written notice or discovery by a Responsible Officer of the
Trustee. The Trustee shall be under no liability to any Person for any
registration of transfer of a Class R Certificate that is in fact not
permitted by this Section 4.02 or for making any payments due on such
Certificate to the Holder thereof or taking any other action with
respect to such Holder under the provisions of this Agreement so long
as the transfer was registered after receipt of the related Transfer
Affidavit and Agreement. Transfer Certificate. The Trustee shall be
entitled, but not obligated to recover from any Holder of a Class R
Certificate that was in fact not a Permitted Transferee at the time it
became a Holder or, at such subsequent time as it became other than a
Permitted Transferee, all payments made on such Class R Certificate at
and after either such time. Any such payments so recovered by the
Trustee shall be paid and delivered by the Trustee to the last
preceding Holder of such Certificate that was a Permitted Transferee.
(8) If any purported transferee shall become a Holder of a
Class R Certificate in violation of the restrictions in this Section
4.02, then the Company or its designee shall have the right, without
notice to the Holder or any prior Holder of such Class R Certificate,
to sell such Class R Certificate to a purchaser selected by the Company
or its designee on such reasonable terms as the Company or its designee
may choose. Such purchaser may be the Company itself or any Affiliate
of the Company. The proceeds of such sale, net of commissions, expenses
and taxes due, if any, will be remitted by the Company to the last
preceding purported transferee of such Class R Certificate, except that
in the event that the Company determines that the Holder or any prior
Holder of such Class R Certificate may be liable for any amount due
under this Section 4.02 or any other provision of this Agreement, the
Company may withhold a corresponding amount from such remittance as
security for such claim. The terms and conditions of any sale under
this clause (8) shall be determined in the sole discretion of the
Company or its designee, and it shall not be liable to any Person
having an Ownership Interest in a Class R Certificate as a result of
its exercise of such discretion.
(bc) The Trustee shall make available to the Internal Revenue
Service and those Persons specified by the REMIC Provisions, all information
necessary to compute any tax imposed (i) as a result of the transfer of an
ownership interest in a Class R Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess inclusions" of such
Class R Certificates required to be provided to the Internal Revenue Service and
certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and
1.860E- 2(a)(5), and (ii) as a result of any regulated investment company, real
estate investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the Code that holds an Ownership
Interest in a Class R Certificate having as among its record holders at any time
any Person who is a Disqualified Organization. The Trustee may charge and shall
be entitled to reasonable compensation for providing such information as may be
required from those Persons which may have had a tax imposed upon them as
specified in clauses (i) and (ii) of this paragraph for providing such
information.
(bd) The provisions of Sections 4.02(j) and 4.02(k) may be
modified, added to or eliminated, provided that there shall have been delivered
to the Trustee and the Certificate Insurer an Opinion of Counsel to the effect
that such modification of, addition to or elimination of such provisions will
not cause the Trust Fund to cease to qualify as a REMIC and will not cause (x)
the Trust Fund to be subject to an entity-level tax caused by the Transfer of
any Ownership Interest in a Class R Certificate
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to a Person that is not a Permitted Transferee or (y) a Person other than the
prospective transferee to be subject to a REMIC-related tax caused by the
Transfer of an Ownership Interest in a Class R Certificate to a Person that is
not a Permitted Transferee.
(be) No transfer of a Class A Certificate or any interest
therein shall be made to any Plan that is subject to ERISA or the Code (or
comparable provisions of any subsequent enactments), any Person acting, directly
or indirectly, on behalf of any such Plan or any Person acquiring such Class A
Certificates with until the balance of the applicable Pre-Funding Account is
reduced to zero. No transfer of a Subordinate Certificate or any interest
therein shall be made to any Plan that is subject to ERISA or the Code (or
comparable provisions of any subsequent enactments), any Person acting, directly
or indirectly, on behalf of any such Plan or any Person acquiring such Class S
or Class R Certificates with "plan assets" of a Plan within the meaning of the
Department of Labor regulation promulgated at 29 C.F.R. ss.2510.3-101 ("Plan
Assets") unless the prospective Transferee provides the Trustee and the Company
with a certification of facts and an Opinion of Counsel acceptable to and in
form and substance satisfactory to the Trustee and the Company to the effect
that the purchase of such Certificates is permissible under applicable law, will
not constitute or result in any prohibited transaction under ERISA or Section
4975 of the Code and will not subject the Trustee or the Company to any
obligation or liability (including obligations or liabilities under ERISA or
Section 4975 of the Code) in addition to those undertaken in this Agreement,
which Opinion of Counsel shall not be an expense of the Trustee, the Company or
the Master Servicer. The Trustee and the Company shall require the prospective
Transferee of any Class S or Class R Certificate to certify in the form of
Exhibit O or Exhibit Q that it is neither (i) a Plan nor (ii) a Person who is
directly or indirectly purchasing a Certificate on behalf of, as named fiduciary
of, as trustee of, or with Plan Assets of, a Plan.
(bf) Subject to the restrictions set forth in this Agreement,
upon surrender for registration of transfer of any Certificate at the office or
agency of the Trustee located in [New York], [New York], the Trustee shall
execute, authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate of the same Class and Percentage Interest and
dated the date of authentication by the Trustee. At the option of the
Certificateholders, Certificates may be exchanged for other Certificates of
Authorized Denominations of a like aggregate Percentage Interest, upon surrender
of the Certificates to be exchanged at such office. Whenever any Certificates
are so surrendered for exchange, the Trustee shall execute, authenticate and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. No service charge shall be made for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates. All Certificates
surrendered for transfer and exchange shall be cancelled by the Trustee.
Section 4.03. Mutilated, Destroyed, Lost Or Stolen
Certificates. If (a) any mutilated Certificate is surrendered to the Trustee, or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate, and (b) there is delivered to the Trustee such
security or indemnity as may reasonably be required by each of them to save each
of them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and Percentage Interest, but bearing a number not contemporaneously
outstanding. Upon the issuance of any new Certificate under this Section 4.03,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and their fees
and expenses connected therewith. Any duplicate Certificate issued pursuant to
this Section 4.03 shall constitute complete and indefeasible evidence of
ownership in the Trust Fund, as if originally issued, whether or not the
mutilated, destroyed, lost or stolen Certificate shall be found at any time.
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Section 4.04. Persons Deemed Owners. Prior to due presentation
of a Certificate for registration of transfer and subject to the provisions of
Section 4.02 and Article X, the Master Servicer, the Company, the Seller, the
Certificate Insurer and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.05 and for all other purposes
whatsoever, and the Master Servicer, the Company, the Seller, the Certificate
Insurer and the Trustee shall not be affected by notice to the contrary.
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.01. Appointment Of The Master Servicer.
(a) [_____________________________] agrees to act as the Master Servicer and to
perform all servicing duties under this Agreement subject to the terms hereof.
(b) The Master Servicer shall service and administer the
Mortgage Loans on behalf of the Trustee and shall have full power and authority,
acting alone or through one or more Subservicers, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable. Without limiting the generality of the foregoing, the Master
Servicer, in its own name or the name of a Subservicer, may, and is hereby
authorized and empowered by the Trustee to, execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans, the insurance policies and accounts related thereto and the properties
subject to the Mortgages. Upon the execution and delivery of this Agreement, and
from time to time as may be required thereafter, the Trustee shall, upon written
request, execute for the Master Servicer or its Subservicers any powers of
attorney and such other documents as may be necessary or appropriate to enable
the Master Servicer to carry out its servicing and administrative duties
hereunder.
In servicing and administering the Mortgage Loans, the Master
Servicer shall employ procedures consistent with Accepted Servicing Practices
and in a manner consistent with recovery under any insurance policy required to
be maintained by the Master Servicer pursuant to this Agreement.
The Master Servicer shall make Mortgage Interest Rate and
Monthly Payment adjustments on each Rate Adjustment Date in compliance with
applicable regulatory adjustable mortgage loan requirements and the Mortgage
Notes with respect to each Group I Loan. The Master Servicer shall establish
procedures to monitor the Rate Adjustment Dates and the Index in order to assure
that it uses the correct Index in determining an interest rate change, and it
will comply with those procedures. In the event the Index is no longer
available, the Master Servicer shall choose a new comparable Index in accordance
with the provisions hereof, of the applicable Mortgage Note and of Accepted
Servicing Practices, and shall provide the Mortgagor and the Trustee with notice
of the new Index sufficient under law and the Mortgage Loan Documents. The
Master Servicer shall execute and deliver all appropriate notices required by
the applicable adjustable mortgage loan laws and regulations and the Mortgage
Loan Documents regarding such Mortgage Interest Rate adjustments and payment
adjustments.
Each adjustment in the Mortgage Interest Rate shall result in
an adjustment to the related Monthly Payment. If the Master Servicer fails to
make a timely Mortgage Interest Rate or Monthly Payment adjustment, the Master
Servicer shall use its own funds to satisfy any shortage in the Mortgagor's
remittance so long as such shortage shall continue; any such amount paid by the
Master
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Servicer shall be reimbursable to it from any subsequent amounts collected on
account of the related Mortgage Loan with respect to such adjustments.
Costs incurred by the Master Servicer in effectuating the
timely payment of taxes and assessments on the property securing a Mortgage Note
and foreclosure costs may be added by the Master Servicer to the amount owing
under such Mortgage Note where the terms of such Mortgage Note so permit;
PROVIDED, HOWEVER, that the addition of any such cost shall not be taken into
account for purposes of calculating the principal amount of the Mortgage Note
and Mortgage Loan, the Monthly Payments on the Mortgage Note and Mortgage Loan
or distributions to be made to Certificateholders. Such costs shall be
recoverable by the Master Servicer pursuant to Section 5.04.
(c) Subject to Section 5.12, the Master Servicer is hereby
authorized and empowered to execute and deliver on behalf of the Trustee and
each Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the Mortgaged Properties. If
reasonably required by the Master Servicer, each Certificateholder and the
Trustee shall execute any powers of attorney furnished to the Trustee by the
Master Servicer and other documents necessary or appropriate to enable the
Master Servicer to carry out its servicing and administrative duties under this
Agreement.
(d) On and after such time as the Trustee receives the
resignation of, or notice of the removal of, the Master Servicer from its rights
and obligations under this Agreement, and with respect to resignation pursuant
to Section 5.24, after receipt by the Trustee and the Certificate Insurer of the
Opinion of Counsel required pursuant to Section 5.24, the Trustee or its
designee approved by the Certificate Insurer (which approval shall not be
unreasonably withheld) shall assume all of the rights and obligations of the
Master Servicer, subject to Section 7.02 hereof. The Master Servicer shall, upon
request of the Trustee but at the expense of the Master Servicer, deliver to the
Trustee all documents and records relating to the Mortgage Loans, any other
instruments or documents as the Trustee may reasonably request to effect the
efficient transfer of the duties of the Master Servicer and an accounting of
amounts collected and held by the Master Servicer and otherwise use its best
efforts to effect the orderly and efficient transfer of servicing rights and
obligations to the assuming party.
(e) If the Mortgage relating to a Mortgage Loan did not have a
lien senior on the related Mortgaged Property as of the Cut-Off Date, then the
Master Servicer, in such capacity, may not consent to the placing of a lien
senior to that of the Mortgage on the related Mortgaged Property. If the
Mortgage relating to a Mortgage Loan had a lien senior to the Mortgage Loan on
the related Mortgaged Property as of the Cut-Off Date, then the Master Servicer,
in such capacity, may consent to the refinancing of such senior lien; PROVIDED
that (i) the resulting Combined Loan-to-Value Ratio of such Mortgage Loan is no
higher than the Combined Loan-to Value Ratio prior to such refinancing and (ii)
the interest rate for the loan evidencing the refinanced senior lien on the date
of such refinancing is no higher than the interest rate on the loan evidencing
the existing senior lien immediately prior to the date of such refinancing.
(f) The Master Servicer shall deliver a list of Servicing
Officers to the Trustee and the Certificate Insurer by the Closing Date.
Section 5.02. Subservicing Agreements Between The Master
Servicer And Subservicers. (a) The Master Servicer may, subject to the prior
written approval of the Certificate Insurer, enter into Subservicing Agreements
with Subservicers for the servicing and administration of the Mortgage Loans and
for the performance of any and all other activities of the Master Servicer
hereunder. Each Subservicer shall be either (i) a depository institution the
accounts of which are insured by the FDIC or
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(ii) another entity that engages in the business of originating, acquiring or
servicing loans, and in either case shall be authorized to transact business in
the state or states where the related Mortgaged Properties it is to service are
situated and in either case shall be a FNMA-approved mortgage servicer. In
addition, each Subservicer will obtain and preserve its qualifications to do
business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform or cause to be performed its duties under the related
Subservicing Agreement. Each Subservicing Agreement shall provide that the
Subservicer's rights shall terminate at the option of the successor Master
Servicer and without any termination fee, expense, penalty or other cost upon
the termination, resignation or other removal of the Master Servicer under this
Agreement.
(b) Notwithstanding any Subservicing Agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Master Servicer shall remain obligated and
primarily liable to the Trustee, Certificateholders and the Certificate Insurer
for the servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Subservicing Agreements or arrangements or by virtue of
indemnification from the Subservicer and to the same extent and under the same
terms and conditions as if the Master Servicer alone were servicing and
administering the Mortgage Loans. For purposes of this Agreement, the Master
Servicer shall be deemed to have received payments on Mortgage Loans when the
Subservicer has received such payments.
In the event the Master Servicer shall for any reason no
longer be the Master Servicer (including by reason of an Event of Default), the
Trustee or its designee may, at its option, either (i) assume all of the rights
and obligations of the Master Servicer under each Subservicing Agreement that
the Master Servicer may have entered into or (ii) notwithstanding anything to
the contrary contained in each such Subservicing Agreement, terminate the
related Subservicer without being required to pay any fee, expense, penalty or
other costs in connection therewith.
Section 5.03. Collection Of Certain Mortgage Loan Payments;
Collection Account. (a) The Master Servicer shall make reasonable efforts to
collect all payments called for under the terms and provisions of the Mortgage
Loans, and shall, to the extent such procedures shall be consistent with this
Agreement and any applicable primary mortgage insurance policy, follow such
collection procedures as shall constitute Accepted Servicing Practices.
Consistent with the foregoing, the Master Servicer may in its discretion (i)
waive any prepayment charge, assumption fee, late payment charge or other charge
in connection with a Mortgage Loan, and (ii) arrange a schedule, running for no
more than 180 days after the Due Date for payment of any installment on any
Mortgage Note, for the liquidation of delinquent items. Any provision of this
agreement to the contrary notwithstanding, the Master Servicer shall not agree
to the modification or waiver of any provision of a Mortgage Loan at a time when
such Mortgage Loan is not in default or such default is not reasonably
foreseeable, if such modification or waiver would be treated as a taxable
exchange under Section 1001 of the Code, unless such exchange would not be
considered a "prohibited transaction" under the REMIC Provisions.
The Master Servicer shall establish and maintain in the name
of the Trustee the Collection Account, in trust for the benefit of the
Certificateholders and the Certificate Insurer. The Collection Account shall be
established and maintained as an Eligible Account.
The Master Servicer shall deposit in the Collection Account
(i) any amounts representing Monthly Payments on the Mortgage Loans due or to be
applied as of a date after the Cut-off Date, with respect to the Initial
Mortgage Loans, or Subsequent Cut-off Date, with respect to the Subsequent
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Mortgage Loans, (ii) any amounts representing Monthly Payments on the Initial
Mortgage Loans due or to be applied as of a date on or before the Cut-off Date
(except for any interest accrued prior to ______________________, 19____ and
except for any principal received by the Company prior to the Cut-off Date the
receipt of which is reflected on the Mortgage Loan Schedule) and (iii)
thereafter, on a daily basis within two Business Days of receipt (except as
otherwise permitted herein), the following payments and collections received or
made by it (other than any amounts in respect of principal of or interest on the
Mortgage Loans which, under clauses (i) and (ii) above, are not required to be
deposited in the Collection Account):
(i) all payments received after the Cut-off Date or Subsequent
Cut-off Date, as applicable on account of principal on the Mortgage
Loans and all Principal Prepayments in Full, Curtailments and all Net
REO Proceeds collected after the Cut-off Date or Subsequent Cut-off
Date, as applicable;
(ii) all payments received after the Cut-off Date or
Subsequent Cut-off Date, as applicable on account of interest on the
Mortgage Loans (other than payments of interest that accrued on each
Mortgage Loan up to and including the Cut-off Date or Subsequent
Cut-off Date, as applicable);
(iii) all Net Liquidation Proceeds;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase of
any Mortgage Loan and the amount of any Substitution Adjustment
pursuant to Sections 2.04 and 3.03; and
(vii) any amount expressly required to be deposited in the
Collection Account in accordance with certain provisions of this
Agreement, including, without limitation Sections 2.04(b), 2.04(c),
3.03(a), 3.03(c), 5.06, 5.07 and 5.18 of this Agreement;
PROVIDED, HOWEVER, that the Master Servicer shall be entitled, at its election,
either (a) to withhold and to pay to itself the applicable Servicing Fee from
any payment on account of interest or other recovery (including Net REO
Proceeds) as received and prior to deposit of such payments in the Collection
Account or (b) to withdraw the applicable Servicing Fee from the Collection
Account after the entire payment or recovery has been deposited therein;
provided, further, that with respect to any payment of interest received by the
Master Servicer in respect of 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,
only that portion of such payment that bears the same relationship to the total
amount of such payment of interest as the rate used to determine the Servicing
Fee bears to the Mortgage Interest Rate borne by such Mortgage Loan shall be
allocated to the Servicing Fee with respect to such Mortgage Loan. All other
amounts shall be deposited in the Collection Account not later than the second
Business Day following the day of receipt and posting by the Master Servicer.
The Master Servicer may invest the funds in the Collection
Account only in Permitted Investments. No Permitted Investment shall be sold or
disposed of at a gain prior to maturity unless the Master Servicer has obtained
an Opinion of Counsel (at the Master Servicer's expense) that such sale or
disposition will not cause the Trust Fund to be subject to the tax on income
from prohibited transactions
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imposed by Section 860F(a)(1) of the Code, otherwise subject the Trust Fund to
tax or cause the Trust Fund to fail to qualify as a REMIC. All income (other
than any gain from a sale or disposition of the type referred to in the
preceding sentence) realized from any such Permitted Investment shall be for the
benefit of the Master Servicer as additional servicing compensation. The amount
of any losses incurred in respect of any such investments shall be deposited in
the Collection Account by the Master Servicer out of its own funds immediately
as realized.
The foregoing requirements for deposit in the Collection
Account shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of those
described in the last paragraph of Section 5.14 and payments in the nature of
prepayment charges, late payment charges or assumption fees need not be
deposited by the Master Servicer in the Collection Account. If the Master
Servicer deposits in the Collection Account any amount not required to be
deposited therein, it may at any time withdraw such amount from the Collection
Account, any provision herein to the contrary notwithstanding. All funds
deposited by the Master Servicer in the Collection Account shall be held in the
Collection Account for the account of the Trustee in trust for the
Certificateholders until disbursed in accordance with Section 6.01 or withdrawn
in accordance with Section 5.04.
(b) Prior to the time of their required deposit in the
Collection Account, all amounts required to be deposited therein may be
deposited in an account in the name of Master Servicer, provided that such
account is an Eligible Account. All such funds shall be held by the Master
Servicer in trust for the benefit of the Certificateholders and the Certificate
Insurer pursuant to the terms hereof.
(c) The Collection Account may, upon written notice by the
Trustee to the Certificate Insurer, be transferred to a different depository so
long as such transfer is to an Eligible Account.
Section 5.04. Permitted Withdrawals From The Collection
Account. The Master Servicer may, from time to time, make withdrawals from the
Collection Account for the following purposes, without duplication:
(a) to reimburse itself for any accrued unpaid Servicing Fees
and for unreimbursed Periodic Advances and Servicing Advances. The
Master Servicer's right to reimbursement for unpaid Servicing Fees and
unreimbursed Servicing Advances shall be limited to late collections on
the related Mortgage Loan, including Liquidation Proceeds, Released
Mortgaged Property Proceeds, Insurance Proceeds and such other amounts
as may be collected by the Master Servicer from the related Mortgagor
or otherwise relating to the Mortgage Loan in respect of which such
unreimbursed amounts are owed. The Master Servicer's right to
reimbursement for unreimbursed Periodic Advances shall be limited to
late collections of interest on any Mortgage Loan and to Liquidation
Proceeds and Insurance Proceeds on related Mortgage Loans;
(b) to reimburse itself for any Periodic Advances or Servicing
Advances determined in good faith to have become Nonrecoverable
Advances, such reimbursement to be made from any funds in the
Collection Account;
(c) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having
competent jurisdiction;
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(d) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein;
(e) to pay itself Servicing Compensation pursuant to Section
5.14 hereof to the extent not retained or paid pursuant to Section
5.03, 5.04 or 5.14;
(f) to pay to the Seller with respect to each Mortgage Loan or
property acquired in respect thereof that has been repurchased or
replaced pursuant to Section 2.04 or 3.03 or to pay to itself with
respect to each Mortgage Loan or property acquired in respect thereof
that has been purchased pursuant to Section 8.01 all amounts received
thereon and not required to be distributed as of the date on which the
related repurchase or purchase price or Principal Balance, as the case
may be, was determined;
(g) to pay to the Seller with respect to each Mortgage Loan
the amount of interest accrued and unpaid on such Mortgage Loan on the
Cut-off Date (with respect to the Initial Mortgage Loans) or Subsequent
Cut-off Date (with respect to the Subsequent Mortgage Loans);
(h) to make deposits to the Certificate Accounts (which shall
include the Trustee Fee) in the amounts and in the manner provided for
herein;
(i) to pay itself any interest earned on or investment income
earned with respect to funds in the Collection Account;
(j) to reimburse itself or the Company pursuant to Section
11.01; and
(k) to clear and terminate the Collection Account upon the
termination of this Agreement.
The Master Servicer shall keep and maintain a separate
accounting for each Mortgage Loan for the purpose of accounting for withdrawals
from the Collection Account pursuant to subclause (a).
Section 5.05. Payment Of Taxes, Insurance And Other Charges.
With respect to each Mortgage Loan, the Master Servicer shall maintain accurate
records reflecting casualty insurance coverage.
With respect to each Mortgage Loan as to which the Master
Servicer maintains escrow accounts, the Master Servicer shall maintain accurate
records reflecting the status of ground rents, taxes, assessments, water rates
and other charges which are or may become a lien upon the Mortgaged Property and
the status of primary mortgage guaranty insurance premiums, if any, and casualty
insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date and at a time
appropriate for securing maximum discounts allowable, employing for such purpose
deposits of the Mortgagor in any escrow account which shall have been estimated
and accumulated by the Master Servicer in amounts sufficient for such purposes,
as allowed under the terms of the Mortgage. To the extent that a Mortgage does
not provide for escrow payments, the Master Servicer shall, if it has received
notice of a default or deficiency, monitor such payments to determine if they
are made by the Mortgagor.
Section 5.06. Maintenance Of Casualty Insurance. The Master
Servicer shall cause to be maintained for each Mortgage Loan a casualty
insurance policy with extended coverage issued by a
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generally acceptable insurer in an amount which is not less than the full
insurable value of the Mortgaged Property securing such Mortgage Loan or the
unpaid principal balance of such Mortgage Loan, whichever is less; provided,
however, that such insurance may not be less than the minimum amount required to
fully compensate for any loss or damage on a replacement cost basis. If, upon
origination of the Mortgage Loan, the improvements on the Mortgaged Property
were 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) the Master Servicer will cause to be maintained any
existing flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier, in an amount representing coverage not less than the lesser
of (i) the unpaid principal balance of the Mortgage Loan and (ii) the maximum
amount of insurance which was available under the Flood Disaster Protection Act
of 1973. The Master Servicer shall also maintain similar fire insurance coverage
and, if applicable, flood insurance on property acquired upon foreclosure, or by
deed in lieu of foreclosure, of any Mortgage Loan in an amount which is at least
equal to the lesser of (i) the full insurable value of the improvements which
are a part of such property and (ii) the principal balance owing on such
Mortgage Loan at the time of such foreclosure or grant of deed in lieu of
foreclosure; provided, however, that such insurance may not be less than the
minimum amount required to fully compensate for any loss or damage on a
replacement cost basis. It is understood and agreed that such insurance shall be
with insurers approved by the Master Servicer and that no earthquake or other
additional insurance is to be required of any Mortgagor, other than pursuant to
such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance. Pursuant to Section 5.03, any amounts
collected by the Master Servicer under any insurance policies maintained
pursuant to this Section 5.06 (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or released to the
Mortgagor in accordance with Accepted Servicing Practices) shall be deposited
into the Collection Account, subject to withdrawal pursuant to Section 5.04. Any
cost incurred by the Master Servicer in maintaining any such insurance shall be
added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of any such cost
shall not be taken into account for purposes of calculating the principal amount
of the Mortgage Note or Mortgage Loan, the Monthly Payments on the Mortgage Note
or the distributions to be made to the Certificateholders. Such costs shall be
recoverable by the Master Servicer pursuant to Section 5.04. In the event that
the Master Servicer shall obtain and maintain a blanket policy issued by an
insurer that is acceptable to FNMA or FHLMC, insuring against hazard losses on
all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligation as set forth in the first sentence of this Section 5.06, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Master Servicer shall, in the event that there shall not have been
maintained on the related mortgaged or acquired property an insurance policy
complying with the first sentence of this Section 5.06 and there shall have been
a loss which would have been covered by such a policy had it been maintained, be
required to deposit from its own funds into the Collection Account the amount
not otherwise payable under the blanket policy because of such deductible
clause.
Section 5.07. Maintenance Of Mortgage Impairment Insurance
Policy. In the event that the Master Servicer shall obtain and maintain a
blanket policy (the "Mortgage Impairment Insurance Policy") with an insurer
either (i) having a General Policy rating of _______ or better in Best's Key
Rating Guide or (ii) approved in writing by the Certificate Insurer, such
approval not to be unreasonably withheld, insuring against fire and hazards of
extended coverage on all of the Mortgage Loans, then, to the extent such policy
names the Master Servicer as loss payee and provides coverage in an amount equal
to the aggregate unpaid principal balance on the Mortgage Loans without
co-insurance, and otherwise complies with the requirements of Section 5.06, the
Master Servicer shall be deemed conclusively to have satisfied its obligations
with respect to fire and hazard insurance coverage under Section 5.06, it being
understood and agreed that such blanket policy may contain a deductible clause,
in which case the Master Servicer shall, in the event that there shall not have
been maintained on the related Mortgaged Property
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a policy complying with Section 5.06, and there shall have been a loss which
would have been covered by such policy, deposit in the Collection Account the
difference, if any, between the amount that would have been payable under a
policy complying with Section 5.06 and the amount paid under such blanket
policy. Upon the written request of the Certificate Insurer, the Trustee or any
Certificateholder, the Master Servicer shall cause to be delivered to the
Certificate Insurer, the Trustee or such Certificateholder, as the case may be,
a certified true copy of such policy. The Master Servicer agrees to prepare and
present, on behalf of itself, the Trustee, the Certificate Insurer and
Certificateholders, claims under any such policy in a timely fashion in
accordance with the terms of such policy.
Section 5.08. Fidelity Bond; Errors And Omissions Policy. (a)
The Master Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond (a "Fidelity Bond") and an errors and omissions
insurance policy (an "Errors and Omissions Policy"), in a minimum amount
acceptable to FNMA or FHLMC [or, if __________ is the Master Servicer or if the
Trustee is the successor Master Servicer, in an amount generally maintained by
prudent mortgage loan servicers having servicing portfolios of a similar size].
(b) The Master Servicer shall be deemed to have complied with
this provision if one of its respective Affiliates has such a Fidelity Bond and
Errors and Omissions Policy and, by the terms of such fidelity bond and errors
and omission policy, the coverage afforded thereunder extends to the Master
Servicer. The Master Servicer shall cause each and every Subservicer for it to
maintain a policy of insurance covering errors and omissions and a fidelity bond
which would meet the requirements of Section 5.08(a). [If ______________ is not
the Master Servicer and the Trustee is not the successor Master Servicer, any
such Fidelity Bond and Errors and Omissions Policy shall not be cancelled or
modified in a materially adverse manner without 10 days prior written notice to
the Certificate Insurer].
Section 5.09. Collection Of Taxes, Assessments And Other
Items; Servicing Account. In addition to the Collection Account, the Master
Servicer shall establish and maintain a Servicing Account, which shall be an
Eligible Account, and shall deposit therein all payments by Mortgagors for
taxes, assessments, primary mortgage or hazard insurance premiums or comparable
items. Withdrawals from the Servicing Account may be made to effect payment of
taxes, assessments, primary mortgage or hazard insurance premiums or comparable
items, to reimburse the Master Servicer out of related collections for any
advances made in the nature of any of the foregoing, to refund to any Mortgagors
any sums determined to be overages, or to pay any interest owed to Mortgagors on
such account to the extent required by law or to clear and terminate the
Servicing Account at the termination of this Agreement upon the termination of
the Trust Fund. The Master Servicer shall advance the payments referred to in
the first sentence of this Section 5.09 that are not timely paid by the
Mortgagors on the date when the tax, premium or other cost for which such
payment is intended is due, but the Master Servicer shall be required to so
advance only to the extent that such advances, in the good faith judgment of the
Master Servicer, will be recoverable by the Master Servicer pursuant to Section
5.04 out of Liquidation Proceeds, Insurance Proceeds or otherwise.
Section 5.10. Periodic Filings With The Securities And
Exchange Commission; Additional Information. The Trustee shall prepare or cause
to be prepared for filing with the Commission (other than the Current Report on
Form 8-K to be filed by the Company in connection with computational materials
and the initial Current Report on Form 8-K to be filed by the Company in
connection with the issuance of the Certificates) any and all reports,
statements and information respecting the Trust Fund and/or the Certificates
required to be filed with the Commission pursuant to the Securities Exchange Act
of 1934, as amended, and shall solicit any and all proxies of the
Certificateholders whenever such proxies are required to be solicited, pursuant
to the Securities Exchange Act of 1934, as amended. The Company shall promptly
file, and exercise its reasonable best efforts to obtain a favorable response
to, no-action
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requests with, or other appropriate exemptive relief from, the Commission
seeking the usual and customary exemption from such reporting requirements
granted to issuers of securities similar to the Certificates. Fees and expenses
incurred by the Trustee in connection with this Section shall not be
reimbursable from the Trust Fund.
The Master Servicer and the Company each agree to promptly
furnish to the Trustee, from time to time upon request, such further
information, reports and financial statements within their respective control
related to this Agreement and the Mortgage Loans as the Trustee reasonably deems
appropriate to prepare and file all necessary reports with the Commission.
Section 5.11. Enforcement Of Due-On-Sale Clauses; Assumption
Agreements. In any case in which a Mortgaged Property is about to be conveyed by
the Mortgagor (whether by absolute conveyance or by contract of sale, and
whether or not the Mortgagor remains liable thereon) and the Master Servicer has
knowledge of such prospective conveyance, the Master Servicer shall effect
assumptions in accordance with the terms of any due-on-sale provision contained
in the related Mortgage Note or Mortgage. The Master Servicer shall enforce any
due-on-sale provision contained in such Mortgage Note or Mortgage to the extent
the requirements thereunder for an assumption of the Mortgage Loan have not been
satisfied to the extent permitted under the terms of the related Mortgage Note,
unless such provision is not exercisable under applicable law and governmental
regulations or in the Master Servicer's judgment, such exercise is reasonably
likely to result in legal action by the Mortgagor, or such conveyance is in
connection with a permitted assumption of the related Mortgage Loan. Subject to
the foregoing, the Master Servicer is authorized to take or enter into an
assumption agreement from or with the Person to whom such property is about to
be conveyed, pursuant to which such person becomes liable under the related
Mortgage Note and, unless prohibited by applicable state law, the Mortgagor
remains liable thereon, provided that the Mortgage Interest Rate with respect to
such Mortgage Loan shall remain unchanged. The Master Servicer is also
authorized, to release the original Mortgagor from liability upon the Mortgage
Loan and substitute the new Mortgagor as obligor thereon. In connection with
such assumption or substitution, the Master Servicer shall apply such
underwriting standards and follow such practices and procedures as shall be
normal and usual for mortgage loans similar to the Mortgage Loans and as it
applies to mortgage loans owned solely by it. The Master Servicer shall notify
the Trustee that any such assumption or substitution agreement has been
completed by forwarding to the Trustee the original copy of such assumption or
substitution agreement, which copy shall be added by the Trustee to the related
Mortgage File and shall, for all purposes, be considered a part of such Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such assumption or substitution agreement,
the Mortgage Interest Rate of the related Mortgage Note and the payment terms
shall not be changed. Any fee collected by the Master Servicer for entering into
an assumption or substitution of liability agreement will be retained by the
Master Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Master Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
conveyance by the Mortgagor of the property subject to the Mortgage or any
assumption of a Mortgage Loan by operation of law which the Master Servicer in
good faith determines it may be restricted by law from preventing, for any
reason whatsoever, or if the exercise of such right would impair or threaten to
impair any recovery under any applicable insurance policy or, in the Master
Servicer's judgment, be reasonably likely to result in legal action by the
Mortgagor.
Section 5.12. Realization Upon Defaulted Mortgage Loans. (a)
Except as provided in the last two paragraphs of this Section 5.12(a), the
Master Servicer shall foreclose upon or otherwise comparably convert the
ownership of properties securing such of the Mortgage Loans as come into and
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continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 5.03. In connection with
such foreclosure or other conversion, the Master Servicer shall follow Accepted
Servicing Practices. The foregoing is subject to the proviso that the Master
Servicer shall not be required to expend its own funds in connection with any
foreclosure or to restore any damaged property unless it shall determine that
(i) such foreclosure and/or restoration will increase the proceeds of
liquidation of the Mortgage Loan to Certificateholders after reimbursement to
itself for such expenses and (ii) such expenses will be recoverable to it
through Liquidation Proceeds (respecting which it shall have priority for
purposes of withdrawal from the Collection Account pursuant to Section 5.04) or
otherwise. The Master Servicer shall be entitled to reimbursement of the
Servicing Fee and other amounts due it, if any, to the extent, but only to the
extent, that withdrawals from the Collection Account with respect thereto are
permitted under Section 5.04.
The Master Servicer may foreclose against the Mortgaged
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 any other person, may proceed for the deficiency.
In the event that title to any Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed
or certificate of sale shall be issued to the Master Servicer on behalf of the
Trustee in the name of the Trustee, as trustee on behalf of the
Certificateholders. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such Mortgage Loan shall be
considered to be a Mortgage Loan held in the Trust Fund until such time as the
related Mortgaged Property shall be sold and such Mortgage Loan becomes a
Liquidated Mortgage Loan. Consistent with the foregoing, for purposes of all
calculations hereunder, so long as such Mortgage Loan shall be considered to be
an Outstanding Mortgage Loan:
(viii) It shall be assumed that, notwithstanding that the
indebtedness evidenced by the related Mortgage Note shall have been
discharged, such Mortgage Note and the related amortization schedule in
effect at the time of any such acquisition of title (after giving
effect to any previous Curtailments and before any adjustment thereto
by reason of any bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) remain in effect, except that such
schedule shall be adjusted to reflect the application of Net REO
Proceeds received in any month pursuant to the succeeding clause.
(ix) Net REO Proceeds received in any month shall be deemed to
have been received first in payment of the accrued interest that
remained unpaid on the date that such Mortgage Loan became an REO
Mortgage Loan, with the excess thereof, if any, being deemed to have
been received in respect of the delinquent principal installments that
remained unpaid on such date. Thereafter, Net REO Proceeds received in
any month shall be applied to the payment of installments of principal
and accrued interest on such Mortgage Loan deemed to be due and payable
in accordance with the terms of such Mortgage Note and such
amortization schedule. If such Net REO Proceeds exceed the then Unpaid
REO Amortization, the excess shall be treated as a Curtailment received
in respect of such Mortgage Loan.
(x) Only that portion of Net REO Proceeds allocable to
interest that bears the same relationship to the total amount of Net
REO Proceeds allocable to interest as the rate of the Servicing Fee
bears to the Mortgage Interest Rate borne by such Mortgage Loan shall
be allocated to the Servicing Fee with respect thereto.
In the event that the Trust Fund acquires any Mortgaged
Property as aforesaid or otherwise in connection with a default or reasonably
foreseeable default on a Mortgage Loan, such
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Mortgaged Property shall be disposed of by or on behalf of the Trust Fund within
two years after its acquisition by the Trust Fund unless (a) the Master Servicer
shall have provided to the Trustee an Opinion of Counsel (at the expense of the
Trust Fund) to the effect that the holding by the Trust Fund of such Mortgaged
Property subsequent to two years after its acquisition (and specifying the
period beyond such two-year period for which the Mortgaged Property may be held)
will not cause the Trust Fund to be subject to the tax on prohibited
transactions imposed by Section 860F(a)(1) of the Code, otherwise subject the
Trust Fund to tax or cause the Trust Fund to fail to qualify as a REMIC at any
time that any Certificates are outstanding, or (b) the Master Servicer (at the
Trust Fund's expense) shall have applied for, at least 60 days prior to the
expiration of such two-year period, an extension of such two-year period in the
manner contemplated by Section 856(e)(3) of the Code, in which case the two-year
period shall be extended by the applicable period. The Master Servicer shall
further ensure that the Mortgaged Property is administered so that it
constitutes "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code at all times, that the sale of such property does not result in the
receipt by the Trust Fund of any income from non-permitted assets as described
in Section 860F(a)(2)(B) of the Code, and that the Trust Fund does not derive
any "net income from foreclosure property" within the meaning of Section
860G(c)(2) of the Code with respect to such property.
Any REO Disposition shall be for cash only (unless changes in
the REMIC Provisions made subsequent to the Startup Day allow a sale for other
consideration).
In lieu of foreclosing upon any defaulted Mortgage Loan, the
Master Servicer may, in its discretion, permit the assumption of such Mortgage
Loan if, in the Master Servicer's judgment, such default is unlikely to be cured
and if the assuming borrower satisfies the Master Servicer's underwriting
guidelines with respect to mortgage loans owned by the Master Servicer. In
connection with any such assumption, the Mortgage Interest Rate of the related
Mortgage Note and the payment terms shall not be changed. Any fee collected by
the Master Servicer for entering into an assumption agreement will be retained
by the Master Servicer as servicing compensation. Alternatively, the Master
Servicer may encourage the refinancing of any defaulted Mortgage Loan by the
Mortgagor.
Notwithstanding the foregoing, prior to instituting
foreclosure proceedings or accepting a deed-in-lieu of foreclosure with respect
to any Mortgaged Property, the Master Servicer shall make, or cause to be made,
inspection of the Mortgaged Property in accordance with the Accepted Servicing
Practices and, with respect to environmental hazards, such procedures are as
required by the provisions of the Federal National Mortgage Association's
selling and servicing guide applicable to single-family homes and in effect on
the date hereof. The Master Servicer shall be entitled to rely upon the results
of any such inspection made by others. In cases where the inspection reveals
that such Mortgaged Property is potentially contaminated with or affected by
hazardous wastes or hazardous substances, the Master Servicer shall promptly
give written notice of such fact to the Certificate Insurer, the Trustee and
each Class A Certificateholder. The Master Servicer shall not commence
foreclosure proceedings or accept a deed-in-lieu of foreclosure for Mortgaged
Property with respect to this paragraph without obtaining the written consent of
the Certificate Insurer.
(b) Promptly after the Closing Date, the Master Servicer
shall, with respect to each Mortgage Loan for which the Mortgage provides a
second lien on the related Mortgaged Property, cause to be recorded in the
appropriate public office for real property records, where permitted by
applicable law and where applicable law does not require that a second mortgagee
be named as a party defendant in foreclosure or comparable proceedings in order
to foreclose or otherwise preempt such mortgagee's equity of redemption, a
request for notice of any action by or on behalf of any mortgagee under a Senior
Mortgage Loan. The Master Servicer also shall promptly provide written notice to
each mortgagee under a Senior Mortgage Loan of the existence of the related
Mortgage Loan and request notification of any
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action taken or to be taken against the related Mortgagor or Mortgaged Property
by or on behalf of such mortgagee in respect of such Senior Mortgage Loan.
(c) Upon becoming aware that a Senior Mortgage Loan has come
into default or of any action that the related mortgagee has taken or may take
in respect thereof, the Master Servicer shall, consistent with the REMIC
Provisions, take such actions as it shall deem necessary or advisable, as shall
be normal and usual in its general mortgage servicing activities and as shall be
required or permitted by Accepted Servicing Practices. In taking such actions,
the Master Servicer may advance such funds as are necessary to cure such
default, maintain such Senior Mortgage Loan, acquire the related mortgagee's
interest therein or redeem the related Mortgaged Property. The Master Servicer,
however, shall not be required to expend its own funds in connection therewith
unless it shall determine that such expense will be recoverable to it. All such
expenses shall be included as Liquidation Expenses pursuant to the definition
thereof, and shall be reimbursable from the related Liquidation Proceeds in
accordance with Section 5.04.
Section 5.13. Trustee To Cooperate; Release Of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the Master
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer shall immediately notify the
Trustee in the form of a Request for Release in the form attached hereto as
Exhibit H (which request shall include a statement to the effect that all
amounts received in connection with such payment which are required to be
deposited in the Collection Account pursuant to Section 5.03 have been or shall
be so deposited) of a Servicing Officer and shall request delivery to it of the
Mortgage File. Upon receipt of such Request for Release, the Trustee, or the
Custodian on its behalf, shall promptly release the related Mortgage File to the
Master Servicer. Upon any such payment in full, the Master Servicer is
authorized to give, as agent for the Trustee and the mortgagee under the
Mortgage which secured the Mortgage Loan, an instrument of satisfaction (or
assignment of mortgage without recourse) regarding the property subject to such
Mortgage, which instrument of satisfaction or assignment, as the case may be,
shall be delivered to the Person or Persons entitled thereto against receipt
therefor of such payment, it being understood and agreed that no expenses
incurred in connection with such instrument of satisfaction or assignment, as
the case may be, shall be chargeable to the Collection Account. In connection
therewith, the Trustee shall execute and return to the Master Servicer any
required power of attorney provided to the Trustee by the Master Servicer and
other required documentation in accordance with Section 5.01(c). From time to
time and as appropriate for the servicing or foreclosure of any Mortgage Loan
and in accordance with Accepted Servicing Practices, the Trustee shall, upon
request of the Master Servicer and delivery to the Trustee of a Request for
Release signed by a Servicing Officer, release, or cause the Custodian to
release, the related Mortgage File to the Master Servicer and shall execute such
documents as shall be necessary to the prosecution of any such proceedings. Such
Request for Release shall obligate the Master Servicer to return the Mortgage
File to the Trustee when the need therefor by the Master Servicer no longer
exists unless the Mortgage Loan shall be liquidated, in which case, upon receipt
of a certificate of a Servicing Officer similar to the Request for Release
hereinabove specified, the Mortgage File shall be delivered by the Trustee to
the Master Servicer.
Each Request for Release may be delivered to the Trustee (i)
via mail or courier, (ii) via facsimile or (iii) by such other means, including,
without limitation, electronic or computer readable medium, as the Master
Servicer and the Trustee shall mutually agree. The Trustee shall promptly
release the related Mortgage File(s) within five (5) to seven (7) Business Days
of receipt of a properly completed Request for Release pursuant to clauses (i),
(ii) or (iii) above shall be authorization to the Trustee to release such
Mortgage Files, provided the Trustee has determined that such Request for
Release has been executed, with respect to clauses (i) or (ii) above, or
approved, with respect to clause (iii) above, by an authorized Servicing Officer
of the Master Servicer, and so long as the Trustee complies with its duties
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and obligations under this Agreement. If the Trustee is unable to release the
Mortgage Files within the time frames previously specified, the Trustee shall
immediately notify the Master Servicer indicating the reason for such delay, but
in no event shall such notification be later than five Business Days after
receipt of a Request for Release. If the Master Servicer is required to pay
penalties or damages due to the Trustee's negligent failure to release the
related Mortgage File or the Trustee's negligent failure to execute and release
documents in a timely manner, the Trustee shall be liable for such penalties or
damages.
On each day that the Master Servicer remits to the Trustee
Requests for Releases pursuant to clauses (ii) or (iii) above, the Master
Servicer shall also submit to the Trustee a summary of the total amount of such
Requests for Releases requested on such day by the same method as described in
such clauses (ii) and (iii) above.
Section 5.14. Servicing Fee; Servicing Compensation. The
Master Servicer shall be entitled, at its election, either (a) to pay itself the
Servicing Fee out of any Mortgagor payment on account of interest or Net REO
Proceeds prior to the deposit of such payment in the Collection Account or (b)
to withdraw from the Collection Account such Servicing Fee pursuant to Section
5.04. The Master Servicer shall also be entitled, at its election, either (a) to
pay itself the Servicing Fee in respect of each delinquent Mortgage Loan out of
Liquidation Proceeds in respect of such Mortgage Loan or other recoveries with
respect thereto to the extent permitted in Section 5.03(a) to withdraw from the
Collection Account the Servicing Fee in respect of each such Mortgage Loan to
the extent of such Liquidation Proceeds or other recoveries, to the extent
permitted by Section 5.04.
Servicing compensation in the form of Net Foreclosure Profits,
prepayment penalties, assumption fees, late payment charges, tax service fees,
fees for statement of account or payoff of the Mortgage Loan (to the extent
permitted by applicable law) or otherwise shall be retained by the Master
Servicer and are not required to be deposited in the Collection Account. The
aggregate Servicing Fee is reserved for the administration of the Trust Fund
and, in the event of replacement of the Master Servicer as servicer of the
Mortgage Loans, for the payment of other expenses related to such replacement.
The aggregate Servicing Fee shall be offset as provided in Section 5.20. The
Master Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including maintenance of the
hazard insurance required by Section 5.05) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
Section 5.15. Reports To The Trustee And The Company;
Collection Account Statements. Not later than 15 days after each Distribution
Date, the Master Servicer shall provide to the Trustee and the Company a
statement, certified by a Servicing Officer, setting forth the status of the
Collection Account as of the close of business on the last day of the
immediately preceding calendar month, stating that all distributions required by
this Agreement to be made by the Master Servicer on behalf of the Trustee have
been made (or if any required distribution has not been made by the Master
Servicer, specifying the nature and status thereof) and showing, for the period
covered by such statement, the aggregate of deposits into and withdrawals from
the Collection Account for each category of deposit specified in Section 5.03
and each category of withdrawal specified in Section 5.04 and the aggregate of
deposits into the Certificate Accounts as specified in Section 6.01(c). Such
statement shall also state the aggregate unpaid principal balance of all the
Mortgage Loans as of the close of business on the last day of the month
preceding the month in which such Distribution Date occurs. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon
request.
Section 5.16. Annual Statement As To Compliance. The Master
Servicer will deliver to the Trustee, the Certificate Insurer and the Rating
Agencies on or before ____________ of each year,
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beginning with _____________________, 199____, an Officers' Certificate stating
as to each signer thereof, that (i) a review of the activities of the Master
Servicer during the preceding calendar year and of its performance under this
Agreement has been made under such officer's supervision, and (ii) to the best
of such officer's knowledge, based on such review, the Master Servicer has
fulfilled all its obligations under this Agreement throughout such year, or if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof. Such
Officers' Certificate shall be accompanied by the statement described in Section
5.17 of this Agreement. Copies of such statement shall, upon request, be
provided to any Certificateholder by the Master Servicer, or by the Trustee at
the Master Servicer's expense if the Master Servicer shall fail to provide such
copies.
Section 5.17. Annual Independent Public Accountants' Servicing
Report. On or before ______________ of every year, beginning with
___________________, 199____, the Master Servicer, at its expense, shall cause a
firm of nationally recognized independent public accountants to furnish a
statement to the Trustee, the Certificate Insurer and the Rating Agencies to the
effect that, on the basis of an examination of certain documents and records
relating to the servicing of the mortgage loans being serviced by the Master
Servicer under pooling and servicing agreements similar to this Agreement,
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers, such firm is of the opinion that such servicing
has been conducted in compliance with this Agreement. Copies of such statement
shall, upon written request, be provided to Certificateholders by the Master
Servicer, or by the Trustee at the Master Servicer's expense if the Master
Servicer shall fail to provide such copies. For purposes of such statement, such
firm may conclusively presume that any pooling and servicing agreement which
governs mortgage pass-through certificates offered by the Company (or any
predecessor or successor thereto) in a registration statement under the
Securities Act of 1933, as amended, is similar to this Agreement, unless such
other pooling and servicing agreement expressly states otherwise.
Section 5.18. Optional Purchase Of Defaulted Mortgage Loans.
Any Affiliate of the Seller, in its sole discretion, shall have the right to
elect (by written notice sent to the Master Servicer, the Trustee and the
Certificate Insurer), but shall not be obligated, to purchase for its own
account from the Trust Fund any Mortgage Loan which is 90 days or more
Delinquent in the manner and at the price specified in Section 2.04(b). The
purchase price for any Mortgage Loan purchased hereunder shall be deposited in
the Collection Account and the Trustee, upon receipt of such deposit, shall
release or cause to be released to the purchaser of such Mortgage Loan the
related Mortgage File and shall execute and deliver such instruments of transfer
or assignment prepared by the purchaser of such Mortgage Loan, in each case
without recourse, as shall be necessary to vest in the purchaser of such
Mortgage Loan any Mortgage Loan released pursuant hereto and the purchaser of
such Mortgage Loan shall succeed to all the Trustee's right, title and interest
in and to such Mortgage Loan and all security and documents related thereto.
Such assignment shall be an assignment outright and not for security. The
purchaser of such Mortgage Loan shall thereupon own such Mortgage Loan, and all
security and documents, free of any further obligation to the Trustee or the
Certificateholders with respect thereto.
Section 5.19. Reports To Be Provided By The Master Servicer.
The Master Servicer agrees to make available on a reasonable basis to the
Certificate Insurer a knowledgeable financial or accounting officer for the
purpose of answering reasonable questions respecting recent developments
affecting the Master Servicer or the financial statements of the Master Servicer
and to permit the Certificate Insurer to inspect the Master Servicer's servicing
facilities during normal business hours for the purpose of satisfying the
Certificate Insurer that the Master Servicer has the ability to service the
Mortgage Loans in accordance with this Agreement.
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Section 5.20. Adjustment of Servicing Compensation in Respect
of Prepaid Mortgage Loans. The aggregate amount of the Servicing Fees that the
Master Servicer and any Subservicer shall be entitled to receive with respect to
all of the Mortgage Loans and each Distribution Date shall be offset on such
Distribution Date by an amount equal to the aggregate Prepayment Interest
Shortfall with respect to all Mortgage Loans which were subjects of Principal
Prepayments in Full or Curtailments during the month preceding the month of such
Distribution Date. The amount of any offset against the aggregate Servicing Fee
with respect to any Distribution Date under this Section 5.20 shall be limited
to the aggregate amount of the Servicing Fees otherwise payable to the Master
Servicer and any Subservicer (without adjustment on account of Prepayment
Interest Shortfalls) with respect to (i) scheduled payments having the Due Date
occurring in the month of such Distribution Date received by the Master Servicer
or any Subservicer prior to the Master Servicer Remittance Date, and (ii)
Principal Prepayments in Full, Curtailments and Liquidation Proceeds received in
the month preceding the month in which such Distribution Date occurs, and the
rights of the Certificateholders to the offset of the aggregate Prepayment
Interest Shortfalls shall not be cumulative.
Section 5.21. Periodic Advances. If, on any Master Servicer
Remittance Date, the Master Servicer determines that any Monthly Payments due on
the Due Date immediately preceding such Master Servicer Remittance Date have not
been received as of the close of business on the Business Day preceding such
Master Servicer Remittance Date, the Master Servicer shall determine the amount
of any Periodic Advance required to be made with respect to the related
Distribution Date. The Master Servicer shall, on the Master Servicer Remittance
Date, deliver in a computer-readable form (including electronic transmission) to
the Trustee indicating the payment status of each Mortgage Loan as of the
Business Day prior to such Master Servicer Remittance Date. The Master Servicer
shall include in the amount to be deposited in the related Certificate Account
on such Master Servicer Remittance Date an amount equal to the Periodic Advance,
if any, which deposit may be made in whole or in part from funds in the
Collection Account being held for future distribution or withdrawal on or in
connection with Distribution Dates in subsequent months. Any funds being held
for future distribution to Certificateholders and so used shall be replaced by
the Master Servicer from its own funds by deposit in the related Certificate
Account on or before the Business Day preceding any such future Master Servicer
Remittance Date to the extent that funds in the related Certificate Account on
such Master Servicer Remittance Date shall be less than payments to
Certificateholders required to be made on such date.
The Master Servicer shall designate on its records the
specific Mortgage Loans and related installments (or portions thereof) as to
which such Periodic Advance shall be deemed to have been made, such
determination being conclusive for purposes of withdrawals from the Collection
Account pursuant to Section 5.04.
Section 5.22. Third Party Claims. The Trustee shall reimburse
the Seller from amounts otherwise distributable on the Class R Certificates for
all amounts advanced by the Seller pursuant to the second sentence of Section
_____________ of the Purchase Agreement except when the relevant claim relates
directly to the failure of the Seller to perform its duties in compliance with
the terms of the Purchase Agreement.
Section 5.23. Maintenance Of Corporate Existence And Licenses;
Merger Or Consolidation Of The Master Servicer. (a) The Master Servicer will
keep in full effect its existence, rights and franchises as a corporation, will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Mortgage Loans and to perform its duties under this
Agreement and will otherwise operate its business so as to cause the
representations and warranties under Section 3.01 to be true and correct at all
times under this Agreement.
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(b) Any Person into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any Person
succeeding to the business of the Master Servicer, shall be an established
mortgage loan servicing institution acceptable to the Certificate Insurer that
has a net worth of at least $[15,000,000], and in all events shall be the
successor of the Master Servicer without the execution or filing of any paper or
any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Master Servicer shall send notice of any such
merger or consolidation to the Trustee and the Certificate Insurer.
Section 5.24. Assignment Of Agreement By Master Servicer;
Master Servicer Not To Resign. The Master Servicer shall not assign this
Agreement or resign from the obligations and duties hereby imposed on it except
by mutual consent of the Certificate Insurer and the Trustee or upon the
determination that the Master Servicer's duties hereunder are no longer
permissible under applicable law and that such incapacity cannot be cured by the
Master Servicer without incurring, in the reasonable judgment of the Certificate
Insurer, unreasonable expense. Any such determination that the Master Servicer's
duties hereunder are no longer permissible under applicable law permitting the
resignation of the Master Servicer shall be evidenced by a written Opinion of
Counsel (who may be counsel for the Master Servicer) to such effect delivered to
the Trustee, the Seller, the Company and the Certificate Insurer. No such
resignation shall become effective until the Trustee or a successor appointed in
accordance with the terms of this Agreement has assumed the Master Servicer's
responsibilities and obligations hereunder in accordance with Section 7.02. The
Master Servicer shall provide the Trustee, the Rating Agencies and the
Certificate Insurer with 30 days prior written notice of its intention to resign
pursuant to this Section 5.24.
Section 5.25. Information Reports To Be Filed By The Master
Servicer. The Master Servicer shall file (or cause any Subservicers to file)
information returns with respect to the receipt of mortgage interest received in
a trade or business, reports of foreclosures and abandonments of any Mortgaged
Property and cancellation of indebtedness income with respect to any Mortgaged
Property as required by Sections 6050H, 6050J and 6050P of the Code,
respectively.
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS
Section 6.01. Establishment Of Certificate Accounts; Deposits
To The Certificate Accounts. (a) The Trustee shall establish and maintain two
separate Certificate Accounts which shall be Eligible Accounts and shall be
titled "Group I Certificate Account, [_________________________________], as
trustee for the registered holders of [Morgan Stanley ABS Capital I Inc.],
Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199__-__, Class
A-1, Class I S and Class R" and "Group II Certificate Account,
[_________________________________], as trustee for the registered holders of
[Morgan Stanley ABS Capital I Inc.], Mortgage Loan Asset-Backed Pass Through
Certificates, Series 199__-__, Class A-2, Class II S and Class R."
(b) From the period from each Master Servicer Remittance Date
to the Business Day prior to each Distribution Date, the Master Servicer may
direct the Trustee in writing to invest the funds in the Certificate Accounts
only in Permitted Investments. From the Business Day prior to each Distribution
Date to such Distribution Date, the Trustee shall invest the funds in the
Certificate Accounts only in Permitted Investments. No Permitted Investment
shall be sold or disposed of at a gain prior to maturity unless the Master
Servicer or Trustee, as applicable, has received an Opinion of Counsel (at the
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Master Servicer's or Trustee's expense, as applicable) that such sale or
disposition will not cause the Trust Fund to be subject to the tax on income
from prohibited transactions imposed by Section 860F(a)(1) of the Code,
otherwise subject the Trust Fund to tax or cause the Trust Fund to fail to
qualify as a REMIC. All net income (other than any gain from a sale or
disposition of the type referred to in the preceding sentence) realized from any
such Permitted Investment shall be for the benefit of the Master Servicer or
Trustee, as applicable, as additional compensation. The amount of any losses
incurred in respect of any such Permitted Investments held therein which is in
excess of the income and gain thereon shall be deposited in the related
Certificate Account by the Master Servicer or Trustee, as applicable, out of its
own funds immediately as realized.
(c) On each Master Servicer Remittance Date, the Master
Servicer shall cause to be deposited in the Group I and Group II Certificate
Accounts, from funds on deposit in the Collection Account, an amount equal to
the related Master Servicer Remittance Amount with respect to Loan Group I and
Loan Group II respectively.
Section 6.02. Permitted Withdrawals From The Certificate
Accounts. The Trustee shall withdraw or cause to be withdrawn funds from the
Certificate Accounts for the following purposes:
(a) to effect the distributions described in Section 6.05;
(b) to pay to the Seller with respect to each Mortgage Loan or
property acquired in respect thereof that has been repurchased or
replaced pursuant to Section 2.04 or 3.03 or to pay to the Master
Servicer with respect to each Mortgage Loan or property acquired in
respect thereof that has been purchased all amounts received thereon
and not required to be distributed as of the date on which the related
repurchase or purchase price or Principal Balance was determined;
(c) on the Business Day prior to each Distribution Date, to
pay the Master Servicer any interest earned on or investment income
earned with respect to funds in the Certificate Accounts up to the
Business Day immediately prior to such Distribution Date;
(d) on each Distribution Date, to pay itself any interest
earned on or investment income earned with respect to funds in the
Certificate Accounts from the Business Day immediately prior to such
Distribution Date to such Distribution Date;
(e) to return to the Collection Account any amount deposited
in a Certificate Account that was not required to be deposited therein;
(f) to make reimbursements to itself in accordance with
Section 9.05; and
(g) to clear and terminate the Certificate Accounts upon
termination of any of the Trust Fund pursuant to Article VIII.
The Trustee shall keep and maintain a separate accounting for
withdrawals from the Certificate Accounts pursuant to each of subclauses (a)
through (f) listed above.
Section 6.03. Collection Of Money. Except as otherwise
expressly provided herein, the Trustee may demand payment or delivery of all
money and other property payable to or receivable by the Trustee pursuant to
this Agreement, including (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Trustee by the Master Servicer or by any
Subservicer and (b) Insured Payments. The Trustee shall
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hold all such money and property received by it, as part of the Trust Fund and
shall apply it as provided in this Agreement.
Section 6.04. The Certificate Insurance Policy. (a) Within two
Business Days after each Master Servicer Remittance Date the Trustee shall
determine with respect to the immediately following Distribution Date the amount
to be on deposit in the Certificate Accounts on such Distribution Date as a
result of the Master Servicer's remittance of the Master Servicer Remittance
Amount on the related Master Servicer Remittance Date plus the amount of any
amounts deposited into the Certificate Accounts from the related Pre-Funding
Account pursuant to Section 6.12 and any Interest Coverage Additions to be
deposited pursuant to Section 6.13 for such Distribution Date, less the amounts
described in clauses (i) through (ii) of Section 6.05(b) or (c) for the related
Distribution Date, and not including the amount of any Insured Payment which is
required to be deposited in the related Certificate Account for such
Distribution Date. The amounts described in the preceding sentence, as
determined separately with respect to the Group I Loans, and Group II Loans,
with respect to each Distribution Date are the "Group I Available Funds" and
"Group II Available Funds" for such Distribution Date.
(b) If on any Distribution Date there is an Available Funds
Shortfall, the Trustee shall complete a Notice in the form of Exhibit ___ to the
related Certificate Insurance Policy and submit such notice to the Certificate
Insurer no later than 12:00 noon New York City time on the second Policy
Business Day preceding such Distribution Date as a claim for an Insured Payment
in an amount equal to such Available Funds Shortfall.
(c) The Trustee shall establish a separate Eligible Account
for the benefit of Holders of the Certificates and the Certificate Insurer
referred to herein as the "Certificate Insurance Payments Account" over which
the Trustee shall have exclusive control and sole right of withdrawal. The
Trustee shall deposit upon receipt any amount paid under the Certificate
Insurance Policy in the Certificate Insurance Payments Account and distribute
such amount only for purposes of payment to Certificateholders of the Group I
Insured Distribution Amount or Group II Insured Distribution Amount for which a
claim was made and such amount may not be applied to satisfy any costs, expenses
or liabilities of the Master Servicer, the Trustee or the Trust Fund. Amounts
paid under the Certificate Insurance Policy, to the extent needed to pay the
Group I Insured Distribution Amount or Group II Insured Distribution Amount
shall be transferred by the Trustee from the Certificate Insurance Payments
Account to the related Certificate Account on the related Distribution Date and
disbursed by the Trustee to Certificateholders in accordance with Section 6.05.
It shall not be necessary for payments made under the Certificate Insurance
Policy to be made by checks or wire transfers separate from other amounts
distributed pursuant to Section 6.05. However, the amount of any payment of
principal or of interest on the Certificates to be paid from funds transferred
from the Certificate Insurance Payments Account shall be noted as provided in
paragraph (d) below. Funds held in the Certificate Insurance Payments Account
shall not be invested. Any funds remaining in the Certificate Insurance Payments
Account on the first Policy Business Day following a Distribution Date shall be
returned to the Certificate Insurer pursuant to the written instructions of the
Certificate Insurer by the end of such Policy Business Day.
(d) The Trustee Remittance Report shall indicate the amount of
interest and principal paid in respect of the Class A-1 Certificates and the
Class A-2 Certificates from moneys received under the Certificate Insurance
Policy.
(e) In the event that the Trustee has received a certified
copy of an order of the appropriate court that any Insured Payment has been
voided in whole or in part as a preference payment under applicable bankruptcy
law, the Trustee shall so notify the Certificate Insurer, shall comply with the
provisions of the Certificate Insurance Policy to obtain payment by the
Certificate Insurer of such
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voided Insured Payment, and shall, at the time it provides notice to the
Certificate Insurer, notify, by mail to Certificateholders of the affected
Certificates that, in the event any Certificateholder's Insured Payment is so
recovered, such Certificateholder will be entitled to payment pursuant to the
Certificate Insurance Policy, a copy of which shall be made available through
the Trustee, the Certificate Insurer or the Certificate Insurer's fiscal agent,
if any, and the Trustee shall furnish to the Certificate Insurer or its fiscal
agent, if any, its records evidencing the payments which have been made by the
Trustee and subsequently recovered from Certificateholders, and dates on which
such payments were made.
(f) The Trustee shall promptly notify the Certificate Insurer
of any proceeding or the institution of any action, of which a Responsible
Officer of the Trustee has actual knowledge, seeking the avoidance as a
preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any distribution made with respect to the
Certificates. Each Certificateholder, by its purchase of Certificates, the
Master Servicer and the Trustee agree that, the Certificate Insurer (so long as
no Certificate Insurer Default exists) may at any time during the continuation
of any proceeding relating to a Preference Claim direct all matters relating to
such Preference Claim, including, without limitation, (i) the direction of any
appeal of any order relating to such Preference Claim and (ii) the posting of
any surety, supersedeas or performance bond pending any such appeal. In addition
and without limitation of the foregoing, the Certificate Insurer shall be
subrogated to, and each Certificateholder, the Master Servicer and the Trustee
hereby delegate and assign to the Certificate Insurer, to the fullest extent
permitted by law, the rights of the Master Servicer, the Trustee and each
Certificateholder in the conduct of any such Preference Claim, including,
without limitation, all rights of any party to any adversary proceeding or
action with respect to any court order issued in connection with any such
Preference Claim.
Section 6.05. Distributions. (a) No later than 12:00 noon [New
York] time on each Master Servicer Remittance Date, the Master Servicer shall
deliver to the Trustee a report in computer-readable form (including electronic
transmission, provided that a portion of such report relating to certain
delinquency information may be delivered in hard copy form rather than
computer-readable form) containing such information as to each Mortgage Loan as
of such date and such other information as the Trustee shall reasonably require.
(b) With respect to funds deposited in the Group I Certificate
Account, on each Distribution Date, the Trustee shall make the following
allocations, disbursements and transfers in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) commencing with the Distribution Date occurring in
___________________, 199___, to the Certificate Insurer, the Premium
Amount with respect to the Group I Loans;
(ii) to the Trustee, an amount equal to the Trustee's Fees
then due to it with respect to the Group I Loans;
(iii) to the Certificate Insurer the lesser of (x) an amount
equal to (i) the amount then on deposit in the Group I Certificate
Account remaining after the foregoing distributions minus (ii) the
Group I Insured Distribution Amount for such Distribution Date and (y)
the outstanding Group I Reimbursement Amounts, if any, as of such
Distribution Date;
(iv) from amounts then on deposit in the Group I Certificate
Account (including any Group I Insured Payments), to the Class A-1
Certificateholders an amount equal to the Group I Class A Interest
Distribution Amount;
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(v) from amounts then on deposit in the Group I Certificate
Account (including any Group I Insured Payments), to the Class A-1
Certificateholders an amount equal to the lesser of (a) the Group I
Class A Principal Distribution Amount (to the extent not covered by
payments to be made pursuant to Section 6.05(c)(vi) below) and (b) the
amount remaining in the Group I Certificate Account after distributions
pursuant to clauses (i) through (iv) above, in the manner described
below;
(vi) from amounts then on deposit in the Group I Certificate
Account, to the Class A-2 Certificateholders, on any Distribution Date
where a Group II Subordination Deficit exists, an amount equal to such
Group II Subordination Deficit;
(vii) from amounts then on deposit in the Group I Certificate
Account, to the Class A-2 Certificateholders, on any Distribution Date
when, following distributions to be made on such date, the Group II
Subordinated Amount would be less than the Group II Required
Subordinated Amount, an amount equal to such difference;
(viii) from amounts then on deposit in the Group I Certificate
Account, to the Certificate Insurer, an amount equal to the sum of the
outstanding Group II Reimbursement Amount remaining unpaid and the
amount of any Insured Payment made to the Class A-2 Certificates on
such Distribution Date following any distributions made on such
Distribution Date pursuant to Section 6.05(c)(v);
(ix) from amounts then on deposit in the Group I Certificate
Account, to the Class A-1 Certificateholders the amount equal to the
lesser of (i) any amount then remaining in the Group I Certificate
Account after distributions to clauses (i) through (viii) above and
(ii) the aggregate Group I Class A Available Funds Cap Carry-Forward
Amount shall be paid to the Class A-1 Certificateholders on account of
the Group I Class A Available Funds Cap Carry-Forward Amount, if any;
(x) from amounts then on deposit in the Group I Certificate
Account, to the Class I S Certificateholders an amount equal to the
related Class S Interest Distribution Amount to the extent not added to
the Certificate Principal Balance thereof as described below;
(xi) from amounts then on deposit in the Group I Certificate
Account, to the Class I S Certificateholders the amount remaining on
such Distribution Date, if any, until the Certificate Principal
Balances thereof are reduced to zero; and
(xii) from amounts then on deposit in the Group I Certificate
Account, to the Holders of the Class R Certificates, the amount
remaining on such Distribution Date, if any.
Notwithstanding clause (v) above, the aggregate amounts distributed on all
Distribution Dates to the Holders of the Class A-1 Certificates on account of
the Group I Class A Principal Distribution Amount shall not exceed the Original
Group I Certificate Principal Balance for the Class A-1 Certificates.
Distributions of the Group I Class A Principal Distribution
Amount and amounts allocated pursuant to Section 6.05(c)(vi) and (vii) will be
allocated to the Class A-1 Certificates in reduction of the Certificate
Principal Balance thereof, until the Certificate Principal Balance thereof has
been reduced to zero.
On each Distribution Date, an amount equal to the Group I
Subordination Increase Amount for such date will be added to the Certificate
Principal Balances of the Class I S Certificates.
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(b) With respect to funds deposited in the Group II
Certificate Account, on each Distribution Date, the Trustee shall make the
following allocations, disbursements and transfers in the following order of
priority, and each such allocation, transfer and disbursement shall be treated
as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(i) commencing with the Distribution Date occurring in
__________________, 199___, to the Certificate Insurer, the Premium
Amount with respect to the Group II Loans;
(ii) to the Trustee, an amount equal to the Trustee's Fees
then due to it with respect to the Group II Loans;
(iii) to the Certificate Insurer the lesser of (x) an amount
equal to (i) the amount then on deposit in the Group II Certificate
Account remaining after the foregoing distributions minus (ii) the
Group II Insured Distribution Amount for such Distribution Date and (y)
the outstanding Group II Reimbursement Amounts, if any, as of such
Distribution Date;
(iv) from amounts then on deposit in the Group II Certificate
Account (including any Group II Insured Payments), to the Class A-2
Certificateholders, an amount equal to the Group II Class A Interest
Distribution Amount;
(v) from amounts then on deposit in the Group II Certificate
Account (including any Group II Insured Payments), to the Class A-2
Certificateholders an amount equal to the lesser of (a) the Group II
Class A Principal Distribution Amount (to the extent not covered by
payments to be made pursuant to Section 6.05(b)(vi) above) and (b) the
amount remaining in the Group II Certificate Account after
distributions pursuant to clauses (i) through (iv) above, in reduction
of the Certificate Principal Balance of the Class A-2 Certificates,
until the Certificate Principal Balance of the Class A-2 Certificates
has been reduced to zero;
(vi) from amounts then on deposit in the Group II Certificate
Account, to the Certificate Insurer, an amount equal to the sum of the
outstanding Group I Reimbursement Amount remaining unpaid and any
Insured Payment made with respect to the Class A-1 Certificates on such
Distribution Date following any distributions made on such Distribution
Date pursuant to Section 6.05(b)(v);
(vii) from amounts then on deposit in the Group II Certificate
Account, to the Class II S Certificateholders, an amount equal to the
related Class S Interest Distribution Amount to the extent not added to
the Certificate Principal Balance thereof as described below;
(viii) from amounts then on deposit in the Group II
Certificate Account, to the Class II S Certificateholders, the amount
remaining on such Distribution Date, if any, until the Certificate
Principal Balances thereof are reduced to zero; and
(ix) from amounts then on deposit in the Group II Certificate
Account, to the Holders of the Class R Certificates, the amount
remaining on such Distribution Date, if any.
Notwithstanding clause (v) above, the aggregate amounts distributed on all
Distribution Dates to the Holders of the Class A-2 Certificates on account of
the Group II Class A Principal Distribution Amount shall not exceed the Original
Group II Certificate Principal Balance for the Class A-2 Certificates.
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On each Distribution Date, an amount equal to the Group II
Subordination Increase Amount for such date will be added to the Certificate
Principal Balances of the Class II S Certificates.
Section 6.06. Investment Of Accounts. (a) So long as no Event
of Default shall have occurred and be continuing, and consistent with any
requirements of the Code, all or a portion of any Account (other than the
Certificate Insurance Payments Account) held by the Trustee shall be invested
and reinvested by the Trustee, as directed in writing by the Master Servicer
(with respect to the Certificate Accounts up to the Business Day prior to each
Distribution Date) or the Trustee (with respect to the Certificate Accounts from
the Business Day prior to each Distribution Date to such Distribution Date) or
the Company (with respect to the Pre-Funding Accounts and the Interest Coverage
Accounts) in one or more Permitted Investments bearing interest or sold at a
discount. If an Event of Default shall have occurred and be continuing or if the
Master Servicer or the Company does not provide investment directions, the
Trustee shall invest all Accounts in Permitted Investments described in
paragraph (d) of the definition of Permitted Investments. No such investment in
any Account shall mature later than the Business Day immediately preceding the
next Distribution Date (except that if such Permitted Investment is an
obligation of the Trustee, then such Permitted Investment shall mature not later
than such Distribution Date).
(b) If any amounts are needed for disbursement from any
Account held by the Trustee and sufficient uninvested funds are not available to
make such disbursement, the Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Account. The
Trustee shall not be liable for any investment loss or other charge resulting
therefrom unless the Trustee's failure to perform in accordance with this
Section 6.06 is the cause of such loss or charge.
(c) Subject to Section 9.01 hereof, the Trustee shall not in
any way be held liable by reason of any insufficiency in any Account held by the
Trustee resulting from any investment loss on any Permitted Investments included
therein other than with respect to the investment of funds in the Certificate
Accounts from the Business Day prior to each Distribution Date to such
Distribution Date, and except to the extent that the Trustee is the obligor and
has defaulted thereon or as provided in subsection (b) of this Section 6.06.
(d) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
earnings on, funds deposited in any Account (excluding the Pre-Funding Accounts
and the Interest Coverage Accounts) shall be for the benefit of the Master
Servicer as compensation (in addition to the Servicing Fee) and the benefit of
the Trustee as compensation (in addition to the Trustee Fee). The Master
Servicer and the Trustee shall deposit in each Account (excluding the
Pre-Funding Accounts and the Interest Coverage Accounts) and the Company shall
deposit in each Pre-Funding Account and Interest Coverage Account, from its own
funds, the amount of any loss incurred in respect of any Permitted Investment
held therein which is in excess of the income and gain thereon immediately upon
realization of such loss, without any right to reimbursement therefor; provided,
however, that the Master Servicer shall only be responsible for the
reimbursement of losses in the Certificate Accounts up until the Business Day
prior to each Distribution Date, and the Trustee shall only be responsible for
the reimbursement of losses from the Business Day prior to each Distribution
Date to such Distribution Date.
Section 6.07. Reports By Trustee. (bg) On each Distribution
Date the Trustee shall provide to each Holder, to the Master Servicer, to the
Certificate Insurer, to the Underwriter, to the Company and to the Rating
Agencies a written report (the "Trustee Remittance Report"), based solely on
information provided by the Master Servicer and containing the following
information:
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(i) the amount of the distribution with respect to each class
of the Class A Certificates, Class S Certificates and Class R
Certificates;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments in Full
and Curtailments or other unscheduled recoveries of principal included
therein and separately identifying any Subordination Increase Amounts;
(iii) the amount of such distributions allocable to interest
and the calculation thereof;
(iv) the Certificate Principal Balance of each class of the
Class A Certificates and Class S Certificates as of such Distribution
Date, together with the principal amount of each class of the Class A
Certificates and Class S Certificates (based on a Certificate in an
original principal amount of $1,000) then outstanding, in each case
after giving effect to any payment of principal on such Distribution
Date;
(v) the amount of any Insured Payment included in the amounts
distributed to the Class A Certificateholders on such Distribution
Date;
(vi) the Required Subordinated Amount and the Subordinated
Amount as of such Distribution Date;
(vii) the total of any Substitution Adjustments and any Loan
Repurchase Price amounts included in such distribution;
(viii) the amounts, if any, of any Liquidation Loan Losses for
the related Due Period and the cumulative amount of Liquidated Loan
Losses from the Closing Date;
(ix) the number of Mortgage Loans and the aggregate Stated
Principal Balance of Mortgage Loans purchased pursuant to Section 5.18
for the related Distribution Date and since the closing date the
cumulative number and Stated Principal Balance of Mortgage Loans
purchased pursuant to Section 5.18.
(x) the number of Mortgage Loans and the aggregate Stated
Principal Balance of Mortgage Loans purchased or substituted for
pursuant to Sections 3.03 and 2.04 for the related Distribution Date
and, since the closing date, the cumulative number and Stated Principal
Balance of Mortgage Loans purchased or substituted for pursuant to
Sections 3.03 and 2.04;
(xi) the applicable Pass-Through Rate for each class of Class
A Certificates and Class S Certificates for such distribution;
(xii) the amount on deposit in the Pre-Funding Accounts and
the Interest Coverage Accounts;
(xiii) for the Distribution Date occurring in
_______________________, 199___, the balances of the Pre-Funded Amounts
that have not been used to purchase Subsequent Mortgage Loans and that
are being distributed to the Class A Certificateholders as a mandatory
prepayment of principal, if any, on such Distribution Date;
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(xiv) the amount, if any, of the Interest Coverage Addition
included in such distribution for each Loan Group; and (xiii) the
amount, if any, of any Group I Class A Available Funds Cap
Carry-Forward Amount.
Items (i), (ii) and (iii) above shall, with respect to the Class A Certificates,
be presented on the basis of a Certificate having a $1,000 denomination. In
addition, by _________________ of each calendar year following any year during
which the Certificates are outstanding, the Trustee shall furnish a report to
each Holder of record if so requested in writing at any time during each
calendar year as to the aggregate of amounts reported pursuant to (i), (ii) and
(iii) with respect to the Certificates for such calendar year.
(b) All distributions made to the Class A Certificateholders,
Class S Certificateholders and the Class R Certificateholders as a Class on each
Distribution Date will be made on a pro rata basis among the Certificateholders
of such Class on the next preceding Record Date based on the Percentage Interest
represented by their respective Certificates, and shall be made by wire transfer
of immediately available funds to the account of such Certificateholder at a
bank or other entity having appropriate facilities therefor, if, in the case of
a Class A Certificateholder, such Certificateholder shall own of record
Certificates of the same Class which have denominations aggregating at least
$[5,000,000] appearing in the Certificate Register and shall have provided
complete wiring instructions by the Record Date, and otherwise by check mailed
to the address of such Certificateholder appearing in the Certificate Register.
(c) In addition, on each Distribution Date the Trustee will
distribute to each Holder, to the Certificate Insurer, to the Underwriters, to
the Master Servicer, to the Company and to the Rating Agencies, together with
the information described in subsection (a) preceding, the following information
with respect to the Group I and Group II Loans as of the close of business on
the last Business Day of the prior calendar month, which is hereby required to
be prepared by the Master Servicer and furnished to the Trustee for such purpose
on or prior to the related Master Servicer Remittance Date (such information to
be provided for the Group I and Group II Loans separately):
(i) the total number of Mortgage Loans and the aggregate
Principal Balances thereof, together with the number and aggregate
principal balances of such Mortgage Loans and the percentage (based on
the aggregate Principal Balances of the Mortgage Loans) of the
aggregate Principal Balances of such Mortgage Loans to the aggregate
Principal Balance of all Mortgage Loans (a) 30-59 days Delinquent, (B)
60-89 days Delinquent and (C) 90 or more days Delinquent;
(ii) the number and aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal
Balances of the Mortgage Loans) of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans in foreclosure proceedings and the number and aggregate Principal
Balances of all Mortgage Loans and percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
which are also included in any of the statistics described in the
foregoing clauses (i)(A), (i)(B) and (i)(C);
(iii) the number and aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal
Balances of the Mortgage Loans) of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans relating to Mortgagors in bankruptcy proceedings and the number
and aggregate Principal Balances of all Mortgage Loans and percentage
(based on the aggregate Principal Balances of the
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Mortgage Loans) of any such Mortgage Loans which are also included in
any of the statistics described in the foregoing clauses (i)(A), (i)(B)
and (i)(C);
(iv) the number and aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal
Balances of the Mortgage Loans) of the aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans relating to REO Properties and the number and aggregate Principal
Balances of all Mortgage Loans and percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
which are also included in any of the statistics described in the
foregoing clause (i)(A), (i)(B) and (i)(C);
(v) the weighted average Mortgage Interest Rate as of the Due
Date occurring in the Due Period related to such Distribution Date;
(vi) the weighted average remaining term to stated maturity of
all Mortgage Loans;
(vii) the book value of any REO Property; and
(viii) the number and aggregate Principal Balance of all
Subsequent Mortgage Loans added during the preceding Due Period.
Section 6.08. Additional Reports By Trustee. (a) The Trustee
shall report to the Company, the Master Servicer and the Certificate Insurer
with respect to the amount then held in each Account (including investment
earnings accrued or scheduled to accrue) held by the Trustee and the identity of
the investments included therein, as the Company, the Master Servicer or the
Certificate Insurer may from time to time request in writing.
(b) From time to time, at the request of the Certificate
Insurer, the Trustee shall report to the Certificate Insurer with respect to its
actual knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
the Purchase Agreement or in Section 3.01 or 3.02 hereof.
(c) On each Distribution Date, the Trustee shall provide
[Bloomberg Financial Markets, L.P. ("Bloomberg") Certificate Factors] for each
class of Certificates as of such Distribution Date, using a format and media
mutually acceptable to the Trustee and [Bloomberg].
Section 6.09. Compensating Interest. Not later than the close
of business on the third Business Day prior to the Distribution Date, the Master
Servicer or any Subservicer shall remit to the Trustee (without right or
reimbursement therefor) for deposit into the related Certificate Account an
amount equal to the lesser of (a) the aggregate of the Prepayment Interest
Shortfalls for the related Distribution Date resulting from Principal
Prepayments in Full and Curtailments during the related Due Period and (b) its
aggregate Servicing Fees payable in the related Due Period and shall not have
the right to reimbursement therefor (the "Compensating Interest").
Section 6.10. Effect Of Payments By The Certificate Insurer;
Subrogation. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Class A Certificates which is made
with moneys received pursuant to the terms of the Certificate Insurance Policy
shall not be considered payment of the Certificates from the Trust Fund. The
Company, the Master Servicer and the Trustee acknowledge, and each Holder by its
acceptance of a Certificate agrees, that without the need for any further action
on the part of the Certificate Insurer, the Company, the
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Master Servicer or the Trustee (a) to the extent the Certificate Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Class A Certificates to the Holders of such Certificates, the Certificate
Insurer will be fully subrogated to, and each Certificateholder, the Master
Servicer and the Trustee hereby delegate and assign to the Certificate Insurer,
to the fullest extent permitted by law, the rights of such Holders to receive
such principal and interest from the Trust Fund, including, without limitation,
any amounts due to the Certificateholders in respect of securities law
violations arising from the offer and sale of the Class A Certificates, and (b)
the Certificate Insurer shall be paid such amounts but only from the sources and
in the manner provided herein for the payment of such amounts. The Trustee and
the Master Servicer shall cooperate in all respects with any reasonable request
by the Certificate Insurer for action to preserve or enforce the Certificate
Insurer's rights or interests under this Agreement without limiting the rights
or affecting the interests of the Holders as otherwise set forth herein.
Section 6.11. Allocation Of Liquidated Loan Losses. Prior to
each Distribution Date the Master Servicer shall determine the total amount of
related Liquidated Loan Losses, if any, that occurred during the related Due
Period with respect to the Group I Loans and the Group II Loans. The amount of
such Liquidated Loan Losses shall be evidenced by an Officer's Certificate to be
delivered to the Trustee not later than the Master Servicer Remittance Date. On
each Distribution Date, the principal portion of all Liquidated Loan Losses on
the Mortgage Loans in Loan Group I shall be allocated in reduction of the
Certificate Principal Balance of the Class I S Certificates, until the
Certificate Principal Balance thereof has been reduced to zero. On each
Distribution Date, the principal portion of all Liquidated Loan Losses on the
Mortgage Loans in Loan Group II shall be allocated in reduction of the
Certificate Principal Balance of the Class II S Certificates, until the
Certificate Principal Balance thereof has been reduced to zero. In each case
above, Liquidated Loan Losses after the Certificate Principal Balances of the
Certificates described above have been reduced to zero shall not be allocated to
any specific class of related Certificates, but shall increase the Group I
Subordination Deficit or Group II Subordination Deficit, as applicable, in the
manner described in this Agreement.
Section 6.12. Pre-Funding Accounts.
(bh) No later than the Closing Date, the Trustee shall
establish and maintain with itself one or more segregated trust accounts that
are Eligible Accounts, which shall be titled "Group I Pre- Funding Account,
[_________________________________], as trustee for the registered holders of
[Morgan Stanley ABS Capital I Inc.], Mortgage Loan Asset-Backed Pass-Through
Certificates, Series 199__-__" (the "Group I Pre-Funding Account") and one or
more segregated trust accounts that are Eligible Accounts, which shall be titled
"Group II Pre-Funding Account, [_________________________________], as trustee
for the registered holders of [Morgan Stanley ABS Capital I Inc.], Mortgage Loan
Asset-Backed Pass-Through Certificates, Series 199__-__" (the "Group II
Pre-Funding Account"). The Trustee shall, promptly upon receipt, deposit (a) in
the Group I Pre- Funding Account and retain therein the Original Pre-Funded
Amount with respect to Loan Group I remitted on the Closing Date to the Trustee
by the Company and (b) in the Group II Pre-Funding Account and retain therein
the Original Pre-Funded Amount with respect to Loan Group II remitted on the
Closing Date to the Trustee by the Company. Funds deposited in the Group I
Pre-Funding Account shall be held in trust by the Trustee for the Holders of the
Group I Certificates and the Certificate Insurer for the uses and purposes set
forth herein. Funds deposited in the Group II Pre-Funding Account shall be held
in trust by the Trustee for the Holders of the Group II Certificates and the
Certificate Insurer for the uses and purposes set forth herein. If the Trustee
shall not have received an investment direction from the Company, the Trustee
will invest funds deposited in the Pre-Funding Accounts in Permitted Investments
of the kind described in clause (d) of the definition of Permitted Investments
with a maturity date no later than the second Business Day preceding each
Distribution Date. For federal income tax purposes, the
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Company shall be the owner of the Pre-Funding Accounts and shall report all
items of income, deduction, gain or loss arising therefrom. All income and gain
realized from investment of funds deposited in the Group I Pre-Funding Account
shall be transferred to the Group I Interest Coverage Account on the Business
Day immediately preceding each Distribution Date. All income and gain realized
from investment of funds deposited in the Group II Pre-Funding Account shall be
transferred to the Group II Interest Coverage Account. The Company shall deposit
in the related Pre-Funding Account the amount of any net loss incurred in
respect of any such Permitted Investment immediately upon realization of such
loss without any right of reimbursement therefor.
(bi) Amounts on deposit in the Group I Pre-Funding Account
shall be withdrawn by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee
shall withdraw from the Group I Pre-Funding Account an amount
equal to 100% of the Principal Balances of the Subsequent
Mortgage Loans transferred and assigned to the Trustee for
Loan Group I on such Subsequent Transfer Date and pay such
amount to or upon the order of the Company upon satisfaction
of the conditions set forth in Section 2.08(b) with respect to
such transfer and assignment; and
(ii) If the Group I Pre-Funded Amount has not been
reduced to zero during the Funding Period, on the Master
Servicer Remittance Date immediately prior to the Distribution
Date occurring in __________________ 199___, the Trustee shall
deposit into the Group I Certificate Account any amounts
remaining in the Group I PreFunding Account.
(bj) Amounts on deposit in the Group II Pre-Funding Account
shall be withdrawn by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee
shall withdraw from the Group II Pre-Funding Account an amount
equal to 100% of the Principal Balances of the Subsequent
Mortgage Loans transferred and assigned to the Trustee for
Loan Group II on such Subsequent Transfer Date and pay such
amount to or upon the order of the Company upon satisfaction
of the conditions set forth in Section 2.08(b) with respect to
such transfer and assignment; and
(ii) If the Group II Pre-Funded Amount has not been
reduced to zero during the Funding Period, on the Master
Servicer Remittance Date immediately prior to the Distribution
Date occurring in ___________________, 199___, the Trustee
shall deposit into the Group II Certificate Account any
amounts remaining in the Group II PreFunding Account.
Section 6.13. Interest Coverage Accounts.
(a) No later than the Closing Date, the Trustee shall
establish and maintain with itself two separate, segregated trust accounts,
which shall be Eligible Accounts, titled "Group I Interest Coverage Account,
[_________________________________], as trustee for the registered holders of
[[Morgan Stanley ABS Capital I Inc.]] Mortgage Loan Asset-Backed Pass-Through
Certificates, Series 199__-__" (the "Group I Interest Coverage Account") and
"Group II Interest Coverage Account, [_________________________________], as
trustee for the registered holders of [[Morgan Stanley ABS Capital I Inc.]]
Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199__-__" (the
"Group II
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Interest Coverage Account"). The Trustee shall, promptly upon receipt, deposit
(a) in the Group I Interest Coverage Account and retain therein the Group I
Interest Coverage Amount remitted on the Closing Date to the Trustee by the
Company and (b) in the Group II Interest Coverage Account and retain therein the
Group II Interest Coverage Amount remitted on the Closing Date to the Trustee by
the Company. In addition, the Trustee shall deposit into the Group I Interest
Coverage Account all income and gain on investments in the Group I Pre-Funding
Account and shall deposit into the Group II Interest Coverage Account all income
and gain on investments in the Group II Pre-Funding Account pursuant to Section
6.12. Funds deposited in the Group I Interest Coverage Account shall be held in
trust by the Trustee for the Holders of the Group I Certificates and the
Certificate Insurer for the uses and purposes set forth herein. Funds deposited
in the Group II Interest Coverage Account shall be held in trust by the Trustee
for the Holders of the Group II Certificates and the Certificate Insurer for the
uses and purposes set forth herein. For federal income tax purposes, the Company
shall be the owner of the Interest Coverage Accounts and shall report all items
of income, deduction, gain or loss arising therefrom. The Company shall deposit
in the related Interest Coverage Account the amount of any net loss incurred in
respect of any such Permitted Investment immediately upon realization of such
loss without any right of reimbursement therefor.
(b) On each of the first two Distribution Dates, the Trustee
shall (a) withdraw from the Group I Interest Coverage Account and deposit in the
Group I Certificate Account the related Interest Coverage Addition and (b)
withdraw from the Group II Interest Coverage Account and deposit in the Group II
Certificate Account the related Interest Coverage Addition.
(c) On each Distribution Date following the conveyance of a
Subsequent Mortgage Loan to the Trustee for Loan Group I, funds on deposit in
the Group I Interest Coverage Account in an amount equal to 1/360 of the product
of (i) the Principal Balance of such Subsequent Mortgage Loan and (ii) the sum
of (a) the Group I Class A Pass-Through Rate for such Distribution Date minus
_______% and (B) ________%, and (iii) the actual number of days from the
Subsequent Cut-off Date to _____________________, 199____, shall be remitted,
without notice, immediately upon receipt thereof, to the Company.
On each Distribution Date following the conveyance of a
Subsequent Mortgage Loan to the Trustee for Loan Group II, funds on deposit in
the Group II Interest Coverage Account in an amount equal to 1/360 of the
product of (i) the Principal Balance of such Subsequent Mortgage Loan and (ii)
the sum of (a) the weighted average Group II Class A Pass-Through Rate for such
Distribution Date minus _______% and (B) _______%, and (iii) the number of days,
up to a maximum of 30 per calendar month, from the Subsequent Cut-off Date to
_________________, 199___, shall be remitted, without notice, immediately upon
receipt thereof to the Company.
(d) Upon the earlier of (i) termination of the Trust Fund in
accordance with Section 8.01 and (ii) the first Business Day following the first
Distribution Date following the conveyance of the last Subsequent Mortgage Loan
to the Trustee for Loan Group I, any amount remaining on deposit in the Group I
Interest Coverage Account after distributions pursuant to Sections 6.13(b) above
shall be withdrawn by the Trustee and paid to the Company.
Upon the earliest of (i) the reduction of the Certificate
Principal Balance of the Class A-2 Certificates to zero, (ii) the termination of
the Trust Fund in accordance with Section 8.01 and (iii) the first Business Day
following the first Distribution Date following the conveyance of the last
Subsequent Mortgage Loan to the Trustee for Loan Group II, any amount remaining
on deposit in the Group II Interest Coverage Account after distributions
pursuant to Sections 6.13(b) above shall be withdrawn by the Trustee and paid to
the Company.
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ARTICLE VII
DEFAULT
Section 7.01. Events Of Default. (a) "Event of Default",
wherever used herein, means any one of the following events:
(i) any failure by the Master Servicer to remit to the Trustee
any payment, other than a Servicing Advance, required to be made by the
Master Servicer under the terms of this Agreement which continues
unremedied for five Business Days after the date upon which such
payment was required to be made;
(ii) the failure by the Master Servicer to make any required
Servicing Advance which failure continues unremedied for a period of 30
days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Master Servicer
by the Trustee or to the Master Servicer and the Trustee by any
Certificateholder or the Certificate Insurer;
(iii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of the Master Servicer contained in this
Agreement, or the failure of any representation and warranty made
pursuant to Section 3.01 to be true and correct which continues
unremedied for a period of 30 days (or 15 days in the case of a failure
to pay the premium for any insurance policy which is required to be
maintained under this Agreement) after the date on which written notice
of such failure, requiring the same to be remedied, shall have been
given to the Master Servicer by the Company or the Trustee or to the
Master Servicer and the Trustee by any Certificateholder or the
Certificate Insurer;
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or for
the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Master Servicer and such
decree or order shall have remained in force, undischarged or unstayed
for a period of 60 days;
(v) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of the Master Servicer's property;
(vi) the Master Servicer shall admit in writing its inability
to pay its debts as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
(vii) on any Distribution Date the average Sixty-Day
Delinquency Ratio, for each of the three (or one or two, in the case of
the first and second Distribution Dates) immediately preceding Due
Periods, exceeds ____%. The "Sixty-Day Delinquency Ratio" with respect
to any
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Distribution Date means a fraction, expressed as a percentage, (a) the
numerator of which is the aggregate Principal Balances of all Mortgage
Loans that are 60 or more days Delinquent, in foreclosure or converted
to REO Property as of the last day of the related Due Period and (b)
the denominator of which is the Pool Principal Balance as of the last
day of the related Due Period;
(viii) if on any Distribution Date occurring in August of any
year, commencing in __________________ 199___, the 12 Month Loss Amount
exceeds _______% of the average Pool Principal Balance as of the close
of business on the last day of each of the twelve preceding Due
Periods; or
(ix) if (a) on any Distribution Date occurring before
________________, 199___, the aggregate Liquidated Loan Losses since
the Cut-off Date exceed _____% of the Original Pool Principal Balance,
(b) on any Distribution Date on or after _________________, 199_ and
before _________________, 199___, the aggregate Liquidated Loan Losses
since the Cut-off Date exceed _______% of the Original Pool Principal
Balance, (c) on any Distribution Date on or after _________________,
199___ and before ______________, 200___, the aggregate Liquidated Loan
Losses since the Cut-off Date exceed ______% of the Original Pool
Principal Balance, (d) on any Distribution Date on or after
_____________, 200___ and before ___________________, 200___, the
aggregate Liquidated Loan Losses since the Cut-off Date exceed ____% of
the Original Pool Principal Balance, or (e) on any Distribution Date on
or after _______________, 200____, the aggregate Liquidated Loan Losses
since the Cut-off Date exceed _______% of the Original Pool Principal
Balance.
(b) If an Event of Default described in this Section shall
occur, then, and in each and every such case, so long as such Event of Default
shall not have been remedied: with respect to clauses (i), (ii), (iii), (iv),
(v) and (vi) above, the Trustee shall, but only at the direction of the
Certificate Insurer or the Majority Certificateholders and with the prior
written consent of the Certificate Insurer, by notice in writing to the Master
Servicer and a Responsible Officer of the Trustee, and in addition to whatever
rights such Certificateholders may have at law or equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Master Servicer under this Agreement and in and to the
Mortgage Loans and the proceeds thereof, as servicer; and with respect to
clauses (vii)-(ix) above, the Trustee shall, but only at the direction of the
Certificate Insurer, after notice in writing to the Master Servicer and a
Responsible Officer of the Trustee, terminate all the rights and obligations of
the Master Servicer under this Agreement and in and to the Mortgage Loans and
the proceeds thereof, as servicer. Upon receipt by the Master Servicer of such
written notice, all authority and power of the Master Servicer under this
Agreement, whether with respect to the Mortgage Loans or otherwise, shall,
subject to Section 7.02, pass to and be vested in the Trustee, or its designee
approved by the Certificate Insurer, and the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Master Servicer, as
attorney-in-fact or otherwise, at the expense of the Master Servicer, any and
all documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Master Servicer
agrees to cooperate with the Trustee in effecting the termination of the Master
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee or its designee for administration by it of all
amounts which shall at the time be credited by the Master Servicer to the
Collection Account or thereafter received with respect to the Mortgage Loans.
The Trustee shall promptly notify the Certificate Insurer and the Rating
Agencies of the occurrence of an Event of Default.
Section 7.02. Trustee To Act; Appointment Of Successor. (a) On
and after the time the Master Servicer receives a notice of termination pursuant
to Section 7.01, or the Trustee receives the
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resignation of the Master Servicer evidenced by an Opinion of Counsel pursuant
to Section 5.24, or the Master Servicer is removed as Master Servicer pursuant
to Article VII, in which event the Trustee shall promptly notify the Rating
Agencies, except as otherwise provided in Section 7.01, the Trustee shall be the
successor in all respects to the Master Servicer in its capacity as master
servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Master Servicer by the terms and provisions
hereof arising on or after the date of succession; provided, however, that the
Trustee shall not be liable for any actions or the representations and
warranties of any master servicer prior to it and including, without limitation,
the obligations of the Master Servicer set forth in Sections 2.04 and 3.03. The
Trustee, as successor master servicer, shall be obligated to pay Compensating
Interest pursuant to Section 6.09 in any event and to make advances pursuant to
Section 5.21 unless, and only to the extent the Trustee as successor master
servicer determines reasonably and in good faith that such advances would not be
recoverable pursuant to Sections 5.04(b), 5.04(g) or 5.04(j), such determination
to be evidenced by a certification of a Responsible Officer of the Trustee, as
successor master servicer delivered to the Certificate Insurer.
(b) Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if the Majority
Certificateholders with the consent of the Certificate Insurer or the
Certificate Insurer so requests in writing to the Trustee, appoint, pursuant to
the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution acceptable to the Certificate Insurer that has a net worth of not
less than $[15,000,000] as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder.
(c) In the event the Trustee is the successor master servicer,
it shall be entitled to Servicing Compensation (including the Servicing Fee as
adjusted pursuant to the definition thereof) and other funds pursuant to Section
5.14 hereof as the Master Servicer. In the event the Trustee is unable or
unwilling to act as successor master servicer, the Trustee shall solicit, by
public announcement, bids from housing and home finance institutions, banks and
mortgage servicing institutions meeting the qualifications set forth above. Such
public announcement shall specify that the successor master servicer shall be
entitled to the full amount of the aggregate Servicing Fees hereunder as
servicing compensation, together with the other Servicing Compensation. Within
thirty days after any such public announcement, the Trustee shall negotiate and
effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
qualifying bid. The Trustee shall deduct from any sum received by the Trustee
from the successor to the Master Servicer in respect of such sale, transfer and
assignment all costs and expenses of any public announcement and of any sale,
transfer and assignment of the servicing rights and responsibilities hereunder
and the amount of any unreimbursed Servicing Advances and Periodic Advances owed
to the Trustee. After such deductions, the remainder of such sum shall be paid
by the Trustee to the Master Servicer at the time of such sale, transfer and
assignment to the Master Servicer's successor.
(d) The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. The Master Servicer agrees to cooperate with the Trustee and any
successor master servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor master servicer, as applicable, at the Master
Servicer's cost and expense, all documents and records reasonably requested by
it to enable it to assume the Master Servicer's functions hereunder and shall
promptly also transfer to the Trustee or such successor master servicer, as
applicable, all amounts that then have been or should have been deposited in the
Collection Account by the Master Servicer or that are thereafter received with
respect to the Mortgage Loans. Any collections received by the Master Servicer
after such removal or resignation shall be endorsed by it to the Trustee and
remitted directly to
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the Trustee or, at the direction of the Trustee, to the successor master
servicer. Neither the Trustee nor any other successor master servicer shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Master Servicer to deliver, or any delay in delivering, cash, documents or
records to it, or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Master Servicer hereunder. No appointment of a successor
to the Master Servicer hereunder shall be effective until the Trustee and the
Certificate Insurer shall have consented in writing thereto, and written notice
of such proposed appointment shall have been provided by the Trustee to the
Certificate Insurer and to each Certificateholder. The Trustee shall not resign
as servicer until a successor master servicer reasonably acceptable to the
Certificate Insurer has been appointed.
(e) Pending appointment of a successor to the Master Servicer
hereunder, the Trustee shall act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree; PROVIDED, HOWEVER, that no such
compensation shall be in excess of that permitted the Master Servicer pursuant
to Section 5.14, together with other Servicing Compensation. The Master
Servicer, the Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession.
Section 7.03. Waiver Of Defaults. The Majority
Certificateholders may, on behalf of all Certificateholders, and subject to the
consent of the Certificate Insurer (so long as no Certificate Insurer Default
has occurred and is continuing), waive any events permitting removal of the
Master Servicer as servicer pursuant to this Article VII; provided, however,
that the Majority Certificateholders may not waive a default in making a
required distribution on a Certificate without the consent of the holder of such
Certificate. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to the Rating Agencies.
Section 7.04. Mortgage Loans, Trust Fund And Accounts Held For
Benefit OF The Certificate Insurer. (a) The Trustee shall hold the Trust Fund
and the Mortgage Files for the benefit of the Certificateholders and the
Certificate Insurer and all references in this Agreement and in the Certificates
to the benefit of Holders of the Certificates shall be deemed to include the
Certificate Insurer. Unless a Certificate Insurer Default has occurred and is
continuing, the Trustee shall cooperate in all reasonable respects with any
reasonable request by the Certificate Insurer for action to preserve or enforce
the Certificate Insurer's rights or interests under this Agreement and the
Certificates unless, as stated in an Opinion of Counsel addressed to the Trustee
and the Certificate Insurer (which Opinion of Counsel shall not be an expense of
the Trustee or the Trust Fund), such action is adverse to the interests of the
Certificateholders or diminishes the rights of the Certificateholders or imposes
additional burdens or restrictions on the Certificateholders.
(b) The Master Servicer hereby acknowledges and agrees that it
shall service the Mortgage Loans for the benefit of the Certificateholders and
for the benefit of the Certificate Insurer, and all references in this Agreement
to the benefit of or actions on behalf of the Certificateholders shall be deemed
to include the Certificate Insurer.
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ARTICLE VIII
TERMINATION
Section 8.01. Termination. (a) Subject to Section 8.02, this
Agreement shall terminate upon notice to the Trustee of either: (i) the
disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due hereunder and the payment of all amounts due and
payable to the Certificate Insurer and the Trustee or (ii) mutual consent of the
Master Servicer, the Certificate Insurer and all Certificateholders in writing;
PROVIDED, HOWEVER, that in no event shall the Trust established by this
Agreement terminate later than twenty-one years after the death of the last
surviving lineal descendant of Joseph P. Kennedy, late Ambassador of the United
States to the Court of St. James's, alive as of the date hereof.
(b) In addition, subject to Section 8.02, the Holder of a
50.01% Percentage Interest or greater of the Class R Certificates or the Master
Servicer (or the Certificate Insurer, if [_________________________________] is
removed as Master Servicer) may, at its option and at its sole cost and expense,
terminate this Agreement on any date on which the related Pool Principal Balance
is less than [10]%, if the holder of the Class R Certificates exercises this
option, or is less than [5]%, if the Master Servicer or the Certificate Insurer
exercises this option, of the sum of (x) the aggregate of the Principal Balances
of the Mortgage Loans on the Cut-off Date plus (y) the aggregate of the
Principal Balances of the Subsequent Mortgage Loans on their respective
Subsequent Cut-off Dates, by purchasing, on the next succeeding Distribution
Date, all of the outstanding Mortgage Loans and REO Properties at a price (the
"Termination Price") equal to the sum of (i) 100% of the Principal Balance of
each such outstanding Mortgage Loan and each REO Property; (ii) the aggregate
amount of accrued and unpaid interest on such Mortgage Loans through the related
due period and 30 days' interest on such Mortgage Loans at a rate equal to the
related Mortgage Interest Rate (net of the Servicing Fee if the Master Servicer
exercises this option) with respect to such Mortgage Loan; (iii) any
unreimbursed amounts due to the Certificate Insurer under this Agreement or the
Insurance Agreement; (iv) the amount of any unpaid Servicing Fees and
unreimbursed Servicing Advances made by the Master Servicer with respect to the
related Mortgage Loans; (v) any excess of the actual stated principal balance of
each such Mortgage Loan and REO Property over the Principal Balance thereof, the
aggregate amount of accrued and unpaid interest on such excess through the
related due period and 30 days' interest on such excess at a rate equal to the
related Mortgage Interest Rate with respect to each related Mortgage Loan; and
(vi) the amount of any unpaid Servicing Fees, unreimbursed Servicing Advances
and unreimbursed Periodic Advances not included in clauses (i) to (v) above. Any
such purchase shall be accomplished by deposit into the related Certificate
Account of the Termination Price. From the Termination Price so deposited, the
Trustee shall reimburse the Master Servicer for the amount of any unpaid
Servicing Fees, unreimbursed Periodic Advances and unreimbursed Servicing
Advances made by the Master Servicer with respect to the related Mortgage Loans.
No such termination is permitted without the prior written consent of the
Certificate Insurer (i) if it would result in a draw on the Certificate
Insurance Policy or (ii) unless the Master Servicer shall have delivered to the
Certificate Insurer an opinion of counsel reasonably satisfactory to the
Certificate Insurer stating that no amounts paid hereunder are subject to
recapture as preferential transfers under the United States Bankruptcy Code, 11
U.S.C. ss.ss. 101 ET SEQ., as amended.
(c) If on any Distribution Date, the Master Servicer
determines that there are no outstanding Mortgage Loans and no other funds or
assets in the Trust Fund other than funds in the related Certificate Account,
the Master Servicer shall notify the Trustee and the Trustee shall send a final
distribution notice promptly to the related Certificateholders in accordance
with paragraph (d) below.
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(d) Notice of any termination, specifying the Distribution
Date upon which the Trust Fund will terminate and that the Certificateholders
shall surrender their Certificates to the Trustee for payment of the final
distribution and cancellation, shall be given promptly by the Trustee by letter
to the Certificateholders mailed during the month of such final distribution
before the Master Servicer Remittance Date in such month, specifying (i) the
Distribution Date upon which final payment of the Certificates will be made upon
presentation and surrender of the Certificates at the office of the Trustee
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trustee therein specified. The obligations of the Certificate
Insurer hereunder shall terminate upon the deposit by the Master Servicer with
the Trustee of a sum sufficient to purchase all of the Mortgage Loans and REO
Properties in the Trust Fund as set forth above and when the aggregate
Certificate Principal Balance of the Certificates has been reduced to zero.
(e) In the event that all Certificateholders do not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice, all of the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto. If within nine months after the second notice all the Certificates shall
not have been surrendered for cancellation, the Class R Certificateholders shall
be entitled to all unclaimed funds and other assets which remain subject hereto
and the Trustee upon transfer of such funds shall be discharged of any
responsibility for such funds and the Certificateholders shall look only to such
Class R Certificateholders for payment. Such funds shall remain uninvested.
Section 8.02. Additional Termination Requirements. (a) In the
event that the Holder of a 50.01% Percentage Interest or greater of the Class R
Certificates, Master Servicer or Certificate Insurer (any of which, an
"Exercising Party") exercises its purchase option with respect to the Trust Fund
as provided in Section 8.01, the Trust Fund shall be terminated in accordance
with the following additional requirements, unless the Trustee has been
furnished with an Opinion of Counsel (which Opinion of Counsel shall not be an
expense of the Trustee or the Trust Fund) to the effect that the failure of the
Trust Fund to comply with the requirements of this Section 8.02 will not (i)
result in the imposition of taxes on "prohibited transactions" of the Trust Fund
as defined in Section 860F of the Code or (ii) cause the Trust Fund to fail to
qualify as a REMIC at any time that any Class A Certificates or Class S
Certificates are outstanding:
(i) The Trustee shall establish a 90-day liquidation period
for the Trust Fund and specify the first day of such period in a
statement attached to the Trust Fund's final Tax Return pursuant to
Treasury Regulation Section 1.860F-1. The Trustee shall satisfy all the
requirements of a qualified liquidation under Section 860F of the Code
and any regulations thereunder, as evidenced by an Opinion of Counsel
obtained at the expense of the Exercising Party;
(ii) During such 90-day liquidation period, and at or prior to
the time of making of the final payment on the Certificates, the
Trustee shall sell all of the assets of the Trust Fund for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Holders of the Class R
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Certificates all cash on hand in the Trust Fund (other than cash
retained to meet claims), and the REMIC shall terminate at that time.
(b) By their acceptance of the Class R Certificates, the
Holders thereof hereby agree to authorize the Trustee to specify the 90-day
liquidation period for the Trust Fund, which authorization shall be binding upon
all successor Class R Certificateholders.
Section 8.03. Accounting Upon Termination Of Master Servicer.
Upon termination of the Master Servicer, the Master Servicer shall, at its
expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all of the Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee and, upon request, to the Certificateholders a full
accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for the payments
or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the "Master Servicer" under
this Agreement.
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01. Duties Of Trustee. The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If an Event of Default occurs
and is continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. Any permissive right of the Trustee
enumerated in this Agreement shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; provided, however,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Master Servicer or the Seller hereunder. If any such
instrument is found not to conform to the requirements of this Agreement in a
material manner, the Trustee shall take action as it deems appropriate to have
the instrument corrected and will provide notice thereof to the Certificate
Insurer.
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The Trustee shall sign on behalf of the Trust Fund any tax
return that the Trustee is required to sign pursuant to applicable federal,
state or local tax laws.
The Trustee covenants and agrees that it shall perform its
obligations hereunder in a manner so as to maintain the status of the Trust Fund
as a REMIC under the REMIC Provisions and to prevent the imposition of any
federal, state or local income, prohibited transaction, contribution or other
tax on the Trust Fund to the extent that maintaining such status and avoiding
such taxes are reasonably within the control of the Trustee and are reasonably
within the scope of its duties under this Agreement.
No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default,
and after the curing of all such Events of Default which may
have occurred, the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for
an error of judgment made in good faith by a Responsible
Officer or Responsible Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining
the pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of the
Certificate Insurer relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement; and
(iv) The Trustee shall not be charged with knowledge
of any failure by the Master Servicer to comply with any of
its obligations hereunder, or any breaches of representations
or warranties under the Purchase Agreement unless a
Responsible Officer of the Trustee obtains actual knowledge of
such failure or breach or the Trustee receives written notice
of such failure or breach from the Master Servicer, the
Company, the Seller or the Certificate Insurer.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Company or the Master Servicer under this Agreement,
except during such time, if any, as the Trustee shall be the successor to, and
be vested with the rights, duties, powers and privileges of, the Master Servicer
pursuant to Section 7.02 of this Agreement.
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Section 9.02. Certain Matters Affecting The Trustee. Except as
otherwise provided in Section 9.01:
(a) The Trustee may request and rely upon and shall
be protected in acting or refraining from acting upon any
resolution, Officers' Certificate, Opinion of Counsel,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to
be genuine and to have been signed or presented by the proper
party or parties;
(b) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance
therewith;
(c) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to make any investigation of matters arising
hereunder or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or
direction of any of the Certificateholders or the Certificate
Insurer, pursuant to the provisions of this Agreement, unless
such Certificateholders or the Certificate Insurer, as the
case may be, shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (which
has not been cured), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of
care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such
person's own affairs;
(d) The Trustee shall not be personally liable for
any action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(e) Prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so
by the Certificate Insurer or by at least a 25% Percentage
Interest of any Class of Class A Certificates; provided,
however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee
by the Certificate Insurer or such Certificateholders, as the
case may be, the Trustee may require reasonable indemnity
against such expense, or liability from such
Certificateholders or the Certificate Insurer, as the case may
be, as a condition to taking any such action;
(f) The Trustee shall not be accountable, shall have
no liability and makes no representation as to any acts or
omissions hereunder of the Master Servicer until such time as
the Trustee may be required to act as Master Servicer pursuant
to Section 7.02 and thereupon only for the acts or omissions
of the Trustee as successor Master Servicer;
(g) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys;
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(h) The right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be answerable
for other than its negligence or willful misconduct in the
performance of such act; and
(i) The Trustee shall not be required to give any
bond or surety in respect of the execution of the trust
created hereby or the powers granted hereunder.
Section 9.03. Trustee Not Liable For Certificates or Mortgage
Loans. The recitals contained herein and in the Certificates, other than the
signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Company or the Master
Servicer, as the case may be, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document, other than the signature of the Trustee on
the Certificates and the Certificate of Authentication. The Trustee shall not be
accountable for the use or application by the Company or the Master Servicer of
any of the Certificates or of the proceeds of such Certificates, or for the use
or application of any funds paid to the Seller in respect of the Mortgage Loans
or deposited in or withdrawn from the Custodial Account or the Certificate
Accounts or any other account by or on behalf of the Company or the Master
Servicer, other than any funds held by or on behalf of the Trustee in accordance
with Section 6.01.
Except in connection with its duties pursuant to Section 7.02
of this Agreement, and as otherwise specifically provided in this Agreement, the
Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any Mortgage or any
Mortgage Loan, or the perfection and priority of any mortgage or the maintenance
of any such perfection and priority or with respect to the sufficiency of the
Trust Fund, including, without limitation: the existence, condition and
ownership of any Mortgaged Property; the existence and enforceability of any
hazard insurance thereon; the validity of the assignment of any Mortgage Loan to
the Trustee or of any intervening assignment; the performance or enforcement of
any Mortgage Loan; the compliance by the Seller, the Company or the Master
Servicer with any warranty or representation made under this Agreement or in any
related document or the accuracy of any such warranty or representation; any
investment of monies by or at the direction of the Company or the Master
Servicer or any loss resulting therefrom (unless the Trustee is the obligor
thereon); the acts or omissions of any of the Seller, the Company, the Master
Servicer, any subservicer or any Mortgagor; any action of the Master Servicer or
any subservicer taken in the name of the Trustee; the failure of the Master
Servicer or any subservicer to act or perform any duties acquired of it as agent
of the Trustee hereunder; or any action by the Trustee taken at the instruction
of the Master Servicer or the Certificate Insurer. The Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to other perfect or maintain the perfection of any
security interest or lien granted to it hereunder unless directed by the
Company.
Section 9.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not Trustee and may transact any
banking or trust business with the Company, the Master Servicer or any of their
respective Affiliates.
Section 9.05. Payment Of Trustee's Fees. The Trustee shall
withdraw from each of the Group I and Group II Certificate Accounts on each
Distribution Date and pay to itself the Trustee's Fee. Except as otherwise
provided in this Agreement, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Trust Fund and held harmless
against any loss, liability, claims and expenses (including reasonable
attorneys' fees) in connection with any Event of
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Default, any breach of this Agreement or any claim or legal action (including
any pending or threatened claim or legal action) relating to the acceptance or
administration of its trusts hereunder or the Certificates, or its performance
under the Insurance Agreement, other than any loss, liability or expense
incurred by reason of the Trustee's willful misfeasance, bad faith or negligence
in the performance of its duties hereunder or under the Insurance Agreement or
by reason of the Trustee's reckless disregard of obligations and duties
hereunder or under the Insurance Agreement. All such amounts shall be payable
from funds in the Certificate Accounts as provided in Section 6.02(e). The
provisions of this Section 9.05 shall survive the termination of this Agreement
and the removal or resignation of the Trustee.
The Master Servicer covenants and agrees to indemnify the
Trustee and any director, officer, employee or agent of the Trustee against any
losses, liabilities, damages, claims or expenses (including reasonable legal
fees and such related expenses) that may be sustained by the Trustee in
connection with this Agreement related to the willful misfeasance, bad faith or
gross negligence in the performance of the Master Servicer's duties hereunder.
Section 9.06. Eligibility Requirements For Trustee. The
Trustee hereunder shall at all times be a corporation or a national banking
association organized and doing business under the laws of any state or the
United States of America or the District of Columbia, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000 and a long-term secured debt rating of at least "Baa" if
Moody's is one of the Rating Agencies and subject to supervision or examination
by federal or state authority. In addition, the Trustee shall at all times be
acceptable to the Rating Agencies rating the Certificates. If such corporation
or bank publishes reports of condition at least annually, pursuant to law or to
the requirements of the aforesaid supervising or examining authority, then for
the purposes of this Section the combined capital and surplus of such
corporation or bank shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section , the Trustee shall resign immediately in the manner and with the
effect specified in Section 9.07. The corporation or national banking
association serving as Trustee may have normal banking and trust relationships
with the Seller and their affiliates or the Master Servicer and its affiliates;
provided, however, that such corporation or bank cannot be an affiliate of the
Master Servicer other than the Trustee in its role as successor to the Master
Servicer.
Section 9.07. Resignation and Removal of The Trustee. The
Trustee may at any time resign and be discharged from the trusts hereby created
by giving notice thereof to the Company, the Certificate Insurer, the Master
Servicer and to all Certificateholders; provided, that such resignation shall
not be effective until a successor trustee is appointed and accepts appointment
in accordance with the following provisions. Upon receiving such notice of
resignation, the Master Servicer shall, with the written consent of the
Certificate Insurer, promptly appoint a successor trustee who meets the
eligibility requirements of Section 9.06 by written instrument, in duplicate,
which instrument shall be delivered to the resigning Trustee and to the
successor trustee. A copy of such instrument shall be delivered to the
Certificateholders, the Certificate Insurer and the Master Servicer by the
Company. If no successor trustee shall have been so appointed and have accepted
appointment within 60 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee; provided, however, that the resigning
Trustee shall not resign and be discharged from the trusts hereby created until
such time as the Rating Agency rating the Certificates approves the successor
trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.06 and shall fail to resign after
written request therefor by the Master Servicer or the Certificate Insurer, or
if at any time the Trustee shall become incapable of acting, or shall be
adjudged bankrupt or
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insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, or if the rating of the long-term debt obligations of the Trustee
is not acceptable to the Rating Agencies in respect of mortgage pass-through
certificates having a rating equal to the then current rating on the
Certificates, then the Master Servicer, with the written consent of the
Certificate Insurer, may remove the Trustee and appoint a successor trustee who
meets the eligibility requirements of Section 9.06 by written instrument, in
duplicate, which instrument shall be delivered to the Trustee so removed and to
the successor trustee. A copy of such instrument shall be delivered to the
Certificateholders, the Certificate Insurer and the Company by the Master
Servicer.
The Majority Certificateholders, with the written consent of
the Certificate Insurer, may at any time remove the Trustee and appoint a
successor trustee by written instrument or instruments, in triplicate, signed by
the Certificate Insurer or such Holders or their attorneys-in-fact duly
authorized, one complete set of which instruments shall be delivered to the
Master Servicer, one complete set to the Trustee so removed and one complete set
to the successor so appointed. A copy of such instrument shall be delivered to
the Certificateholders, the Certificate Insurer and the Company by the Master
Servicer.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 9.08.
Section 9.08. Successor Trustee. Any successor trustee
appointed as provided in Section 9.07 shall execute, acknowledge and deliver to
the Master Servicer, the Certificate Insurer and to its predecessor trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with the like effect as if originally named as trustee herein. The
predecessor trustee shall deliver to the successor trustee all of the Mortgage
Files and related documents and statements held by it hereunder, and the Master
Servicer and the predecessor trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for more fully and
certainly vesting and confirming in the successor trustee all such rights,
powers, duties and obligations.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor trustee as
provided in this Section , the Master Servicer shall mail notice of the
succession of such trustee hereunder to the Certificate Insurer and all Holders
of Certificates at their addresses as shown in the Certificate Register provided
that the Master Servicer has received such Certificate Register. If the Master
Servicer fails to mail such notice within ten days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Master Servicer.
Notwithstanding anything to the contrary contained herein, so
long as no Certificate Insurer Default exists, the appointment of any successor
trustee pursuant to any provision of this Agreement will be subject to the prior
written consent of the Certificate Insurer.
Section 9.09. Merger or Consolidation of Trustee. Any
corporation into which the Trustee may be merged or converted or with which it
may be consolidated or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
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succeeding to the business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be eligible under the provisions of
Section 9.06, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 9.10. Appointment Of Co-Trustee Or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the Company
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee or co-trustees, jointly with the Trustee, or separate
trustee or separate trustees, of all or any part of the Trust Fund, and to vest
in such Person or Persons, in such capacity, such title to the Trust Fund, or
any part thereof, and, subject to the other provisions of this Section 9.10,
such powers, duties, obligations, rights and trusts as the Company and the
Trustee may consider necessary or desirable. If the Company shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 9.06 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 9.08 hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 9.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee. No trustee
hereunder shall be held personally liable by reason of any act or omission of
any other trustee hereunder. The Company and the Trustee may each at any time
accept the resignation of or remove any separate trustee or co-trustee except
that following the occurrence of an Event of Default, the Trustee acting along
may accept the resignation or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article IX. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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Section 9.11. Limitation of Liability.
The Certificates are executed and authenticated by the
Trustee, not in its individual capacity but solely as Trustee of the Trust Fund
created by this Agreement, in the exercise of the powers and authority conferred
and vested in it by this Agreement. Each of the undertakings and agreements made
on the part of the Trustee in the Certificates is made and intended not as a
personal undertaking or agreement by the Trustee but is made and intended for
the purpose of binding only the Trust Fund.
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates.
All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and such proceeding instituted by the Trustee shall
be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursement and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Certificateholders and the Certificate Insurer in
respect of which such judgment has been recovered.
Section 9.13. Suits For Enforcements.
In case an Event of Default or other default by the Master
Servicer or the Company hereunder, any Certificate Insurer Default or other
default by the Certificate Insurer hereunder or under the Certificate Insurance
Policy shall occur and be continuing, the Trustee, in its discretion, may
proceed to protect and enforce its rights and the rights of the Holders of
Certificates under this Agreement by a suit, action or proceeding in equity or
at law or otherwise, whether for the specific performance of any covenant or
agreement contained in this Agreement or the Certificate Insurance Policy or in
aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy, as the Trustee, being
advised by counsel (the advice of such counsel being an expense of the Trustee),
shall deem most effectual to protect and enforce any of the rights of the
Trustee and the Certificateholders.
Section 9.14. Waiver Of Inventory, Accounting And Appraisal
Requirements.
The Trustee shall be relieved of, and each Certificateholder
hereby waives, any requirement of any jurisdiction in which the Trust Fund, or
any part thereof, may be located that the Trustee file any inventory, accounting
of appraisal of the Trust Fund with any court, agency or body at any time or in
any manner whatsoever.
ARTICLE X
REMIC PROVISIONS
Section 10.01. Remic Administration.
(a) The Trustee shall make an election to treat the Trust Fund
(exclusive of the Interest Coverage Accounts and the Pre-Funding Accounts) as a
REMIC under the Code, and if necessary, under applicable state law. Such
election will be made on Form 1066 or other appropriate federal tax or
information return or any appropriate state return for the taxable year ending
on the last day of the calendar year in which the Certificates are issued. For
purposes of the REMIC election in
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respect of the Trust Fund, (i) the Certificates (other than the Class R
Certificates) shall be designated as the "regular interests" and (ii) the Class
R Certificates shall be designated as the sole Class of "residual interest" in
the REMIC. The Trustee shall not permit the creation of any "interests" in the
Trust Fund (within the meaning of Section 860G of the Code) other than the REMIC
regular interests and the interests represented by the Certificates.
(b) The Closing Date is hereby designated as the Startup Day
of the Trust Fund within the meaning of Section 860G(a)(9) of the Code.
(c) The Trustee shall pay out of its own funds, without any
right of reimbursement, any and all expenses relating to any tax audit of the
Trust Fund (including, but not limited to, any professional fees or any
administrative or judicial proceedings with respect thereto that involved the
Internal Revenue Service or state tax authorities), other than the expense of
obtaining any tax related Opinion of Counsel not obtained in connection with
such an audit and other than taxes, in either case except as specified herein;
provided, however, that if such audit resulted from the negligence of the Master
Servicer or the Company, then the Master Servicer or the Company, as the case
may be, shall pay such expenses. The Trustee, as agent for the tax matters
person, shall (i) act on behalf of the Trust Fund in relation to any tax matter
or controversy involving the Trust Fund and (ii) represent the Trust Fund in any
administrative or judicial proceeding relating to an examination or audit by any
governmental taxing authority with respect thereto. The Holder of the largest
Percentage Interest in the Class R Certificates from time to time is hereby
designated as Tax Matters Person with respect to the Trust Fund and hereby
irrevocably appoints and authorizes the Trustee to act its agent to perform the
duties of the Tax Matters Person with respect to the Trust Fund. To the extent
authorized under the Code and the regulations promulgated thereunder, each
Holder of a Class R Certificate hereby irrevocably appoints and authorizes the
Trustee to be its attorney-in-fact for purposes of signing any Tax Returns
required to be filed on behalf of the Trust Fund.
(d) The Trustee shall prepare or cause to be prepared, sign
and file all of the Tax Returns in respect of the Trust Fund created hereunder,
other than Tax Returns required to be filed by the Master Servicer pursuant to
Section 5.25. The expenses of preparing and filing such returns shall be borne
by the Trustee without any right of reimbursement therefor.
(e) The Trustee shall perform on behalf of the Trust Fund all
reporting and other tax compliance duties that are the responsibility of the
Trust Fund under the Code, REMIC Provisions or other compliance guidance issued
by the Internal Revenue Service or any state or local taxing authority. Among
its other duties, as required by the Code, the REMIC Provisions or other such
compliance guidance, the Trustee shall provide (i) to any Transferor of a Class
R Certificate such information as is necessary for the application of any tax
relating to the transfer of a Class R Certificate to any Person who is not a
Disqualified Organization, (ii) to Certificateholders such information or
reports as are required by the Code or the REMIC Provisions including reports
relating to interest, original issue discount and market discount or premium
(using the Prepayment Assumption) and (iii) to the Internal Revenue Service the
name, title, address and telephone number of the person who will serve as the
representative of the Trust Fund. In addition, the Company shall provide or
cause to be provided to the Trustee, within ten (10) days after the Closing
Date, all information or data that the Trustee reasonably determines to be
relevant for tax purposes as to the valuations and issue prices of the
Certificates, including, without limitation, the price, yield, prepayment
assumption and projected cash flow of the Certificates.
(f) The Trustee shall take such action and shall cause the
Trust Fund created hereunder to take such action as shall be necessary to create
or maintain the status thereof as a REMIC under the REMIC Provisions (and the
Master Servicer shall assist it, to the extent reasonably requested
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by it). The Trustee shall not take any action, cause the Trust Fund to take any
action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger
the status of the Trust Fund as a REMIC or (ii) result in the imposition of a
tax upon the Trust Fund (including but not limited to the tax on prohibited
transactions as defined in Section 860F(a)(2) of the Code and the tax on
contributions to a REMIC set forth in Section 860G(d) of the Code) (either such
event, an "Adverse REMIC Event") unless the Trustee received an Opinion of
Counsel (at the expense of the party seeking to take such action but in no event
shall such Opinion of Counsel be an expense of the Trustee) to the effect that
the contemplated action will not, with respect to the Trust Fund created
hereunder, endanger such status or result in the imposition of such a tax. The
Master Servicer shall not take or fail to take any action (whether or not
authorized hereunder) as to which the Trustee has advised it in writing that it
has received an Opinion of Counsel (which such Opinion of Counsel shall not be
an expense of the Trustee) to the effect that an Adverse REMIC Event could occur
with respect to such action. In addition, prior to taking any action with
respect to the Trust Fund or its assets, or causing the Trust Fund to take any
action which is not expressly permitted under the terms of this Agreement, the
Master Servicer will consult with the Trustee or its designee, in writing, with
respect to whether such action could cause an Adverse REMIC Event to occur with
respect to the Trust Fund, and the Master Servicer shall not take any such
action or cause the Trust Fund to take any such action as to which the Trustee
has advised it in writing that an Adverse REMIC Event could occur. The Trustee
may consult with counsel to make such written advice, and the cost of same shall
be borne by the party seeking to take the action not permitted by this Agreement
(but in no event shall such cost be an expense of the Trustee). At all times as
may be required by the Code, the Trustee will, to the extent reasonably within
the control of the Trustee and reasonably within the scope of the Trustee's
duties hereunder, ensure that substantially all of the assets of the Trust Fund
will consist of "qualified mortgages" as defined in Section 860G(a)(3) of the
Code and "permitted investments" as defined in Section 860G(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited
transactions" of the Trust Fund created hereunder as defined in Section
860F(a)(2) of the Code on "net income from foreclosure property" of the Trust
Fund as defined in Section 860G(c) of the Code, on any contributions to the
Trust Fund after the Startup Day therefor pursuant to Section 860G(d) of the
Code, or any other tax is imposed by the Code or any applicable provisions of
state or local tax laws, such tax shall be charged (i) to the Trustee pursuant
to Section 10.03 hereof, if such tax arises out of or results from a breach by
the Trustee of any of its obligations under this Article X, (ii) to the Master
Servicer pursuant to Section 10.03 hereof, if such tax arises out of or results
from a breach by the Master Servicer of any of its obligations under Article V
or this Article X, or otherwise (iii) against amounts on deposit in the related
Certificate Account and shall be paid by withdrawal therefrom.
(h) On or before ___________ of each calendar year, commencing
_________, 199_, the Trustee shall deliver to the Master Servicer and each
Rating Agency a Certificate from a Responsible Officer of the Trustee stating
the Trustee's compliance with this Article X.
(i) The Master Servicer and the Trustee shall, for federal
income tax purposes, maintain books and records with respect to the Trust Fund
on a calendar year and on an accrual basis.
(j) The Trustee shall not accept any contributions of assets
to the Trust Fund, other than acceptance of conveyance of any Subsequent
Mortgage Loan pursuant to Section 2.08, unless it shall have received an Opinion
of Counsel (which such Opinion of Counsel shall not be an expense of the
Trustee) to the effect that the inclusion of such assets in the Trust Fund will
not cause the Trust Fund to fail to qualify as a REMIC at any time that any
Certificates are outstanding or subject the Trust Fund to
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any tax under the REMIC Provisions or other applicable provisions of federal,
state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter
into any arrangement by which the Trust Fund will receive a fee or other
compensation for services nor permit the Trust Fund to receive any income from
assets other than "qualified mortgages" as defined in Section 860G(a)(3) of the
Code or "permitted investments" as defined in Section 860G(a)(5) of the Code.
(l) Solely for purposes of satisfying Section
1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity
date" by which the Certificate Principal Balances of each Class of Certificates
representing a regular interest in the Trust Fund would be reduced to zero is
January 25, 2028, which is the Distribution Date thirteen months following the
latest scheduled maturity of any Group I Loan or Group II Loan, respectively.
(m) Upon filing with the Internal Revenue Service, the Trustee
shall furnish to the Holders of the Class R Certificates the Form 1066 and each
Form 1066Q and shall respond promptly to written requests made not more
frequently than quarterly by any Holder of Class R Certificates with respect to
the following matters:
(1) the original projected principal and interest
cash flows on the Closing Date on the regular and residual
interests created hereunder and on the Mortgage Loans, based
on the Prepayment Assumption;
(2) the projected remaining principal and interest
cash flows as of the end of any calendar quarter with respect
to the regular and residual interests created hereunder and
the Mortgage Loans, based on the Prepayment Assumption;
(3) the Prepayment Assumption and any interest rate
assumptions used in determining the projected principal and
interest cash flows described above;
(4) the original issue discount (or, in the case of
the Mortgage Loans, market discount) or premium accrued or
amortized through the end of such calendar quarter with
respect to the regular or residual interests created hereunder
and with respect to the Mortgage Loans, together with each
constant yield to maturity used in computing the same;
(5) the treatment of losses realized with respect to
the Mortgage Loans or the regular interests created hereunder,
including the timing and amount of any cancellation of
indebtedness income of the REMIC with respect to such regular
interests or bad debt deductions claimed with respect to the
Mortgage Loans;
(6) the amount and timing of any non-interest
expenses of the REMIC; and
(7) any taxes (including penalties and interest)
imposed on the REMIC, including, without limitation, taxes on
"prohibited transactions," "contributions" or "net income from
foreclosure property" or state or local income or franchise
taxes.
Section 10.02 Prohibited Transactions and ACTIVITIES.
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Neither the Company, the Master Servicer nor the Trustee shall
sell, dispose of or substitute for any of the Mortgage Loans, except in
connection with (i) the foreclosure of a Mortgage Loan, including but not
limited to, the acquisition or sale of a Mortgaged Property acquired by deed in
lieu of foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the
termination of the Trust Fund pursuant to Article VIII of this Agreement, or
(iv) a purchase of Mortgage Loans pursuant to Article II or III of this
Agreement nor acquire any assets for the Trust Fund, nor sell or dispose of any
investments in the Certificate Accounts for gain, nor accept any contributions
to the Trust Fund after the Closing Date unless it has received an Opinion of
Counsel (at the expense of the party seeking to cause such sale, disposition,
substitution or acquisition but in no event shall such Opinion of Counsel be an
expense of the Trustee) that such sale, disposition, substitution or acquisition
will not (a) affect adversely the status of the Trust Fund as a REMIC or (b)
cause the Trust Fund to be subject to a tax on "prohibited transactions" or
"contributions" pursuant to the REMIC Provisions.
Section 10.03. Master Servicer and Trustee Indemnification.
(bk) The Trustee agrees to indemnify the Trust Fund, the
Company and the Master Servicer for any taxes and costs including, without
limitation, any reasonable attorneys' fees imposed on or incurred by the Trust
Fund, the Company or the Master Servicer, as a result of a breach of the
Trustee's covenants set forth in this Article X.
(bl) The Master Servicer agrees to indemnify the Trust Fund,
the Company and the Trustee for any taxes and costs (including, without
limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust
Fund, the Company or the Trustee, as a result of a breach of the Master
Servicer's covenants set forth in this Article X or in Article V with respect to
compliance with the REMIC Provisions, including without limitation, any
penalties arising from the Trustee's execution of Tax Returns prepared by the
Master Servicer pursuant to Section 5.25 that contain errors or omissions.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Limitation on Liability of The Company and The
Master Servicer. Neither the Company, the Master Servicer nor any of the
directors, officers, employees or agents of the Company or the Master Servicer
shall be under any liability to the Certificate Insurer, the Trust Fund or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Company or the
Master Servicer (but this provision shall protect the above described persons)
against any breach of warranties or representations made herein, or against any
specific liability imposed on the Master Servicer or the Company pursuant to any
other Section hereof; and provided further that this provision shall not protect
the Company, the Master Servicer or any such person, against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Company, the Master Servicer and any
director, officer, employee or agent of the Company or the Master Servicer may
rely in good faith on any document of any kind PRIMA FACIE properly executed and
submitted by any Person respecting any matters arising hereunder. The Company,
the Master Servicer and any director, officer, employee or agent of the Company
or the Master Servicer shall be indemnified and held harmless by the Trust Fund
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to Master Servicer's servicing obligations with
respect to any specific
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Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) or related to the
Master Servicer's obligations under this Agreement, or any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence in
the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Company nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties under this Agreement and which
in its opinion may involve it in any expense or liability; provided, however,
that the Company or the Master Servicer may in its sole discretion undertake any
such action which it may deem necessary or desirable with respect to this
Agreement and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In the event the Company or the Master
Servicer take any action as described in the preceding sentence, the legal
expenses and costs of such action, if previously approved in writing by the
Certificate Insurer, which approval shall not be unreasonably withheld, and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Master Servicer or the Company, as the case may be, will be
entitled to be reimbursed therefor out of funds in the Collection Account.
Section 11.02. Acts of Certificateholders. (a) Except as
otherwise specifically provided herein, whenever Certificateholder action,
consent or approval is required under this Agreement, such action, consent or
approval shall be deemed to have been taken or given on behalf of, and shall be
binding upon, all Certificateholders if the Majority Certificateholders or the
Certificate Insurer agrees to take such action or give such consent or approval.
(b) The death or incapacity of any Certificateholder shall not
operate to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heir to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(c) "Cerficateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.
Section 11.03. Amendment. This Agreement may be amended from
time to time by the Company, the Master Servicer and the Trustee without the
consent of any of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provisions herein which may be defective or
inconsistent with any other provisions herein, (iii) to amend this Agreement in
any respect subject to the provisions below, or (iv) if such amendment, as
evidenced by an Opinion of Counsel (provided by the Person requesting such
amendment) delivered to the Trustee, is reasonably necessary to comply with any
requirements imposed by the Code or any successor or amendatory statute or any
temporary or final regulation, revenue ruling, revenue procedure or other
written official announcement or interpretation relating to federal income tax
laws or any proposed such action which, if made effective, would apply
retroactively to the Trust Fund at least from the effective date of such
amendment; provided that such action (except any amendment described in (iv)
above) shall not, as evidenced by an Opinion of Counsel (provided by the Person
requesting such amendment) delivered to the Trustee and the Certificate Insurer,
adversely affect in any material respect the interests of any Certificateholder
(other than Certificateholders who shall consent to such amendment) or the
Certificate Insurer.
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This Agreement may also be amended from time to time by the
Company, the Master Servicer and the Trustee with the consent of the Certificate
Insurer and the Majority Certificateholders for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Holders of
Certificates; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, payments received on Mortgage
Loans which are required to be distributed on any Certificate without the
consent of the Holder of such Certificate, (ii) adversely affect in any material
respect the interests of the Holders of any Class of Certificates in a manner
other than as described in (i), without the consent of the Majority
Certificateholders or (iii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment, without the
consent of the Certificate Insurer and the Holders of all Certificates then
outstanding. Notwithstanding any other provision of this Agreement, for purposes
of the giving or withholding of consents pursuant to this Section 11.03,
Certificates registered in the name of the Company or the Master Servicer or any
affiliate thereof shall be entitled to voting rights with respect to matters
described in (i), (ii) and (iii) of this paragraph.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel (provided by the Person requesting
such amendment) to the effect that such amendment will not result in the
imposition of any tax on the Trust Fund pursuant to the REMIC Provisions or
cause the Trust Fund to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding. Any such amendment pursuant to the first
paragraph of this Section 11.03 shall not be deemed to adversely affect in any
material respect the interests of any Certificateholder if such change is
required by the Certificate Insurer, so long as no Certificate Insurer Default
exists, and the Trustee and the Master Servicer receives written confirmation
from each Rating Agency that such amendment will not cause such Rating Agency to
reduce the then current rating or any shadow rating of the affected
Certificates. Promptly after the execution of any such amendment the Trustee
shall furnish a statement describing the amendment to each Certificateholder,
the Certificate Insurer, S&P and Moody's.
It shall not be necessary for the consent of
Certificateholders under this Section 11.03 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.
Prior to executing any amendment pursuant to this Section ,
the Trustee shall be entitled to receive an Opinion of Counsel (provided by the
Person requesting such amendment) to the effect that such amendment is
authorized or permitted by this Agreement. The cost of an Opinion of Counsel
delivered pursuant to this Section 11.03 shall be an expense of the party
requesting such amendment, but in any case shall not be an expense of the
Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
Section 11.04. Recordation of Agreement. To the extent
permitted by applicable law, this Agreement, or a memorandum thereof if
permitted under applicable law, is subject to recordation in all appropriate
public offices for real property records in all of the counties or other
comparable jurisdictions in which any or all of the properties subject to the
Mortgages are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Master Servicer at the
Certificateholders' expense on direction and at the expense of Majority
Certificateholders requesting such recordation, but only when accompanied by an
Opinion of Counsel to the effect that such
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<PAGE> 103
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.
Section 11.05. Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered to (i) in the case of the Master Servicer,
[____________________________________________________], Attention:
[__________________], (ii) in the case of [Morgan Stanley ABS Capital I Inc.],
1585 Broadway, New York, New York 10038, Attention: [_____________], (iii) in
the case of the Trustee, [_________________________________], Attention:
[____________________________________________], (iv) in the case of the
Certificateholders, as set forth in the Certificate Register, [(v) in the case
of Moody's, Moody's Investors Service, Inc., 99 Church Street, New York, New
York 10007 Attention: Home Equity Monitoring Group, (vi) in the case of S&P,
Standard & Poor's Ratings Services, 26 Broadway, New York, New York 10004
Attention: Residential Mortgage Surveillance Group, (vii) in the case of DCR,
Duff & Phelps Credit Rating Co., 55 East Monroe Street, 35th Floor, Chicago,
Illinois 60603, Attention: MBS Monitoring,] (viii) in the case of the
Certificate Insurer, [_________________________________], Attention: and (ix) in
the case of the Underwriters, Morgan Stanley & Co. Incorporated, 1585 Broadway,
3rd Floor, New York, New York 10038, Attention: ________________,
[___________________]. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Certificateholders shall be effective upon mailing or
personal delivery.
Section 11.06. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be
held invalid for any reason whatsoever, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect the
validity or enforceability of the other covenants, agreements, provisions or
terms of this Agreement or of the Certificates or the rights of the Holders
thereof.
Section 11.07. Counterparts. This Agreement may be executed in
one or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
agreement.
Section 11.08. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the Master Servicer, the Company,
the Trustee and the Certificateholders and their respective successors and
permitted assigns.
Section 11.09. Headings. The headings of the various articles
and sections of this Agreement have been inserted for convenience of reference
only and shall not be deemed to be part of this Agreement.
Section 11.10 Certificate Insurer Default. Any right conferred
to the Certificate Insurer, including, without limitation, the right to receive
the Premium Amount pursuant to Section 6.05(b)(i) and 6.05(c)(i), shall be
suspended during any period in which a Certificate Insurer Default exists. At
such time as the Certificates are no longer outstanding hereunder, and no
amounts owed to the Certificate Insurer hereunder remain unpaid, the Certificate
Insurer's rights hereunder shall terminate.
Section 11.11. Third Party Beneficiary. The parties agree that
each of the Seller and the Certificate Insurer are intended and shall have all
rights of a third-party beneficiary of this Agreement.
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<PAGE> 104
Section 11.12. Intent of the Parties. It is the intent of the
Company and Certificateholders that, for federal income taxes, state and local
income or franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
Section 11.13. Notice to Rating Agencies and
Certificateholder.
The Trustee shall use its best efforts to promptly provide
notice to the Rating Agencies and the Certificate Insurer with respect to each
of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not
been cured;
3. The resignation or termination of the Master Servicer
or the Trustee;
4. The repurchase f Mortgage Loans pursuant to Section
3.03;
5. The final payment to Certificateholders; and
6. Any change in the location of the Collection Account
or the Certificate Accounts.
In addition, the Trustee shall promptly furnish to the Rating
Agencies copies of the following:
1. Each report to Certificateholders described in
Section 6.07; and
2. Each annual independent public accountants' servicing
report described in Section 5.17.
Any such notice pursuant to this Section 11.13 shall be in
writing and shall be deemed to have been duly given if personally delivered or
mailed by first class mail, postage prepaid, or by express delivery service
(except in the case of notice to the Certificate Insurer which notice shall be
given in accordance with Section 11.05 hereof).
Section 11.14. Governing Law. (a) THIS AGREEMENT AND THE
CERTIFICATES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW
YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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<PAGE> 105
IN WITNESS WHEREOF, the Master Servicer, the Trustee and the
Company have caused their names to be signed hereto by their respective officers
thereunto duly authorized as of the day and year first above written.
[Morgan Stanley ABS Capital I Inc.],
as Company
By:___________________________________
Name:
Title:
[_________________________________],
as Master Servicer
By:___________________________________
Name:
Title:
[_________________________________],
as Trustee
By:___________________________________
Name:
Title:
100
<PAGE> 106
State of ___________
County of __________ )
On the ____ day of _____, 199_, before me, a Notary Public in
and for the State of _________, personally appeared ____________________, known
to me to be a ___________________ of [_________________________________], the
corporation that executed the within instrument and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_________________________
Notary Public My Commission expires ______________
101
<PAGE> 107
[Notary Page]
State of ___________ ) ss.:
County of __________ )
On the ____ day of ____________, 199_, before me, a Notary
Public in and for the State of [New York], personally appeared
_____________________, known to me to be Trust Officer of
[_________________________________], the corporation that executed the within
instrument and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
Notary Public My Commission expires ______________
102
<PAGE> 108
[Notary Page]
State of New York ) ss.:
County of New York )
On the ____ day of ________, 199_, before me, a Notary Public
in and for the State of New York, personally appeared _______________, known to
me to be _______________ of [Morgan Stanley ABS Capital I Inc.], the corporation
that executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and
affixed my official seal the day and year in this certificate first above
written.
Notary Public
My Commission expires ______________
103
<PAGE> 109
[Notary Page]
EXHIBIT A-1
Group I Certificate Insurance Policy
OBLIGATIONS: $____________ POLICY NUMBER ________
[Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed Pass-Through
Certificates, Series 199__-__ Class A-1 Certificates
________________ (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of this Certificate Guaranty
Insurance Policy (this "Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Group I
Insured Payment will be received by [_________________________________], or its
successor, as trustee for the Owners (the "Trustee"), on behalf of the Owners
from the Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of such Group I Insured Payment. The Insurer's obligations
hereunder with respect to a particular Group I Insured Payment shall be
discharged to the extent funds equal to the applicable Group I Insured Payment
are received by the Trustee, whether or not such funds are properly applied by
the Trustee. Group I Insured Payments shall be made only at the time set forth
in this Policy, and no accelerated Group I Insured Payments shall be made
regardless of any acceleration of the Obligations, unless such acceleration is
at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not
cover shortfalls, if any, attributable to the liability of the Trust Fund, the
REMIC or the Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
The Insurer will pay any Group I Insured Payment that is a
Group I Preference Amount on the Business Day following receipt on a Business
Day by the Fiscal Agent (as described below) of (i) a certified copy of the
order requiring the return of the related preference payment, (ii) an opinion of
counsel satisfactory to the Insurer that such order is final and not subject to
appeal (iii) an assignment in such form as is reasonably required by the
Insurer, irrevocably assigning to the Insurer all rights and claims of the Owner
relating to or arising under the Obligations against the debtor which made such
preference payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Insurer, provided that if such
documents are received after 12:00 noon New York City time on such Business Day,
they will be deemed to be received on the following Business Day. Such payments
shall be disbursed to the receiver or trustee in bankruptcy named in the final
order of the court exercising jurisdiction on behalf of the Owner and not to any
Owner directly unless such Owner has returned principal or interest paid on the
Obligations to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner. The Insurer will pay any other amount
payable hereunder no later than 12:00 noon, New York City time, on the later of
(i) the Distribution Date on which the Group I Insured Payment is due or (ii)
the Business Day following receipt in New York, New York on a Business Day by
State Street Bank and Trust Company, N.A., as Fiscal Agent for the Insurer or
any successor fiscal agent appointed by the Insurer (the "Fiscal Agent") of a
Notice (as described below), provided that, if such Notice is received after
12:00 noon, New York City time, on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making claim hereunder it shall be deemed not to have been
A-1-4
<PAGE> 110
received by the Fiscal Agent for purposes of this paragraph, and the Insurer or
the Fiscal Agent, as the case may be, shall promptly so advise the Trustee and
the Trustee may submit an amended Notice.
Group I Insured Payments due hereunder unless otherwise stated
herein will be disbursed by the Fiscal Agent to the Trustee on behalf of the
Owners by wire transfer of immediately available funds in the amount of the
Group I Insured Payment less, in respect of Group I Insured Payments related to
Group I Preference Amounts, any amount held by the Trustee for the payment of
such Group I insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the
Fiscal Agent shall in no event be able to Owners for any acts of the Fiscal
Agent or any failure of the Insurer to deposit or cause to be deposited,
sufficient funds to make payments due under this Policy.
As used herein, the following terms shall have the following
meanings:
"AGREEMENT" means the Pooling and Servicing Agreement dated as
of ______________________, 19____ by and among [Morgan Stanley
ABS Capital I Inc.], as Company,
[_________________________________], as Master Servicer, and
________, as trustee, without regard to any amendment or
supplement thereto.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York City or in
the city in which the corporate trust office of the Trustee
under the Agreement is located are authorized or obligated by
law or executive order to close.
"GROUP I INSURED PAYMENT" means, (i) on each Distribution
Date, an amount equal to (a) the Group I Class A Interest
Distribution Amount minus Group I Available Funds and (b) the
Group I Subordination Deficit (to the extent not covered by
Cross-Collateralization Payments (as defined in the Prospectus
Supplement)) and (ii) the unpaid Group I Preference Amount.
"GROUP I PREFERENCE AMOUNT" means any amount previously
distributed to an Owner on the Obligations that is recoverable
and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance
with a full nonappealable order of a court having competent
jurisdiction.
"NOTICE" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of
Exhibit A attached hereto, the original of which is
subsequently delivered by registered or certified mail, from
the Trustee specifying the Group I Insured Payment which shall
be due and owing on the applicable Distribution Date.
"ORIGINATORS" means __________________ and _________________.
"OWNER" means each Holder of a Class A-1 Certificate (as
defined in the Agreement) who, on the applicable Distribution
Date, is entitled under the terms of the Class A-1
Certificates to payment thereunder.
A-1-5
<PAGE> 111
"PROSPECTUS SUPPLEMENT" means the form of final Prospectus
Supplement dated __________ __, 199_.
Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Agreement as of the date of
execution of this Policy, without giving effect to any subsequent amendment or
modification to the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent
of the Insurer may be made at the address listed below for the Fiscal Agent of
the Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is
____________________, Attention: ______________________, or such other address
as the Fiscal Agent shall specify to the Trustee in writing. This Policy is
being issued under and pursuant to, and shall be construed under, the laws of
the State of New York, without giving effect to the conflict of laws principles
thereof
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law. This Policy is not cancelable for any reason. The premium on
this Policy is not refundable for any reason including payment, or provision
being made for payment, prior to maturity of the Obligations.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be
executed and attested this ___th day of ____________, 199_.
---------------------------------
[Insurer]
President
---------------------------------
Attest:
Assistant Secretary
A-1-6
<PAGE> 112
EXHIBIT A TO CERTIFICATE GUARANTY INSURANCE POLICY NUMBER: _____ NOTICE
UNDER CERTIFICATE GUARANTY INSURANCE POLICY NUMBER: _____
_____________________________, as Fiscal Agent for [Insurer]
[Address]
Attention:
[Insurer]
[Address]
The undersigned, a duly authorized officer of , as trustee
(the "Trustee"), hereby certifies to _____________________ (the "Fiscal Agent")
and _____________ (the "Insurer"), with reference to Certificate Guaranty
Insurance Policy Number _________ (the "Policy") issued by the Insurer in
respect of the [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__ Class A Certificates (the
"Obligations"), that:
(i) the Trustee is the trustee under the Pooling and
Servicing Agreement dated as of
______________________, 19____ by and among [Morgan
Stanley ABS Capital I Inc.], as Company,
[_________________________________], as Master
Servicer, and the Trustee, as trustee for the Owners
(the "Agreement");
(ii) the Group I Insured Distribution Amount for the
Distribution Date occurring on ______ (the
"Applicable Distribution Date") is $___;
(iii) the Group I Available Funds available under the
Agreement to pay the Group I Insured Distribution
Amount for the Applicable Distribution Date (the
"Group I Available Distribution Amount") is
$_______;
(iv) the amount by which the Group I Insured Distribution
Amount exceeds the Group I Available Distribution
Amount is $___ (the "Group I Deficiency Amount");
(v) the amount of the Group I Preference Amount due and
owing under the policy is $___ (the "Group I
Preference Amount");
(vi) the sum of the Group 1 Deficiency Amount and the
Group I Preference Amount is $________ (the " Group I
Insured Payment");
(vii) the Trustee is making a claim under and pursuant to
the terms of the Policy for the payment of the Group
I Insured Payment; and
(viii) the Trustee directs that payment of the Group I
Insured Payment be made to the following account by
bank wire transfer of federal or other immediately
available funds in accordance with the terms of the
Policy:___________ [Certificate Account]. Any
capitalized term used in this Notice and not
otherwise defined herein shall have the meaning
assigned thereto in the Policy.
A-1-7
<PAGE> 113
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY
INSURANCE COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR
STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE INFORMATION, OR CONCEALS FOR
THE PURPOSE OF MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO,
COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A CRIME, AND SHALL ALSO BE SUBJECT
TO A CIVIL PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF
THE CLAIM FOR EACH SUCH VIOLATION.
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Notice under the Policy as of the ______ day of ____________,
[TRUSTEE]
By______________________
Title:
A-1-8
<PAGE> 114
EXHIBIT A-2
Group II Certificate Insurance Policy
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $____________ POLICY NUMBER ________
[Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed Pass-Through
199__-__ Certificates, Series
Class A-2 Certificates
_______________, (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of this Certificate Guaranty
Insurance Policy (this "Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Group II
Insured Payment will be received by [_________________________________], or its
successor, as trustee for the Owners (the "Trustee"), on behalf of the Owners
from the Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of such Group II Insured Payment. The Insurer's obligations
hereunder with respect to a particular Group II Insured Payment shall be
discharged to the extent funds equal to the applicable Group II Insured Payment
are received by the Trustee, whether or not such funds are properly applied by
the Trustee. Group II Insured Payments shall be made only at the time set forth
in this Policy, and no accelerated Group II Insured Payments shall be made
regardless of any acceleration of the Obligations, unless such acceleration is
at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not
cover shortfalls, if any, attributable to the liability of the Trust Fund, the
REMIC or the Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
The Insurer will pay any Group II Insured Payment that is a
Group II Preference Amount on the Business Day following receipt on a Business
Day by the Fiscal Agent (as described below) of (i) a certified copy of the
order requiring the return of the related preference payment, (ii) an opinion of
counsel satisfactory to the Insurer that such order is final and not subject to
appeal, (iii) an assignment in such form as is reasonably required by the
Insurer, irrevocably assigning to the Insurer all rights and claims of the Owner
relating to or arising under the Obligations against the debtor which made such
preference payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Insurer, provided that if such
documents are received after 12:00 noon New York City time on such Business Day,
they will be deemed to be received on the following Business Day. Such payments
shall be disbursed to the receiver or trustee in bankruptcy named in the final
order of the court exercising jurisdiction on behalf of the Owner and not to any
Owner directly unless such Owner has returned principal or interest paid on the
Obligations to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no
later than 12:00 noon, New York City time, on the later of (i) the Distribution
Date on which the Group II Insured Payment is due or (ii) the Business Day
following receipt in New York, New York on a Business Day by
_____________________, as Fiscal Agent for the Insurer or any successor fiscal
agent appointed by the Insurer (the "Fiscal Agent") of a Notice (as described
below), provided that, if such Notice is received after 12:00 noon, New York
City time, on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice received by the Fiscal Agent is not
in proper form or is otherwise insufficient for the purpose of making claim
hereunder it shall be deemed not to have been
A-2-1
<PAGE> 115
received by the Fiscal Agent for purposes of this paragraph, and the Insurer or
the Fiscal Agent, as the case may be, shall promptly so advise the Trustee and
the Trustee may submit an amended Notice.
Group II Insured Payments due hereunder unless otherwise
stated herein will be disbursed by the Fiscal Agent to the Trustee on behalf of
the Owners by wire transfer of immediately available funds in the amount of the
Group II Insured Payment less, in respect of Group II Insured Payments related
to Group II Preference Amounts, any amount held by the Trustee for the payment
of such Group II Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Insurer to deposit or cause to be deposited,
sufficient funds to make payments due under this Policy.
As used herein, the following terms shall have the following
meanings:
"AGREEMENT" means the Pooling and Servicing Agreement dated as
of ______________________, 19____ by and among [Morgan Stanley
ABS Capital I Inc.], as Company,
[_________________________________] as Master Servicer, and
__________, as trustee, without regard to any amendment or
supplement thereto.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York City or in
the city in which the corporate trust office of the Trustee
under the Agreement is located are authorized or obligated by
law or executive order to close.
"GROUP II INSURED PAYMENT" means, (i) on each Distribution
Date, an amount equal to (a) the Group II Class A Interest
Distribution Amount minus Group II Available Funds and (b) the
Group II Subordination Deficit (to the extent not covered by
Cross-Collateralization Payments (as defined in the Prospectus
Supplement)) and (ii) the unpaid Group II Preference Amount.
"GROUP II PREFERENCE AMOUNT" means any amount previously
distributed to an Owner on the obligations that is recoverable
and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance
with a final nonappealable order of a court having competent
jurisdiction.
"NOTICE" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of
Exhibit A attached hereto, the original of which is
subsequently delivered by registered or certified mail, from
the Trustee specifying the Group II Insured Payment which
shall be due and owing on the applicable Distribution Date.
"ORIGINATORS" means _____________________ and
__________________.
"OWNER" means each Holder of a Class A-2 Certificate (as
defined in the Agreement) who, on the applicable Distribution
Date, is entitled under the terms of the Class A-2
Certificates to payment thereunder.
A-2-2
<PAGE> 116
"PROSPECTUS SUPPLEMENT" means the form of final Prospectus
Supplement dated ___________ ___, 199_.
Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Agreement as of the date of
execution of this Policy, without giving effect to any subsequent amendment or
modification to the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent
of the Insurer may be made at the address listed below for the Fiscal Agent of
the Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is
_____________________, Attention: ________________, or such other address as the
Fiscal Agent shall specify to the Trustee in writing. This Policy is being
issued under and pursuant to, and shall be construed under, the laws of the
State of New York, without giving effect to the conflict of laws principles
thereof.
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law. This Policy is not cancelable for any reason. The premium on
this Policy is not refundable for any reason including payment, or provision
being made for payment, prior to maturity of the Obligations.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed and
attested this ___th day of __________ 199_.
---------------------------------
[Insurer]
President
- ---------------------------------
Attest:
Assistant Secretary
A-2-3
<PAGE> 117
EXHIBIT A TO CERTIFICATE GUARANTY INSURANCE POLICY NUMBER: _____
NOTICE UNDER CERTIFICATE GUARANTY INSURANCE POLICY NUMBER: _____
_____________________, as Fiscal Agent for [Insurer]
[Address]
Attention:
[Insurer]
[Address]
The undersigned, a duly authorized officer of
_____________________, as trustee (the "Trustee"), hereby certifies to
_____________________ (the "Fiscal Agent") and _________________ (the
"Insurer"), with reference to Certificate Guaranty Insurance Policy Number _____
(the "Policy") issued by the Insurer in respect of the [Morgan Stanley ABS
Capital I Inc.] Mortgage Loan Asset-Backed Pass-Through Certificates, Series
199__-__, Class A Certificates (the "Obligations"), that:
(i) the Trustee is the trustee under the Pooling and
Servicing Agreement dated as of
______________________, 19____ by and among [Morgan
Stanley ABS Capital I Inc.], as Company,
[_________________________________] as Master
Servicer, and the Trustee, as trustee for the Owners
(the "Agreement");
(ii) the Group II Insured Distribution Amount for the
Distribution Date occurring on (the "Applicable
Distribution Date") is $_________;
(iii) the Group II Available Funds available under the
Agreement to pay the Group II Insured Distribution
Amount for the Applicable Distribution Date (the
"Group II Available Distribution Amount") is
$________ ;
(iv) the amount by which the Group II Insured Distribution
Amount exceeds the Group II Available Distribution
Amount is $____________(the "Group II Deficiency
Amount");
(v) the amount of the Group II Preference Amount due and
owing under the policy is $________ (the " Group II
Preference Amount");
(vi) the sum of the Group II Deficiency Amount and the
Group II Preference Amount is $___ (the " Group II
Insured Payment");
(vii) the Trustee is making a claim under and pursuant to
the terms of the Policy for the payment of the Group
II Insured Payment; and
(viii) the Trustee directs that payment of the Group II
Insured Payment be made to the following account by
bank wire transfer of federal or other immediately
available funds in accordance with the terms of the
Policy: [Certificate Account].
Any capitalized term used in this Notice and not otherwise
defined herein shall have the meaning assigned thereto in the Policy.
A-2-4
<PAGE> 118
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY
INSURANCE COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR
STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE INFORMATION, OR CONCEALS FOR
THE PURPOSE OF MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO,
COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A CRIME, AND SHALL ALSO BE SUBJECT
TO A CIVIL PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF
THE CLAIM FOR EACH SUCH VIOLATION.
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Notice under the Policy as of the _______ day of _____________, _____.
[TRUSTEE]
By:_____________________________
Title:
A-2-5
<PAGE> 119
EXHIBIT B-1
Form of Class [A-1][A-2][A-3][A-4][I S][II S] Certificate
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986.
[THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE
[GROUP I][GROUP II] CLASS A CERTIFICATES AS DESCRIBED IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.]
[THIS CLASS [I S][II S] CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER
THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH
REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 4.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.]
[UNTIL THE BALANCE IN THE [GROUP I][GROUP II] Pre-FUNDING ACCOUNT HAS BEEN
REDUCED TO ZERO,][NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE CODE
OR PERSON USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION
(INCLUDING ANY INSURANCE COMPANY UNDER THE CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT), UNLESS THE TRANSFEREE PROVIDES AN OPINION OF COUNSEL (OR
CERTIFICATION OF FACTS UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT) SATISFACTORY TO THE COMPANY AND THE TRUSTEE OR THE CERTIFICATE
REGISTRAR THAT SUCH DISPOSITION WILL NOT VIOLATE THE PROHIBITIVE TRANSACTION
PROVISIONS OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE. BY ITS
ACCEPTANCE OF A CERTIFICATE, EACH CERTIFICATEHOLDER WILL BE DEEMED TO HAVE
REPRESENTED AND WARRANTED THAT IT IS NOT SUBJECT TO THE FOREGOING LIMITATION.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING
THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS
CERTIFICATE. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT AN ASSUMED RATE
OF PREPAYMENT, USED SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO
THE CERTIFICATES, EQUAL TO A CONSTANT PREPAYMENT RATE OF ____% PER ANNUM
(THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED WITH NO
MORE THAN $______________ OF OID PER $__________ OF [CERTIFICATE PRINCIPAL
BALANCE] [INITIAL NOTIONAL AMOUNT], THE YIELD TO MATURITY IS ______% AND THE
AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN
$_________ PER $___________ OF [INITIAL NOTIONAL AMOUNT] [CERTIFICATE PRINCIPAL
BALANCE], COMPUTED USING THE EXACT METHOD. NO REPRESENTATION IS MADE
B-1-1
<PAGE> 120
THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON THE PREPAYMENT
ASSUMPTION OR AT ANY OTHER RATE.]
<TABLE>
<S> <C>
Certificate No. _ [Adjustable] [Fixed] Pass-Through Rate
Class [A-1][A-2][A-3][A-4]
[I S][II S] ____% Initial Pass-Through Rate [Senior][Subordinate]
Date of Pooling and Servicing Aggregate [Notional] [Original Certificate Agreement:
______________________, 19____ Principal Balance] of the Class [A-1][A-2][A-3][A-4][S-1]
[IS-2][IS-1][II S-2]
Certificates: $__________
First Distribution Date: Initial [Notional Amount][Certificate January 25, 1997
Principal Balance of this Certificate: $-----------------
Master Servicer: Percentage Interest: 100% [Master Servicer]
Assumed Final Distribution Date: CUSIP:
</TABLE>
MORTGAGE LOAN ASSET-BACKED PASS-THROUGH CERTIFICATE SERIES
199__-__ evidencing a percentage interest in the distributions allocable to the
Class [A- 1][A-2][A-3][A-4][I S][II S] Certificates with respect to a Trust Fund
consisting primarily of a pool of conventional one- to four-family
[adjustable-rate][fixed rate] [first lien][second lien] residential mortgage
loans sold by [Morgan Stanley ABS Capital I Inc.]
This certifies that __________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in certain
distributions with respect to a Trust Fund consisting primarily of a pool of
conventional one- to four-family [adjustable-rate][fixed rate] [first
lien][second lien] mortgage loans (the "Mortgage Loans"), sold by [Morgan
Stanley ABS Capital I Inc.] (the "Company"). The Trust Fund was created pursuant
to a Pooling and Servicing Agreement dated as specified above (the "Agreement")
among the Company, the Master Servicer and [_________________________________],
as trustee (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth hereafter. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned in the Agreement. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the holder of this Certificate by virtue of the
acceptance hereof assents and by which such holder is bound.
This Certificate is payable solely from the assets of the
Trust Fund [and the [Group I][Group II] Certificate Insurance Policy (as defined
below)] and does not represent an obligation of or interest in the Company, the
Master Servicer, the Trustee referred to below or any of their affiliates.
Neither this Certificate nor the underlying Mortgage Loans are guaranteed or
insured by any governmental agency or instrumentality or by the Company, the
Master Servicer, the Trustee or any of their affiliates. None of the Company,
the Master Servicer, or any of their affiliates will have any obligation with
respect to any certificate or other obligation secured by or payable from
payments on the Certificates.
[____________________ (the "Certificate Insurer") has issued a
certificate insurance policy (the "[Group I][Group II] Certificate Insurance
Policy") with respect to the Class A-_ Certificates, a copy of which is attached
to the Agreement.]
B-1-2
<PAGE> 121
Pursuant to the terms of the Agreement, a distribution will be
made on the 25th day of each month or, if such 25th day is not a Business Day,
the Business Day immediately following (the "Distribution Date"), commencing as
described in the Agreement, to the Person in whose name this Certificate is
registered at the close of business on the last Business Day of the month
immediately preceding the month of such Distribution Date (the "Record Date"),
from the [Group I][Group II] Available Funds and in an amount equal to the
product of the Percentage Interest evidenced by this Certificate and the amount
(of interest and principal, if any) required to be distributed to holders of
Class [A-1][A-2][A-3][A-4][I S][II S] Certificates on such Distribution Date.
All distributions on this Certificate will be made or caused
to be made by the Trustee in immediately available funds either (i) by check
mailed to the address of the Person entitled thereto, as such name and address
shall appear on the Certificate Register or (ii) by wire transfer to the account
of any Person entitled thereto if such Person shall have so notified the Trustee
and such Certificateholder is the registered holder of Class
[A-1][A-2][A-3][A-4][I S][II S] Certificates the aggregate [Certificate
Principal Balance] [Notional Amount] of which is not less than $5,000,000.
Notwithstanding the above, the final distribution on this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this Certificate at the office or
agency appointed by the Trustee for that purpose. The initial [Certificate
Principal Balance] [Notional Amount] of this Certificate is set forth above. The
[Certificate Principal Balance] [Notional Amount] hereof will be reduced by of
distributions of the Class [A-1][A-2][A-3][A-4][I S][II S] Principal
Distribution Amount.
This Certificate is one of a duly authorized issue of
Certificates issued in __________ Classes designated as Mortgage Loan
Asset-Backed Pass-Through Certificates of the Series specified hereon (herein
collectively called the "Certificates").
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. In the event that Master
Servicer funds are advanced with respect to any Mortgage Loan, such advance is
reimbursable to the Master Servicer, to the extent provided in the Agreement,
from related recoveries on such Mortgage Loan or from other cash that would have
been distributable to Certificateholders.
As provided in the Agreement, withdrawals from the Collection
Account and/or the Certificate Account created for the benefit of
Certificateholders may be made by the Master Servicer from time to time for
purposes other than distributions to Certificateholders, such purposes including
without limitation reimbursement to the Company and the Master Servicer of
advances made, or certain expenses incurred, by either of them.
The Agreement permits, with certain exceptions therein
provided, the amendment of the Agreement and the modification of the rights and
obligations of the Company, the Master Servicer and the Trustee and the rights
of the Certificateholders under the Agreement at any time by the Company, the
Master Servicer and the Trustee with the consent of the Certificate Insurer and
the Majority Certificateholders. Any such consent by the holder of this
Certificate shall be conclusive and binding on such holder and upon all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon the Certificate. The Agreement also permits the amendment
thereof in certain circumstances without the consent of the holders of any of
the Certificates and, in certain additional circumstances, without the consent
of the holders of certain Classes of Certificates.
B-1-3
<PAGE> 122
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies appointed by the Trustee in the City and
State of New York, duly endorsed by, or accompanied by an assignment in the form
below or other written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the holder hereof or such
holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of authorized denominations evidencing the same Class and aggregate
Percentage Interest will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
in Classes and in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of authorized denominations evidencing the
same Class and aggregate Percentage Interest, as requested by the holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
[No transfer of this Class A-___ Certificate will be made
unless the transferee provides the Trustee with either (i) an opinion of counsel
acceptable to and in form and substance satisfactory to the Trustee, the Company
and the Master Servicer with respect to the permissibility of such transfer
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Internal Revenue Code (the "Code") and stating, among
other things, that the transferee's acquisition of a Class A-___ Certificate is
permissible under applicable law, will not constitute or result in any
non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code and will not subject the Trustee, the Company or the Master Servicer to
any obligation or liability in addition to those undertaken in the Agreement or
(ii) in lieu of such opinion of counsel, a certification in the form set forth
in Exhibit S to the Agreement.]
[Until the balance in the [Group I][Group II] Pre-Funding
Account has been reduced to zero,][No transfer of any Class [A-1][A-2][I S][II
S] Certificate shall be made to any employee benefit plan or other retirement
arrangement, including individual retirement accounts and annuities and Keogh
plans, that is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (any of the foregoing, a "Plan") to any Person acting on
behalf of a Plan, or to any other Person who is using "plan assets" to effect
such acquisition (including any insurance company using funds in its general or
separate accounts that may constitute "plan assets"), unless the prospective
transferee of a Certificateholder desiring to transfer its Certificates provides
to the Trustee or the Certificate Registrar an Opinion of Counsel (or, in the
limited circumstances described in the Agreement, a certification of facts)
which establishes to the satisfaction of the Company and the Trustee or the
Certificate Registrar that such disposition will not violate the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code.]
The Company, the Master Servicer, the Trustee and the
Certificate Registrar and any agent of the Company, the Master Servicer, the
Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and neither the
Company, the Master Servicer, the Trustee nor any suc agent shall be affected by
notice to the contrary.
B-1-4
<PAGE> 123
This Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
The obligations created by the Agreement in respect of the
Certificates and the Trust Fund created thereby shall terminate upon the payment
to Certificateholders of all amounts held by or on behalf of the Trustee and
required to be paid to them pursuant to the Agreement following the earlier of
(i) the maturity or other liquidation of the last Mortgage Loan subject thereto
or the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan and (ii) the purchase by the holder of a 50.01%
or greater Percentage Interest of the Class R Certificates or the Master
Servicer (and the Certificate Insurer, if the initial Master Servicer is
terminated) from the Trust Fund of all remaining Mortgage Loans, thereby
effecting early retirement of the Class [A-1][A-2][A-3][A-4][I S][II S]
Certificates. The Agreement permits, but does not require, such Class R
Certificateholder, the Master Servicer or the Certificate Insurer, as
applicable, to purchase at a price determined as provided in the Agreement all
remaining Mortgage Loans; provided, that any such option may only be exercised
if the Pool Principal Balance as of the Distribution Date upon which the
proceeds of any such purchase are distributed is less than 10% (or 5% with
respect to the Master Servicer or Certificate Insurer) of the Original Pool
Principal Balance (net of any excess of the Original PreFunded Amounts over the
aggregate of the Principal Balances of the Subsequent Mortgage Loans as of their
respective Subsequent Cut-off Dates).
Unless the certificate of authentication hereon has been
executed by the Certificate Registrar, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be valid for any
purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.
Dated: _________ __, 199_
[Trustee], as Trustee
By:_______________________
Authorized Signatory
B-1-5
<PAGE> 124
CERTIFICATE OF AUTHENTICATION _____________________________
This is one of the Class [A-1][A-2][A-3][A-4][I S][II S]
Certificates referred to in the within-mentioned Agreement.
______________________________________,
as Certificate Registrar
By:______________________
Authorized Signatory
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee) a Percentage Interest equal to ____%
evidenced by the within Mortgage Loan Asset-Backed Pass-Through Certificate and
hereby authorize(s) the registration of transfer of such interest to assignee on
the Certificate Register of the Trust Fund.
I (we) further direct the Certificate Registrar to issue a new Certificate of a
like Percentage Interest and Class to the above named assignee and deliver such
Certificate to the following address:
_______________________________________________________________________________
_______________________________________________________________________________
Dated: __________________
_________________________________________
Signature by or on behalf of assignor
_________________________________________
Signature Guaranteed
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of
distribution: Distributions shall be made, by wire transfer or otherwise, in
immediately available funds to
_______________________________________________________________________________
for the account of ____________________________________________________________
account number ___________________, or, if mailed by check, to
__________________________________________. Applicable statements should be
mailed to ____________________________________. This information
B-1-6
<PAGE> 125
is provided by ___________________________________________________, the assignee
named above, or _____________________________, as its agent.
B-1-7
<PAGE> 126
EXHIBIT B-2
Form of Class [R] Certificate
THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES PERSON
OR A DISQUALIFIED ORGANIZATION (AS DEFINED BELOW).
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986 (THE "CODE").
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE BENEFIT PLAN OR OTHER
PLAN SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE CODE, UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL SATISFACTORY TO THE MASTER SERVICER,
THE COMPANY AND THE TRUSTEE THAT THE PURCHASE OF THIS CERTIFICATE BY, ON BEHALF
OF OR WITH "PLAN ASSETS" OF SUCH PLAN IS PERMISSIBLE UNDER APPLICABLE LAW, WILL
NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION AND WILL NOT
SUBJECT THE SERVICER, THE COMPANY OR THE TRUSTEE TO ANY OBLIGATION IN ADDITION
TO THOSE UNDERTAKEN IN THE AGREEMENT.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY
IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE MASTER SERVICER
AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (a) THE UNITED STATES, ANY STATE
OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED STATES, OR ANY
AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN INSTRUMENTALITY
WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO TAX AND, EXCEPT
FOR THE FHLMC, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH
GOVERNMENTAL UNIT), (B) A FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR
ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING, (C) ANY ORGANIZATION
(OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE)
WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE (INCLUDING THE TAX
IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D)
RURAL ELECTRIC AND TELEPHONE COOPERATIVES DESCRIBED IN SECTION 1381(A)(2)(C) OF
THE CODE AND (E) ANY OTHER PERSON SO DESIGNATED BY THE TRUSTEE BASED UPON AN
OPINION OF COUNSEL THAT THE HOLDING OF AN OWNERSHIP INTEREST IN A CLASS [R]
CERTIFICATE BY SUCH PERSON MAY CAUSE THE TRUST FUND OR ANY PERSON HAVING AN
OWNERSHIP INTEREST IN ANY CLASS OF CERTIFICATES (OTHER THAN SUCH PERSON) TO
INCUR A LIABILITY FOR ANY FEDERAL TAX IMPOSED UNDER THE CODE THAT WOULD NOT
OTHERWISE BE IMPOSED BUT FOR THE TRANSFER OF AN OWNERSHIP INTEREST IN A CLASS
[R] CERTIFICATE TO SUCH PERSON (ANY SUCH PERSON DESCRIBED IN THE FOREGOING
CLAUSES (A), (B), (C), (D) OR (E) BEING HEREIN REFERRED TO AS A "DISQUALIFIED
ORGANIZATION") OR AN AGENT OF A DISQUALIFIED ORGANIZATION, (2) NO PURPOSE OF
SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX AND (3) SUCH
TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE FINANCIAL
CONDITION OF THE PROPOSED TRANSFREE.
B-2-1
<PAGE> 127
THE TERMS "UNITED STATES," "STATE" AND "INTERNATIONAL ORGANIZATION" SHALL HAVE
THE MEANINGS SET FORTH IN SECTION 7701 OF THE CODE OR SUCCESSOR PROVISIONS.
NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER,
SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR
AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE
OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE
A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO,
THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS
CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED
TO THE PROVISIONS OF THIS PARAGRAPH.
THIS CLASS [R] CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE. ANY
RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH
REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 4.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
Certificate No. R-_
Class [R] Original Pool Principal Balance: Subordinate
$_______________
Date of Pooling and Servicing Agreement:
______________________, 19____
First Distribution Date:
__________________, 199_
Master Servicer: Percentage Interest: ___% [Master Servicer]
Assumed Final Distribution Date:
MORTGAGE LOAN ASSET-BACKED PASS-THROUGH CERTIFICATE, SERIES
199__-__ evidencing a percentage interest in any distributions allocable to the
Class [R] Certificates with respect to a Trust Fund consisting primarily of a
pool of conventional one- to four-family [adjustable-rate][fixed rate] [first
lien][second lien] residential mortgage loans sold by [Morgan Stanley ABS
Capital I Inc.] This certifies that ____________________________ is the
registered owner of the Percentage Interest evidenced by this Certificate in
certain distributions with respect to a Trust Fund consisting primarily of a
pool of conventional one- to four-family [adjustable-rate][fixed rate] [first
lien][second lien] residential mortgage loans (the "Mortgage Loans"), sold by
[Morgan Stanley ABS Capital I Inc.] (the "Company"). The Trust Fund was created
pursuant to a Pooling and Servicing Agreement dated as specified above (the
"Agreement") among the Company, the Master Servicer and
[_________________________________], as trustee (the "Trustee"), a summary of
certain of the pertinent provisions of which is set forth hereafter. To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement. This Certificate is issued under and is subject to
the terms, provisions and conditions of the Agreement, to which Agreement the
Holder of this Certificate by virtue of the acceptance hereof assents and by
which such Holder is bound.
B-2-2
<PAGE> 128
This Certificate is payable solely from the assets of the
Trust Fund and does not represent an obligation of or interest in the Company,
the Master Servicer, the Trustee referred to below or any of their affiliates.
Neither this Certificate nor the underlying Mortgage Loans are guaranteed or
insured by any governmental agency or instrumentality or by the Company, the
Master Servicer, the Trustee or any of their affiliates. None of the Company,
the Master Servicer, or any of their affiliates will have any obligation with
respect to any certificate or other obligation secured by or payable from
payments on the Certificates.
Pursuant to the terms of the Agreement, a distribution will be
made on the 25th day of each month or, if such 25th day is not a Business Day,
the Business Day immediately following (the "Distribution Date"), commencing as
described in the Agreement, to the Person in whose name this Certificate is
registered at the close of business on the last Business Day immediately
preceding the month of such Distribution Date (the "Record Date"), from the
Available Funds in an amount equal to the product of the Percentage Interest
evidenced by this Certificate and the amount (of interest and principal, if any)
required to be distributed to Holders of Class [R] Certificates on such
Distribution Date.
Each Holder of this Certificate will be deemed to have agreed
to be bound by the restrictions set forth in the Agreement to the effect that
(i) each person holding or acquiring any Ownership Interest in this Certificate
must be a United States Person and a Permitted Transferee, (ii) the transfer of
any Ownership Interest in this Certificate will be conditioned upon the delivery
to the Trustee of, among other things, an affidavit to the effect that it is a
United States Person and Permitted Transferee, (iii) any attempted or purported
transfer of any Ownership Interest in this Certificate in violation of such
restrictions will be absolutely null and void and will vest no rights in the
purported transferee, and (iv) if any person other than a United States Person
and a Permitted Transferee acquires any Ownership Interest in this Certificate
in violation of such restrictions, then the Company will have the right, in its
sole discretion and without notice to the Holder of this Certificate, to sell
this Certificate to a purchaser selected by the Company, which purchaser may be
the Company, or any affiliate of the Company, on such terms and conditions as
the Company may choose.
No transfer of any Class [R] Certificate shall be made unless
that transfer is made pursuant to an effective registration statement under the
1933 Act and effective registration or qualification under applicable state
securities laws, or is made in a transaction which does not require such
registration or qualification. In the event that a transfer is to be made
without such registration or qualification, (a) the Trustee and the Company
shall require the transferee to execute an investment letter, which investment
letter shall not be an expense of the Company, the Master Servicer or the
Trustee and (b) in the event that such a transfer is not made pursuant to Rule
144A under the Act, the Trustee shall require an Opinion of Counsel satisfactory
to the Trustee and the Company that such transfer may be made without such
registration or qualification, which Opinion of Counsel shall not be an expense
of the Company, the Trustee or the Master Servicer. Neither the Company nor the
Trustee is obligated to register or qualify any of the Class [R] Certificates
under the 1933 Act or any other securities law or to take any action not
otherwise required under the Agreement to permit the transfer of such
Certificates without registration or qualification. Any such Certificateholder
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Company and the Master Servicer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
Notwithstanding the above, the final distribution on this
Certificate will be made after due notice of the pendency of such distribution
and only upon presentation and surrender of this Certificate at the office or
agency appointed by the Trustee for that purpose. The Percentage Interest this
Certificate
B-2-3
<PAGE> 129
is set forth above. Notwithstanding the fact this Certificate has no Certificate
Principal Balance, this Certificate will remain outstanding under the Agreement
and the Holder hereof may have additional obligations with respect to this
Certificate, including tax liabilities, and may be entitled to certain
additional distributions hereon, in accordance with the terms and provisions of
the Agreement.
This Certificate is one of a duly authorized issue of
Certificates issued in two Classes designated as Mortgage Loan Asset-Backed
Pass-Through Certificates of the Series specified hereon (herein collectively
called the "Certificates").
The Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as more
specifically set forth herein and in the Agreement. In the event that Master
Servicer funds are advanced with respect to any Mortgage Loan, such advance is
reimbursable to the Master Servicer, to the extent provided in the Agreement,
from related recoveries on such Mortgage Loan or from other cash that would have
been distributable to Certificateholders.
As provided in the Agreement, withdrawals from the Collection
Account and/or the Certificate Account created for the benefit of
Certificateholders may be made by the Master Servicer from time to time for
purposes other than distributions to Certificateholders, such purposes including
without limitation reimbursement to the Company and the Master Servicer of
advances made, or certain expenses incurred, by either of them.
The Agreement permits, with certain exceptions therein
provided, the amendment of the Agreement and the modification of the rights and
obligations of the Company, the Master Servicer and the Trustee and the rights
of the Certificateholders under the Agreement at any time by the Company, the
Master Servicer and the Trustee with the consent of the Certificate Insurer and
the Majority Certificateholders. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon the Certificate. The Agreement also permits the amendment
thereof in certain circumstances without the consent of the Holders of any of
the Certificates and, in certain additional circumstances, without the consent
of the Holders of certain Classes of Certificates.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies appointed by the Trustee in the City and
State of New York, duly endorsed by, or accompanied by an assignment in the form
below or other written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of authorized denominations evidencing the same Class and aggregate
Percentage Interest will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates
without coupons in Classes and in denominations specified in the Agreement. As
provided in the Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of authorized denominations
evidencing the same Class and aggregate Percentage Interest, as requested by the
Holder surrendering the same.
B-2-4
<PAGE> 130
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Master Servicer, the Trustee and the
Certificate Registrar and any agent of the Company, the Master Servicer, the
Trustee or the Certificate Registrar may treat the Person in whose name this
Certificate is registered as the owner hereof for all purposes, and neither the
Company, the Master Servicer, the Trustee nor any such agent shall be affected
by notice to the contrary.
This Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
The obligations created by the Agreement in respect of the
Certificates and the Trust Fund created thereby shall terminate upon the payment
to Certificateholders of all amounts held by or on behalf of the Trustee and
required to be paid to them pursuant to the Agreement following the earlier of
(i) the maturity or other liquidation of the last Mortgage Loan subject thereto
or the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan and (ii) the purchase by the holder of a 50.01%
or greater Percentage Interest of the Class R Certificates or the Master
Servicer (and the Certificate Insurer, if the initial Master Servicer is
terminated) from the Trust Fund of all remaining Mortgage Loans, thereby
effecting early retirement of the Class R Certificates. The Agreement permits,
but does not require, such Class R Certificateholder, the Master Servicer or the
Certificate Insurer, as applicable, to purchase at a price determined as
provided in the Agreement all remaining Mortgage Loans; provided, that any such
option may only be exercised if the Pool Principal Balance as of the
Distribution Date upon which the proceeds of any such purchase are distributed
is less than [10]% (or [5]% with respect to the Master Servicer or Certificate
Insurer) of the Original Pool Principal Balance.
Unless the certificate of authentication hereon has been
executed by the Certificate Registrar, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be valid for any
purpose.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed.
Dated: __________ __, 199_
_________________, as Trustee
By:_________________________
Authorized Signatory
B-2-5
<PAGE> 131
CERTIFICATE OF AUTHENTICATION
This is one of the Class [R] Certificates referred to in the within-mentioned
Agreement.
__________________________ as Certificate Registrar
By:_________________________________________
Authorized Signatory
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________(
Please print or typewrite name, address including postal zip code, and Taxpayer
Identification Number of assignee) a Percentage Interest equal to ____%
evidenced by the within Mortgage Loan Asset-Backed Pass-Through Certificate and
hereby authorize(s) the registration of transfer of such interest to assignee on
the Certificate Register of the Trust Fund.
I (we) further direct the Certificate Registrar to issue a new Certificate of a
like Percentage Interest and Class to the above named assignee and deliver such
Certificate to the following address:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________.
Dated: _______________
________________________________________
Signature by or on behalf of assignor
________________________________________
Signature Guaranteed
_______________________________________________________DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds to ____________________________________
_____________________________________________________________________________for
the account of _____________________________________________________________
account number ___________________________, or, if mailed by check, to
____________________________________. Applicable statements should be mailed to
____________________________________. This information is provided by
___________________________________________________, the assignee named above,
or _____________________________, as its agent.
B-2-6
<PAGE> 132
EXHIBIT C
Mortgage File
With respect to each Group I Loan and Group II Loan, the
Mortgage File shall include each of the following items (copies to the extent
the originals have been delivered to the Trustee pursuant to Section 2.03 of the
Agreement), all of which shall be available for inspection by the
Certificateholders, to the extent required by applicable laws:
a. The original Mortgage Note bearing all intervening
endorsements showing a complete chain of endorsement,
from the originator of such Mortgage Loan to the
Seller, endorsed by the Seller without recourse in
blank and signed in the name of the Seller by an
authorized officer;
b. The original Mortgage and any related power of
attorney with evidence of recording thereon;
c. An original assignment of the original Mortgage, in
suitable form for recordation in the jurisdiction in
which the Mortgaged Property is located, such
assignment to be in blank and signed in the name of
the Seller by an authorized officer;
d. The original of all intervening assignments of the
Mortgage showing a complete chain of assignments from
the originator of such Mortgage Loan to the Seller
with evidence of recording indicated thereon;
e. Any assumption, modification (with evidence of
recording thereon), consolidation or extension
agreements; and
f. The original policy of title insurance (or a
commitment for title insurance is being held by the
title insurance company pending recordation of the
Mortgage) and the certificate of primary mortgage
guaranty insurance, if any, issued with respect to
the Mortgage Loan.
B-2-7
<PAGE> 133
EXHIBIT D-1
Mortgage Loan Schedule
D-1-1
<PAGE> 134
EXHIBIT D-2
Mortgage Loan Schedule
D-2-1
<PAGE> 135
EXHIBIT E
Trustee's Acknowledgment of Receipt
_________________, 199_
[Morgan Stanley ABS Capital I Inc.]
[Address]
[Master Servicer]
[Address]
[Insurer]
[Address]
Re: Pooling and Servicing Agreement, dated as of ______________________,
19____ among [Morgan Stanley ABS Capital I Inc.], as Company,
[_________________________________], as Master Servicer, and
[_________________________________], as Trustee, Mortgage Loan
Asset-Backed Pass-Through Certificates, Series 199__-__,
Ladies and Gentlemen:
In accordance with Section 2.04 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies: (1)
except as noted on the attachment hereto, if any (the "Loan Exception Report"),
it has received the original Mortgage Note (item (i) in Section 2.03(a)) with
respect to each Mortgage Loan listed in the Mortgage Loan Schedule and the
documents contained therein appear to bear original signatures or copies of
originals if the originals have not yet been delivered, and (2) it has received
the Certificate Insurance Policy.
The Trustee has made no independent examination of any such
documents beyond the review specifically required in the above-referenced
Pooling and Servicing Agreement. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any such
documents or any of the Mortgage Loans identified on the Mortgage Loan Schedule,
or (ii) the collectability, insurability, effectiveness or suitability of any
such Mortgage Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement. NORWEST BANK MINNESOTA,
_________________, as Trustee
By:_________________________
Name:
Title:
<PAGE> 136
EXHIBIT F
Initial Certification of Trustee
______________________, 19_
[Morgan Stanley ABS Capital I Inc.]
[Address]
[Master Servicer]
[Address]
[Insurer]
[Address]
Re: Pooling and Servicing Agreement, dated as of ______________________,
19____ among [Morgan Stanley ABS Capital I Inc.], as Company,
[_________________________________], as Master Servicer, and
[_________________________________], as Trustee, Mortgage Loan
Asset-Backed Pass-Through Certificates, Series 199__-__
Ladies and Gentlemen:
In accordance with the provisions of Section 2.04 of the
above-referenced Pooling and Servicing Agreement, the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan listed
on the attachment hereto), it has reviewed the documents delivered to it
pursuant to Section 2.03 of the Pooling and Servicing Agreement and has
determined that (a) all documents required to be delivered to it pursuant to the
above-referenced Pooling and Servicing Agreement are in its possession, (b) such
documents have been reviewed by it and appear regular on their face and have not
been mutilated, damaged, torn or otherwise physically altered and relate to such
Mortgage Loan, (c) based on its examination and only as to the foregoing
documents, the information set forth in the Mortgage Loan Schedule (described in
the definition of Mortgage Loan Schedule as items (i) the Mortgage Loan
identifying the Trustee, (ii) the city, state and zip code of the property, (v)
the original term of the mortgage, (vi) the scheduled maturity date, (x) the
original interest rate, (xi) the gross margin on Group I Mortgage Loans and the
adjustment frequency and, (xiii) the first rate adjustment date and frequency of
adjustment dates) respecting such Mortgage Loan accurately reflects the
information set forth in the Trustee's Mortgage File and each Mortgage Note has
been endorsed as provided in Section 2.03 of the Pooling and Servicing
Agreement. The Trustee has made no independent examination of such documents
beyond the review specifically required in the above-referenced Pooling and
Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, enforceability or genuineness of any such documents
contained in each or any of the Mortgage Loans identified on the Mortgage Loan
Schedule, or (ii) the collectability, insurability, effectiveness or suitability
of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
F-1
<PAGE> 137
_________________, as Trustee
By:_________________________
Name:
Title:
F-2
<PAGE> 138
EXHIBIT G
Final Certification of the Trustee
____________________, 19_
[Morgan Stanley ABS Capital I Inc.]
[Address]
[Master Servicer]
[Address]
[Insurer]
[Address]
Re: Pooling and Servicing Agreement, dated as of ______________________,
19____ among [Morgan Stanley ABS Capital I Inc.], as Company,
[_________________________________], as Master Servicer, and
[_________________________________], as Trustee, Mortgage Loan
Asset-Backed Pass-Through Certificates, Series 199__-__
Ladies and Gentlemen:
In accordance with Section 2.04 of the above-captioned Pooling
and Servicing Agreement, the undersigned, as Trustee, hereby certifies that,
except as noted on the attachment hereto, as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on
the attachment hereto) it has reviewed the documents delivered to it pursuant to
Section 2.03 of the Pooling and Servicing Agreement and has determined that (a)
all documents required to be delivered to it pursuant to the above-referenced
Pooling and Servicing Agreement are in its possession, (b) such documents have
been reviewed by it and appear regular on their face and have not been
mutilated, damaged, torn or otherwise physically altered and relate to such
Mortgage Loan, and (c) based on its examination, and only as to the foregoing
documents, the information set forth in the Mortgage Loan Schedule (described in
items (i), (ii), (v), (vi), (x), (xi) and (xiii) of the definition of Mortgage
Loan Schedule) respecting such Mortgage Loan accurately reflects the information
set forth in the Trustee's Mortgage File. The Trustee has made no independent
examination of such documents beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The Trustee makes no
representations as to: (i) the validity, legality, enforceability or genuineness
of any such documents contained in each or any of the Mortgage Loans identified
on the Mortgage Loan Schedule, or (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Pooling and
Servicing Agreement.
_________________, as Trustee
By:_________________________
G-1
<PAGE> 139
Name:
Title:
G-2
<PAGE> 140
EXHIBIT H
Request for Release of Documents
________________, 19_
To: [Trustee]
[Address]
Attn:
Re: [[Morgan Stanley ABS Capital I Inc.]], Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__
In connection with the administration of the pool of Mortgage
Loans held by you as Trustee for the Certificateholders, we request the release,
and acknowledge receipt, of the (Trustee's Mortgage File/[specify document]) for
the Mortgage Loan described below, for the reason indicated.
MORTGAGOR'S NAME, ADDRESS & ZIP CODE:
MORTGAGE LOAN NUMBER:
REASON FOR REQUESTING DOCUMENTS (check one)
1. Mortgage Loan Paid in Full (Master Servicer hereby
certifies that all amounts received in connection
therewith have been credited to the Collection
Account.)
2. Mortgage Loan Liquidated (Master Servicer hereby
certifies that all proceeds of foreclosure, insurance
or other liquidation have been finally received and
credited to the Collection Account.)
3. Mortgage Loan in Foreclosure
4. Mortgage Loan Repurchased Pursuant to Section 5.18 of
the Pooling and Servicing Agreement.
5. Mortgage Loan Repurchased or Substituted pursuant to
Article II or III of the Pooling and Servicing
Agreement (Master Servicer hereby certifies that the
repurchase price or Substitution Adjustment has been
credited to the Certificate Account and that the
substituted mortgage loan is a Qualified Substitute
Mortgage Loan.)
6. Other (explain)_______________________________.
If box 1 or 2 above is checked, and if all or part of the
Trustee's Mortgage File was previously released to us, please release to us our
previous receipt on file with you, as well as any additional documents in your
possession relating to the above specified Mortgage Loan.
H-1
<PAGE> 141
If box 3, 4, 5 or 6 above is checked, upon our return of all
of the above documents to you as Trustee, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
By:_________________________
Name:
Title:
Documents returned to Trustee:
_________, as Trustee
By:_________________________
Name:
Title:
H-2
<PAGE> 142
EXHIBIT I
Form of Transfer Affidavit and Agreement
STATE OF ) : ss.:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Owner] (record or
beneficial owner of the Mortgage Loan Asset-Backed Pass-Through Certificates,
Series 199__-__, Class [R] (the "Owner")), a [savings institution] [corporation]
duly organized and existing under the laws of [the State of __________________]
[the United States], on behalf of which he makes this affidavit and agreement.
2. That the Owner (i) is not and will not be a "disqualified
organization" as of [date of transfer] within the meaning of Section 860E(e)(5)
of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) will
endeavor to remain other than a disqualified organization for so long as it
retains its ownership interest in the Class [R] Certificates, and (iii) is
acquiring the Class [R] Certificates for its own account or for the account of
another Owner from which it has received an affidavit and agreement in
substantially the same form as this affidavit and agreement. (For this purpose,
a "disqualified organization" means the United States, any state or political
subdivision thereof, any agency or instrumentality of any of the foregoing
(other than an instrumentality all of the activities of which are subject to tax
and, except for the Federal Home Loan Mortgage Corporation, a majority of whose
board of directors is not selected by any such governmental entity) or any
foreign government, international organization or any agency or instrumentality
of such foreign government or organization, any rural electric or telephone
cooperative, or any organization (other than certain farmers' cooperatives) that
is generally exempt from federal income tax unless such organization is subject
to the tax on unrelated business taxable income).
3. That the Owner is aware (i) of the tax that would be
imposed on transfers of Class [R] Certificates to disqualified organizations
under the Code, that applies to all transfers of Class [R] Certificates after
[March 31, 1988]; (ii) that such tax would be on the transferor, or, if such
transfer is through an agent (which person includes a broker, nominee or
middleman) for a disqualified organization, on the agent; (iii) that the person
otherwise liable for the tax shall be relieved of liability for the tax if the
transferee furnishes to such person an affidavit that the transferee is not a
disqualified organization and, at the time of transfer, such person does not
have actual knowledge that the affidavit is false; and (iv) that the Class [R]
Certificates may be "noneconomic residual interests" within the meaning of
Treasury regulations promulgated pursuant to the Code and that the transferor of
a noneconomic residual interest will remain liable for any taxes due with
respect to the income on such residual interest, unless no significant purpose
of the transfer was to impede the assessment or collection of tax.
4. That the Owner is aware of the tax imposed on a
"pass-through entity" holding Class [R] Certificates if at any time during the
taxable year of the pass-through entity a disqualified organization is the
record holder of an interest in such entity. (For this purpose, a "pass through
entity" includes a regulated investment company, a real estate investment trust
or common trust fund, a partnership, trust or estate, and certain cooperatives.)
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<PAGE> 143
5. That the Owner is aware that the Trustee will not register
the transfer of any Class [R] Certificates unless the transferee, or the
transferee's agent, delivers to it an affidavit and agreement, among other
things, in substantially the same form as this affidavit and agreement. The
Owner expressly agrees that it will not consummate any such transfer if it knows
or believes that any of the representations contained in such affidavit and
agreement are false.
6. That the Owner has reviewed the restrictions set forth on
the face of the Class [R] Certificates and the provisions of Section 4.02(i) of
the Pooling and Servicing Agreement under which the Class [R] Certificates were
issued (in particular, clause (g) and (h) of Section 4.02(i) which authorize the
Trustee to deliver payments to a person other than the Owner and negotiate a
mandatory sale by the Trustee in the event the Owner holds such Certificates in
violation of Section 4.02(i)). The Owner expressly agrees to be bound by and to
comply with such restrictions and provisions.
7. That the Owner consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Class [R] Certificates will only be
owned, directly or indirectly, by an Owner that is not a disqualified
organization.
8. The Owner's Taxpayer Identification Number is
______________.
9. This affidavit and agreement relates only to the Class [R]
Certificates held by the Owner and not to any other holder of the Class [R]
Certificates. The Owner understands that the liabilities described herein relate
only to the Class [R] Certificates.
10. That no purpose of the Owner relating to the transfer of
any of the Class [R] Certificates by the Owner is or will be to impede the
assessment or collection of any tax.
11. That the Owner has no present knowledge or expectation
that it will be unable to pay any United States taxes owed by it so long as any
of the Certificates remain outstanding. In this regard, the Owner hereby
represents to and for the benefit of the person from whom it acquired the Class
[R] Certificate that the Owner intends to pay taxes associated with holding such
Class [R] Certificate as they become due, fully understanding that it may incur
tax liabilities in excess of any cash flows generated by the Class [R]
Certificate.
12. That the Owner has no present knowledge or expectation
that it will become insolvent or subject to a bankruptcy proceeding for so long
as any of the Class [R] Certificates remain outstanding.
13. The Owner is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof, or an estate or
trust whose income from sources without the United States is includible in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States.
I-2
<PAGE> 144
IN WITNESS WHEREOF, the Owner has caused this instrument to be
executed on its behalf, pursuant to the authority of its Board of Directors, by
its [Title of Officer] and its corporate seal to be hereunto attached, attested
by its [Assistant] Secretary, this ____ day of _______________, 199__.
[NAME OF OWNER]
By:____________________________________
[Corporate Seal]
[Name of Officer]
[Title of Officer]
ATTEST:
- ----------------------------
[Assistant] Secretary
Personally appeared before me the above-named [Name of
Officer], known or proved to me to be the same person who executed the foregoing
instrument and to be the [Title of Officer] of the Owner, and acknowledged to me
that he executed the same as his free act and deed and the free act and deed of
the Owner.
Subscribed and sworn before
me this ____ day of ________________, 199__.
___________________________________________
NOTARY PUBLIC COUNTY OF ___________________
STATE OF __________________________________
My Commission expires the
_______ day of _______________, 19__.
I-3
<PAGE> 145
EXHIBIT J
Form of Transferor Certificate
__________________, 19__
[Morgan Stanley ABS Capital I Inc.]
[Address]
[Trustee]
[Address]
Attention: [Morgan Stanley ABS Capital I Inc.]
Re: Mortgage Loan Asset-Backed Pass-Through Certificates, Series 199__-__
Ladies and Gentlemen:
This letter is delivered to you in connection with the
transfer by _______________________________ (the "Seller") to
_______________________________ (the "Purchaser") of a ____% Percentage
Interests of Mortgage Loan Asset-Backed Pass-Through Certificates, Series
199__-__, [Class I S], [Class II S] and [Class R] Certificates (collectively,
the "Certificates"; and each individually, a "Certificate"), pursuant to Section
4.02 of the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of ______________________, 19____, among [Morgan Stanley
ABS Capital I Inc.], as seller (the "Company"),
[_________________________________], as Master Servicer, and
[_________________________________], as trustee (the "Trustee"). All terms used
herein and not otherwise defined shall have the meanings set forth in the
Pooling and Servicing Agreement. The Seller hereby certifies, represents and
warrants to, and covenants with, the Company and the Trustee that:
1. No purpose of the Seller relating to the transfer of the
Certificates by the Seller to the Purchaser is or will be to impede the
assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered to
the Trustee and the Master Servicer a transfer affidavit and agreement in the
form attached to the Pooling and Servicing Agreement as Exhibit I. The Seller
does not know or believe that any representation contained therein is false.
3. The Seller has at the time of the transfer conducted a
reasonable investigation of the financial condition of the Purchaser as
contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result
of that investigation, the Seller has determined that the Purchaser has
historically paid its debts as they become due and has found no significant
evidence to indicate that the Purchaser will not continue to pay its debts as
they become due in the future. The Seller understands that the transfer of a
Class [R] Certificate may not be respected for United States income tax purposes
(and the Seller may continue to be liable for United States income taxes
associated therewith) unless the Seller has conducted such an investigation.
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<PAGE> 146
4. The Seller has no actual knowledge that the proposed
Transferee is not both a United States Person and a Permitted Transferee.
Very truly yours,
(Seller)
By:____________________________
Name:
Title:
J-2
<PAGE> 147
EXHIBIT K
____________, 1996
[Trustee]
[Address]
Attn:
Re: [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__, Class R
This letter is delivered to you in connection with the
transfer by _____________________ (the "Seller") to ___________________ (the
"Purchaser") of Mortgage Loan Asset-Backed Pass-Through Certificates Series
199__-__, Class [R] (the "Certificates"), pursuant to Section 4.02 of the
Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated
as of ______________________, 19____ among [Morgan Stanley ABS Capital I Inc.]
as Company (the "Company"), [_________________________________], as Master
Servicer, and [_________________________________], as Trustee (the "Trustee").
All terms used herein and not otherwise defined shall have the meanings set
forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies,
represents and warrants to, and covenants with, the Company and the Trustee
that: The Purchaser is not an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or other Internal
Revenue Code of 1986, as amended (the "Code"), nor a Person acting directly on
behalf of any such plan.
Very truly yours,
(Purchaser)
By:____________________________
Name:
Title:
K-1
<PAGE> 148
EXHIBIT L
[RESERVED]
K-1
<PAGE> 149
EXHIBIT M
Certificate Re: Prepaid Loans
I, , of ____________________________, as Seller, hereby
certify that between the "Cut-Off Date" (as defined in the Pooling and Servicing
Agreement dated as of ______________________, 19____ among [Morgan Stanley ABS
Capital I Inc.], [_________________________________], as Master Servicer
[_________________________________], as trustees) and the "Startup Day" the
following schedule of "Mortgage Loans" (each as defined in the Pooling and
Servicing Agreement) have been prepaid in full.
Dated:
By:___________________________________
M-1
<PAGE> 150
EXHIBIT N
Subsequent Transfer Instrument
Pursuant to this Subsequent Transfer Instrument (the
"Instrument"), dated ___________, 1996, between [Morgan Stanley ABS Capital I
Inc.], as seller (the "Company"), and [_________________________________], as
Trustee of the [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__, as purchaser (the "Purchaser"), and
pursuant to the Pooling and Servicing Agreement, dated as of
______________________, 19____, among the Company, as company,
[_________________________________], as Master Servicer, and the ________, as
trustee (the "Pooling and Servicing Agreement"), the Company and the Purchaser
agree to the sale by the Company and the purchase by the Purchaser of the
Mortgage Loans listed on the attached Schedule of Mortgage Loans (the
"Subsequent Mortgage Loans").
Capitalized terms used and not defined herein have their
respective meanings as set forth in the Pooling and Servicing Agreement.
Section 1. CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS.
(a) The Company does hereby sell, transfer, assign, set over
and convey to the Purchaser, without recourse, all of its right, title and
interest in and to the Subsequent Mortgage Loans, and including all principal
received and interest accruing on the Subsequent Mortgage Loans on and after the
related Subsequent Cut-Off Date, and all items with respect to the Subsequent
Mortgage Loans to be delivered pursuant to Section 2.03 of the Pooling and
Servicing Agreement; provided, however, that the Company reserves and retains
all right, title and interest in and to principal (including Prepayments and
Curtailments) received and interest accruing on the Subsequent Mortgage Loans
prior to the related Subsequent Cut-off Date. The Company, contemporaneously
with the delivery of this Agreement, has delivered or caused to be delivered to
the Trustee each item set forth in Section 2.03 of the Pooling and Servicing
Agreement. The transfer to the Trustee by the Company of the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule shall be absolute and is intended
by the Company, the Master Servicer, the Trustee and the Certificateholders to
constitute and to be treated as a sale by the Company.
(b) The expenses and costs relating to the delivery of the
Subsequent Mortgage Loans, this Instrument and the Pooling and Servicing
Agreement shall be borne by the Company.
(c) Additional terms of the sale are set forth on Attachment A
hereto.
Section 2. REPRESENTATIONS AND WARRANTIES; CONDITIONS
PRECEDENT. (a) The Company hereby affirms the representations and warranties set
forth in Section 3.03 of the Pooling and Servicing Agreement that relate to the
Subsequent Mortgage Loans as of the date hereof. The Company hereby confirms
that each of the conditions set forth in Section 2.08(b) of the Pooling and
Servicing Agreement are satisfied as of the date hereof and further represents
and warrants that each Subsequent Mortgage Loan complies with the requirements
of Section 2.08 (c) of the Pooling and Servicing Agreement.
(b) All terms and conditions of the Pooling and Servicing
Agreement are hereby ratified and confirmed; provided, however, that in the
event of any conflict the provisions of this Instrument shall control over the
conflicting provisions of the Pooling and Servicing Agreement.
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<PAGE> 151
Section 3. Recordation of Instrument. To the extent permitted
by applicable law, this Instrument, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Master Servicer at the Certificateholders' expense on
direction of the Majority Certificateholders, but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Certificateholders or is necessary for
the administration or servicing of the Mortgage Loans.
Section 4. Governing Law. This Instrument shall be construed
in accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws, without giving effect to principles of conflicts of law.
Section 5. Counterparts. This Instrument may be executed in
one or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
instrument.
Section 6. Successors and Assigns. This Instrument shall inure
to the benefit of and be binding upon the Company and the Purchaser and their
respective successors and assigns.
[Signature page follows]
N-2
<PAGE> 152
[Morgan Stanley ABS Capital I Inc.]
By:_________________________________
Name:
Title:
[[Morgan Stanley ABS Capital I Inc.]]
MORTGAGE LOAN ASSET-BACKED PASS-THROUGH
CERTIFICATES, Series 199__-__
[_________________________________],
as Trustee
By:_________________________________
Name:
Title:
ATTACHMENTS
A. Additional terms of the sale.
B. Schedule of Subsequent Mortgage Loans.
C. Opinions of Company's counsel (bankruptcy, corporate).
D. Company's Officer's certificate.
E. Trustee's Certificate.
F. Opinion of Trustee's Counsel.
N-3
<PAGE> 153
EXHIBIT O
Form of Investor Representation Letter
______________, 1996
[Trustee]
[Address]
Attn:
Re: [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__
Ladies and Gentlemen:
______________________ (the "Purchaser") intends to purchase
from __________________ (the "Seller"), a ____% Percentage Interest of Mortgage
Loan Asset-Backed Pass-Through Certificates, Series 199__-__, Class (the
"Certificates"), issued pursuant to the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of ______________________, 19____
among [Morgan Stanley ABS Capital I Inc.], as Company (the "Company"),
[_________________________________], as master servicer, and
[_________________________________], as trustee (the "Trustee"). All terms used
herein and not otherwise defined shall have the meanings set forth in the
Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and
warrants to, and covenants with, the Company and the Trustee that:
1. The Purchaser understands that (a) the Certificates have
not been and will not be registered or qualified under the Securities
Act of 1933, as amended (the "Act") or any state securities law, (b)
the Company is not required to so register or qualify the Certificates,
(c) the Certificates may be resold only if registered and qualified
pursuant to the provisions of the Act or any state securities law, or
if an exemption from such registration and qualification is available,
(d) the Pooling and Servicing Agreement contains restrictions regarding
the transfer of the Certificates and (e) the Certificates will bear a
legend to the foregoing effect.
2. The Purchaser is acquiring the Certificates for its own
account for investment only and not with a view to or for sale in
connection with any distribution thereof in any manner that would
violate the Act or any applicable state securities laws.
3. The Purchaser is (a) a substantial, sophisticated
institutional investor having such knowledge and experience in
financial and business matters, and, in particular, in such matters
related to securities similar to the Certificates, such that it is
capable of evaluating the merits and risks of investment in the
Certificates, (b) able to bear the economic risks of such an investment
and (c) an "accredited investor" within the meaning of Rule 501(a)
promulgated pursuant to the Act.
4. The Purchaser has been furnished with, and has had an
opportunity to review a copy of the Pooling and Servicing Agreement and
such other information concerning the Certificates, the Mortgage Loans
and the Company as has been requested by the Purchaser from
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<PAGE> 154
the Company or the Seller and is relevant to the Purchaser's decision
to purchase the Certificates. The Purchaser has had any questions
arising from such review answered by the Company or the Seller to the
satisfaction of the Purchaser. If the Purchaser did not purchase the
Certificates from the Seller in connection with the initial
distribution of the Certificates and was provided with a copy of the
Private Placement Memorandum (the "Memorandum") relating to the
original sale (the "Original Sale") of the Certificates by the Company,
the Purchaser acknowledges that such Memorandum was provided to it by
the Seller, that the Memorandum was prepared by the Company solely for
use in connection with the Original Sale and the Company did not
participate in or facilitate in any way the purchase of the
Certificates by the Purchaser from the Seller, and the Purchaser agrees
that it will look solely to the Seller and not to the Company with
respect to any damage, liability, claim or expense arising out of,
resulting from or in connection with (a) error or omission, or alleged
error or omission, contained in the Memorandum, or (b) any information,
development or event arising after the date of the Memorandum.
5. The Purchaser has not and will not nor has it authorized or
will it authorize any person to (a) offer, pledge, sell, dispose of or
otherwise transfer any Certificate, any interest in any Certificate or
any other similar security to any person in any manner, (b) solicit any
offer to buy or to accept a pledge, disposition of other transfer of
any Certificate, any interest in any Certificate or any other similar
security from any person in any manner, (c) otherwise approach or
negotiate with respect to any Certificate, any interest in any
Certificate or any other similar security with any person in any
manner, (d) make any general solicitation by means of general
advertising or in any other manner or (e) take any other action, that
(as to any of (a) through (e) above) would constitute a distribution of
any Certificate under the Act, that would render the disposition of any
Certificate a violation of Section 5 of the Act or any state securities
law, or that would require registration or qualification pursuant
thereto. The Purchaser will not sell or otherwise transfer any of the
Certificates, except in compliance with the provisions of the Pooling
and Servicing Agreement.
6. The Purchaser represents that either (a) or (b) is
satisfied, as marked below:
a. is not any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Internal Revenue Code of
1986 (the "Code"), a Person acting, directly or
indirectly, on behalf of any such plan or any Person
acquiring such Certificates with "plan assets" of a
Plan within the meaning of the Department of Labor
regulation promulgated at 29 C.F.R. ss.2510.3-101; or
b. will provide the Trustee, the Company and the Master
Servicer with either: (i) an opinion of counsel,
satisfactory to the Trustee, the Company and the
Master Servicer, to the effect that the purchase and
holding of a Certificate by or on behalf of the
Purchaser is permissible under applicable law, will
not constitute or result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the
Code (or comparable provisions of any subsequent
enactments) and will not subject the Trustee, the
Company or the Master Servicer to any obligation or
liability (including liabilities under ERISA or
Section 4975 of the Code) in addition to those
undertaken in the Pooling and Servicing Agreement,
which opinion of counsel shall not be an expense of
the Trustee, the Company or the Master Servicer; or
(ii) in lieu of such opinion of counsel, a
certification in the form of Exhibit S to the Pooling
and Servicing Agreement.
O-2
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[* To be inserted when Prohibited Transaction Exemption 94-29,
the individual exemption granted to [Morgan Stanley ABS Capital I Inc.] by the
Department of Labor, will not exempt a transaction from the application of the
prohibited transaction provisions of ERISA and the Code.]
Very truly yours,
By:____________________________
Name:
Title:
O-3
<PAGE> 156
EXHIBIT P
Form of Transferor Representation Letter
___________, 1996
[Trustee]
[Address]
Attn:
Re: [Morgan Stanley ABS Capital I Inc.] Mortgage Loan Asset-Backed
Pass-Through Certificates, Series 199__-__
Ladies and Gentlemen:
In connection with the sale by ____________ (the "Seller") to
__________________ (the "Purchaser") of $___________ Initial Certificate
Principal Balance of Mortgage Loan Asset-Backed Pass-Through Certificates,
Series 199__-__, Class _ (the "Certificates"), issued pursuant to the Pooling
and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of
______________________, 19____ among [Morgan Stanley ABS Capital I Inc.], as
company (the "Company"), [_________________________________], as master
servicer, and [_________________________________], as trustee (the "Trustee").
The Seller hereby certifies, represents and warrants to, and covenants with, the
Company and the Trustee that:
Neither the Seller nor anyone acting on its behalf has (a)
offered, pledged, sold, disposed of or otherwise transferred any Certificate,
any interest in any Certificate or any other similar security to any person in
any manner, (b) has solicited any offer to buy or to accept a pledge,
disposition or other transfer of any Certificate, any interest in any
Certificate or any other similar security from any person in any manner, (c) has
otherwise approached or negotiated with respect to any Certificate, any interest
in any Certificate or any other similar security with any person in any manner,
(d) has made any general solicitation by means of general advertising or in any
other manner, or (e) has taken any other action, that (as to any of (a) through
(e) above) would constitute a distribution of the Certificates under the
Securities Act of 1933 (the "Act"), that would render the disposition of any
Certificate a violation of Section 5 of the Act or any state securities law, or
that would require registration or qualification pursuant thereto. The Seller
will not act in any manner set forth in the foregoing sentence with respect to
any Certificate. The Seller has not and will not sell or otherwise transfer any
of the Certificates, except in compliance with the provisions of the Pooling and
Servicing Agreement.
Very truly yours,
(Seller)
By:____________________________
Name:
Title:
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<PAGE> 157
EXHIBIT Q
[Form of Rule 144A Investment Representation]
Description of Rule 144A Securities, [Morgan Stanley ABS Capital I Inc.]
including numbers: Mortgage Loan Asset-Backed
Pass-Through Certificates Series 199__-
__, Class ___, No. ___
The undersigned seller, as registered holder (the
"Transferor"), intends to transfer the Rule 144A Securities described above to
the undersigned buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the
Transferor hereby certifies the following facts: Neither the Transferor nor
anyone acting on its behalf has offered, transferred, pledged, sold or otherwise
disposed of the Rule 144A Securities, any interest in the Rule 144A Securities
or any other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, or otherwise
approached or negotiated with respect to the Rule 144A Securities, any interest
in the Rule 144A Securities or any other similar security with, any person in
any manner, or made any general solicitation by means of general advertising or
in any other manner, or taken any other action, which would constitute a
distribution of the Rule 144A Securities under the Securities Act of 1933, as
amended (the "1933 Act"), or which would render the disposition of the Rule 144A
Securities a violation of Section 5 of the 1933 Act or require registration
pursuant thereto, and that the Transferor has not offered the Rule 144A
Securities to any person other than the Buyer or another "qualified
institutional buyer" as defined in Rule 144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Transferor, the Trustee and the Master Servicer pursuant to Section 5.02 of
the Pooling and Servicing Agreement as follows:
a. The Buyer understands that the Rule 144A Securities
have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such
knowledge and experience in financial and business
matters that it is capable of evaluating the merits
and risks of investment in the Rule 144A Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has
requested from the Transferor, the Trustee or the
Master Servicer.
d. Neither the Buyer nor anyone acting on its behalf has
offered, transferred, pledged, sold or otherwise
disposed of the Rule 144A Securities, any interest in
the Rule 144A Securities or any other similar
security to, or solicited any offer to buy or accept
a transfer, pledge or other disposition of the Rule
144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or
otherwise approached or negotiated with respect to
the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security
Q-1
<PAGE> 158
with, any person in any manner, or made any general
solicitation by means of general advertising or in
any other manner, or taken any other action, that
would constitute a distribution of the Rule 144A
Securities under the 1933 Act or that would render
the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require
registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to
act, in such manner with respect to the Rule 144A
Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act
and has completed either of the forms of
certification to that effect attached hereto as Annex
1 or Annex 2. The Buyer is aware that the sale to it
is being made in reliance on Rule 144A. The Buyer is
acquiring the Rule 144A Securities for its own
account or the account of other qualified
institutional buyers, understands that such Rule 144A
Securities may be resold, pledged or transferred only
(i) to a person reasonably believed to be a qualified
institutional buyer that purchases for its own
account or for the account of a qualified
institutional buyer to whom notice is given that the
resale, pledge or transfer is being made in reliance
on Rule 144A, or (ii) pursuant to another exemption
from registration under the 1933 Act.
3. The Buyer represents that either (a) or (b) is
satisfied, as marked below:
a. is not any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Internal Revenue Code of
1986 (the "Code"), a Person acting, directly or
indirectly, on behalf of any such plan or any Person
acquiring such Certificates with "plan assets" of a
Plan within the meaning of the Department of Labor
regulation promulgated at 29 C.F.R. ss.2510.3-101; or
b. will provide the Trustee, the Company and the Master
Servicer with either: (i) an opinion of counsel,
satisfactory to the Trustee, the Company and the
Master Servicer, to the effect that the purchase and
holding of a Certificate by or on behalf of the Buyer
is permissible under applicable law, will not
constitute or result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the
Code (or comparable provisions of any subsequent
enactments) and will not subject the Trustee, the
Company or the Master Servicer to any obligation or
liability (including liabilities under ERISA or
Section 4975 of the Code) in addition to those
undertaken in the Pooling and Servicing Agreement,
which opinion of counsel shall not be an expense of
the Trustee, the Company or the Master Servicer; or
(ii) in lieu of such opinion of counsel, a
certification in the form of Exhibit S to the Pooling
and Servicing Agreement.
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
Q-2
<PAGE> 159
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
_______________________________ ___________________________________
Print Name of Transferor Print Name of Buyer
By:____________________________ By:________________________________ Name:
Name: Name:
Title: Title:
Taxpayer Identification Taxpayer Identification:
No.____________________________ No.________________________________
Date:__________________________ Date:______________________________
Q-3
<PAGE> 160
ANNEX 1 TO EXHIBIT Q
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________(1) in securities (except for
the excluded securities referred to below) as of the end of the Buyer's most
recent fiscal year (such amount being calculated in accordance with Rule 144A)
and (ii) the Buyer satisfies the criteria in the category marked below.
-- CORPORATION, ETC. The Buyer is a corporation (other than a
bank, savings and loan association or similar institution),
Massachusetts or similar business trust, partnership, or
charitable organization described in Section 501(c)(3) of the
Internal Revenue Code.
-- BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the
District of Columbia, the business of which is substantially
confined to banking and is supervised by the State or
territorial banking commission or similar official or is a
foreign bank or equivalent institution, and (b) has an audited
net worth of at least $25,000,000 as demonstrated in its
latest annual financial statements.
-- SAVINGS AND LOAN. The Buyer (a) is a savings and loan
association, building and loan association, cooperative bank,
homestead association or similar institution, which is
supervised and examined by a State or Federal authority having
supervision over any such institutions or is a foreign savings
and loan association or equivalent institution and (b) has an
audited net worth of at least $25,000,000 as demonstrated in
its latest annual financial statements.
-- BROKER-DEALER. The Buyer is a dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
-- INSURANCE COMPANY. The Buyer is an insurance company whose
primary and predominant business activity is the writing of
insurance or the reinsuring of risks underwritten by insurance
companies and which is subject to supervision by the insurance
- --------
(1) Buyer must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that case,
Buyer must own and/or invest on a discretionary basis at least
$10,000,000 in securities.
Q-1-1
<PAGE> 161
commissioner or a similar official or agency of a State,
territory or the District of Columbia.
-- STATE OR LOCAL PLAN. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.
-- ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security
Act of 1974.
-- INVESTMENT ADVISER. The Buyer is an investment adviser
registered under the Investment Advisers Act of 1940.
-- SBIC. The Buyer is a Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958.
-- BUSINESS DEVELOPMENT COMPANY. The Buyer is a business
development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
-- TRUST FUND. The Buyer is a trust fund whose trustee is a bank
or trust company and whose participants are exclusively (a)
plans established and maintained by a State, its political
subdivisions, or any agency or instrumentality of the State or
its political subdivisions, for the benefit of its employees,
or (b) employee benefit plans within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, but is
not a trust fund that includes as participants individual
retirement accounts or H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of
securities owned and/or invested on a discretionary basis by the Buyer, the
Buyer used the cost of such securities to the Buyer and did not include any of
the securities referred to in the preceding paragraph. Further, in determining
such aggregate amount, the Buyer may have included securities owned by
subsidiaries of the Buyer, but only if such subsidiaries are consolidated with
the Buyer in its financial statements prepared in accordance with generally
accepted accounting principles and if the investments of such subsidiaries are
managed under the Buyer's direction. However, such securities were not included
if the Buyer is a majority-owned, consolidated subsidiary of another enterprise
and the Buyer is not itself a reporting company under the Securities Exchange
Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A
and understands that the seller to it and other parties related to the
Certificates are relying and will continue to rely on the statements made herein
because one or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A Securities only for
Yes No the Buyer's own account?
Q-1-2
<PAGE> 162
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A. 7. The Buyer will notify each of
the parties to which this certification is made of any changes in the
information and conclusions herein. Until such notice is given, the Buyer's
purchase of Rule 144A Securities will constitute a reaffirmation of this
certification as of the date of such purchase.
Print Name of Buyer_________________________
By:_________________________________________
Name:
Title:
Date:
Q-1-3
<PAGE> 163
ANNEX 2 TO EXHIBIT Q
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE
144A [For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than the
excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year (such amount being calculated in accordance
with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which owned in
the aggregate $______________ in securities (other than the excluded
securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule
144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements made herein because one or more sales to the
Buyer will be in reliance on Rule 144A. In addition, the Buyer will only
purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of
Q-2-1
<PAGE> 164
Rule 144A Securities will constitute a reaffirmation of this certification by
the undersigned as of the date of such purchase.
Print Name of Buyer__________________
By:__________________________________
Name:
Title:
IF AN ADVISER:
_____________________________________
Print Name of Buyer
Date:_________________________________
Q-2-2
<PAGE> 165
EXHIBIT R
Premium Exhibit
For the purposes of the Pooling and Servicing Agreement dated
as of ______________________, 19____ (the "Agreement") by and among [Morgan
Stanley ABS Capital I Inc.], as company, [_________________________________], as
master servicer, and [_________________________________] as trustee, "Premium
Percentage" means, with respect to any Group I Loan or Group II Loan, ____%
Terms used in this exhibit and not defined in this exhibit have the meanings
ascribed thereto in the Agreement.
R-1
<PAGE> 166
EXHIBIT S
Form of Erisa Representation Letter
_____________, 199__
[Morgan Stanley ABS Capital I Inc.]
[Address]
[Trustee]
[Address]
Attention: [Morgan Stanley ABS Capital I Inc.]
Re: Mortgage Loan Asset-Backed Pass-Through Certificates, Series
199__-__, Class____
Dear Sirs:
___________________ (the "Purchaser") intends to purchase from
___________________ (the "Seller") $ _________________ Initial Certificate
Principal Balance of Mortgage Loan Asset-Backed Pass-Through Certificates,
Series 199__-__, Class ____ (the "Certificates"), issued pursuant to the Pooling
and Servicing Agreement (the"Pooling and Servicing Agreement"), dated as of
______________________, 19____, Southern Pacific Secured Assets Corp, as
company, [______________________________], as Master Servicer, and
[_________________________________], as trustee (the "Trustee"). All terms used
herein and not otherwise defined shall have the meanings set forth in the
Pooling and Servicing Agreement.
The Purchaser hereby certifies, represents and warrants to,
and covenants with the Company, the Trustee and the Master Servicer that the
following statements in either (1) or (2) are accurate:
(1) The Certificates (i) are not being acquired by, and will
not be transferred to, any employee benefit plan within the meaning of section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or other retirement arrangement, including individual retirement
accounts and annuities, Keogh plans and bank collective investment funds and
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that is subject to Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986 (the "Code") (any of the foregoing, a
"Plan"), (ii) are not being acquired with "plan assets" of a Plan within the
meaning of the Department of Labor ("DOL") regulation, 29 C.F.R. ss. 2510.3-101,
and (iii) will not be transferred to any entity that is deemed to be investing
in plan assets within the meaning of the DOL regulation, 29 C.F.R. ss.
2510.3-101; or
(2) The purchase of Certificates is permissible under
applicable law, will not constitute or result in any prohibited transaction
under ERISA or Section 4975 of the Code, will not subject the Company, the
Trustee or the Master Servicer to any obligation in addition to those undertaken
in the Pooling and Servicing Agreement and, with respect to each source of funds
being used by the Purchaser to acquire the Certificates (each being referred to
as a "Source") and the following statements
S-1
<PAGE> 167
in at least one of (a), (b), (c), (d), (e) or (f) are accurate: (a) the
Purchaser is an insurance company and (i) the Source is assets of its "general
account," (ii) the conditions set forth in PTCE 95-60 issued by the DOL have
been satisfied and the purchase and holding of Certificates by or on behalf of
the Purchaser are exempt under PTCE 95-60 and (iii) the amount of reserves and
liabilities for such general account contracts held by or on behalf of any Plan
do not exceed 10% of the total reserves and liabilities of such general account
plus surplus as of the date hereof (for purposes of this clause, all Plans
maintained by the same employer (or affiliate thereof) or employee organization
are deemed to be a single Plan) in connection with its purchase and holding of
such Certificates; or (b) the Purchaser is an insurance company and (i) the
Source is assets of its "general account," (ii) the requirements of Section
401(c) of ERISA and the DOL to be promulgated thereunder have been satisfied and
will continue to be satisfied and (c) the Purchaser represents that it
understands that the operation of the general account after __________, 199_ may
affect its ability to continue to hold the Certificates after the date which is
18 months after the 401(c) Regulations become final and unless a class exemption
issued by the DOL or an exception under Section 401(c) of ERISA is then
available for the continued holding of Certificates, if the assets of the
general account constitute Plan Assets, it will dispose of the Certificates
prior to the date which is 18 months after the 401(c) Regulations become final;
or (c) the Purchaser is an insurance company and (i) the Source is an insurance
company "pooled separate account," (ii) the conditions set forth in PTCE 90-1
issued by the DOL have been satisfied and the purchase and holding of
Certificates by or on behalf of the Purchaser are exempt under PTCE 90-1 and
(iii) there is no Plan whose assets in such separate account exceed 10% of the
total assets of such separate account as of the date hereof (for purposes of
this clause, all Plans maintained by the same employer (or any affiliate
thereof) or employee organization are deemed to be a single Plan); or (d) the
Purchaser is a bank and (i) the Source is a "collective investment fund" as
described in Section IV(e) of PTCE 91-38 with respect to which the bank is
trustee, (ii) the conditions set forth in PTCE 91-38 issued by the DOL have been
satisfied and the purchase and holding of Certificates by or on behalf of the
Purchaser are exempt under PTCE 91-38 and (iii) no Plan has assets invested in
such collective investment fund exceeding 10% of the total assets of such
collective investment fund as of the date hereof (for purposes of this clause,
all Plans maintained by the same employer (or any affiliate thereof) or employee
organization are deemed to be a single Plan); or (e) the Purchaser is an
"investment fund" described in PTCE 84-14 and (i) the undersigned is a "QPAM" as
defined in PTCE 84-14, (ii) the conditions set forth in PTCE 84-14 issued by the
DOL have been satisfied and will continue to be satisfied and (iii) the purchase
and holding of Certificates by or on behalf of the Purchaser are exempt under
PTCE 84-14; or (f) the Purchaser is an "INHAM" defined in PTCE 96-23 and (i) the
conditions set forth in PTCE 96-23 issued by the DOL have been satisfied and
will continue to be satisfied and (ii) the purchase and holding of Certificates
by or on behalf of the Purchaser are exempt under PTCE 96-23.
Very truly yours,
By:____________________________
Name:
Title:
S-2
<PAGE> 168
EXHIBIT 4
(Please Refer to Tab 7)
<PAGE> 1
EXHIBIT 4.4
Subject to Completion
TRUST AGREEMENT
between
Morgan Stanley ABS Capital I Inc., INC.,
as Depositor,
and
[_______________________________]
as Owner Trustee
Dated as of ___________, 199_
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.01. Capitalized Terms...................................... 1
Section 1.02. Other Definitional Provisions.......................... 3
ARTICLE II
ORGANIZATION
Section 2.01. Name................................................... 4
Section 2.02. Office................................................. 4
Section 2.03. Purposes and Powers.................................... 4
Section 2.04. Appointment of Owner Trustee........................... 5
Section 2.05. Initial Capital Contribution of Owner Trust Estate..... 5
Section 2.06. Declaration of Trust................................... 5
Section 2.07. Liability of the Owners................................ 5
Section 2.08. Title to Trust Property................................ 6
Section 2.09. Situs of Trust......................................... 6
Section 2.10. Representations and Warranties of the Depositor........ 6
Section 2.11. Federal Income Tax Allocations......................... 7
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.01. Initial Ownership...................................... 8
Section 3.02. The Trust Certificates................................. 8
Section 3.03. Authentication of Trust Certificates................... 8
Section 3.04. Registration of Transfer and Exchange of Trust
Certificates .......................................... 8
Section 3.05. Mutilated, Destroyed, Lost or Stolen Trust
Certificates .......................................... 9
Section 3.06. Persons Deemed Owners.................................. 9
Section 3.07. Access to List of Certificateholders' Names and
Addresses ............................................. 9
Section 3.08. Maintenance of Office or Agency........................ 10
Section 3.09. Appointment of Paying Agent............................ 10
Section 3.10. Ownership by Depositor of Trust Certificates........... 10
Section 3.11. Book-Entry Trust Certificates.......................... 11
Section 3.12. Notices to Clearing Agency............................. 11
Section 3.13. Definitive Trust Certificates.......................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
<S> <C> <C>
Section 4.01. Prior Notice to Owners with Respect to Certain Matters. 12
Section 4.02. Action by Owners with Respect to Certain Matters....... 13
Section 4.03. Action by Owners with Respect to Bankruptcy............ 13
Section 4.04. Restrictions on Owners' Power.......................... 13
Section 4.05. Majority Control....................................... 13
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.01. Establishment of Trust Account......................... 13
Section 5.02. Application of Trust Funds............................. 13
Section 5.03. Method of Payment...................................... 14
Section 5.04. No Segregation of Moneys; No Interest.................. 14
Section 5.05. Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others.................... 14
Section 5.06. Signature on Returns; Tax Matters Partner.............. 14
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.01. General Authority...................................... 15
Section 6.02. General Duties......................................... 15
Section 6.03. Action upon Instruction................................ 15
Section 6.04. No Duties Except as Specified in this Agreement or in
Instructions .......................................... 16
Section 6.05. No Action Except Under Specified Documents or
Instructions .......................................... 16
Section 6.06. Restrictions........................................... 16
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.01. Acceptance of Trusts and Duties........................ 16
Section 7.02. Furnishing of Documents................................ 18
Section 7.03. Representations and Warranties......................... 18
Section 7.04. Reliance; Advice of Counsel............................ 18
Section 7.05. Not Acting in Individual Capacity...................... 18
Section 7.06. Owner Trustee Not Liable for Trust Certificates or
Mortgage Loans ........................................ 19
Section 7.07. Owner Trustee May Own Trust Certificates and Notes..... 19
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.01. Owner Trustee's Fees and Expenses...................... 19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.02. Indemnification........................................ 19
Section 8.03. Payments to the Owner Trustee.......................... 20
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.01. Termination of Trust Agreement......................... 20
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.01. Eligibility Requirements for Owner Trustee............ 21
Section 10.02. Resignation or Removal of Owner Trustee............... 21
Section 10.03. Successor Owner Trustee............................... 21
Section 10.04. Merger or Consolidation of Owner Trustee.............. 22
Section 10.05. Appointment of Co-Trustee or Separate Trustee......... 22
ARTICLE XI
MISCELLANEOUS
Section 11.01. Supplements and Amendments............................ 23
Section 11.02. No Legal Title to Owner Trust Estate in Owners........ 24
Section 11.03. Limitations on Rights of Others....................... 24
Section 11.04. Notices............................................... 24
Section 11.05. Severability.......................................... 25
Section 11.06. Separate Counterparts................................. 25
Section 11.07. Successors and Assigns................................ 25
Section 11.08. No Petition........................................... 25
Section 11.09. No Recourse........................................... 25
Section 11.10. Headings.............................................. 25
Section 11.11. GOVERNING LAW......................................... 25
Section 11.12. Depositor Payment Obligation.......................... 26
Section 11.13. ...................................................... 26
</TABLE>
EXHIBITS
EXHIBIT A Form of Trust Certificate
EXHIBIT B Form of Certificate of Trust
EXHIBIT C Form of Certificate Depository Agreement
iii
<PAGE> 5
TRUST AGREEMENT (the "Trust Agreement") dated as of ________, 199_,
between Morgan Stanley ABS Capital I Inc., a Delaware corporation, as depositor
(the "Depositor"), and [____________], a [__________________], as owner trustee
(the "Owner Trustee").
ARTICLE I
DEFINITIONS
Section 1.01. Capitalized Terms. For all purposes of this Agreement,
the following terms shall have the meanings set forth below:
Administration Agreement: The Administration Agreement dated as of
________1, 199_, among the Trust, the Indenture Trustee and
[_________________________], as Administrator.
Agreement: This Trust Agreement, as the same may be amended and
supplemented from time to time.
Assignment: The assignment of right, title and interest of the
Depositor in the Mortgage Loans to the Trust.
Basic Documents: The Master Servicing Agreement, the Indenture, the
Administration Agreement and the other documents and certificates delivered in
connection therewith.
Benefit Plan: The meaning assigned to such term in Section 11.13.
Book-Entry Trust Certificate: A beneficial interest in the Trust
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.10.
Business Trust Statute: Chapter 38 of Title 12 of the Delaware Code,
12 Del. Code ss. 3801 et seq., as the same may be amended from time to time.
Certificate: Any of the Book-Entry Trust Certificates or Definitive
Trust Certificates.
"Certificate Distribution Account": The meaning assigned to such
term in Section 5.01.
Certificate of Trust: The Certificate of Trust in the form of
Exhibit B filed for the Trust pursuant to Section 3810(a) of the Business Trust
Statute.
Certificate Owner: With respect to a Book-Entry Trust Certificate, a
Person who is the beneficial owner of such Book-Entry Trust Certificate, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
Certificate Register and Certificate Registrar: The register
mentioned in and the registrar appointed pursuant to Section 3.04.
<PAGE> 6
Certificateholder or Holder: A Person in whose name a Trust
Certificate is registered.
Clearing Agency: An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
Clearing Agency Participant: A broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
Code: The Internal Revenue Code of 1986, as amended, and Treasury
Regulations promulgated thereunder.
Corporate Trust Office: With respect to the Owner Trustee, the
principal corporate trust office of the Owner Trustee located at
[____________________________], or at such other address as the Owner Trustee
may designate by notice to the Owners, the Depositor and the Company, or the
principal corporate trust office of any successor Owner Trustee at the address
designated by such successor Owner Trustee by notice to the Owners, the
Depositor and the Company.
Definitive Trust Certificates: The meaning set forth in Section
3.10.
Depositor: Morgan Stanley ABS Capital I Inc., Inc. in its capacity
as depositor hereunder.
Eligible Distribution Account: An account that is (i) maintained
with a depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies, (ii) one
or more accounts with a depository institution which accounts are fully insured
by either the Savings Association Insurance Fund or the Bank Insurance Fund of
the Federal Deposit Insurance Corporation established by such fund, (iii) a
segregated trust account maintained with the Owner Trustee or an affiliate of
the Owner Trustee in its fiduciary capacity or (iv) otherwise acceptable to each
Rating Agency as evidenced by a letter from each Rating Agency to the Owner
Trustee, without reduction or withdrawal of their then currently ratings of the
Certificates.
ERISA: The meaning assigned thereto in Section 11.13.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Expenses: The meaning assigned to such term in Section 8.02.
Indemnified Parties: The meaning assigned to such term in Section
8.02.
Indenture: The Indenture dated as of ________, 199_ between the
Trust and [_____________________________], as Indenture Trustee.
Initial Certificate Balance: $__________.
Master Servicing Agreement: The Master Servicing Agreement dated as
of ________1, 199_, among the Trust, as issuer and [_________________________],
as master servicer, as the same may be amended or supplemented from time to
time.
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<PAGE> 7
Mortgage Loans: A pool of [adjustable rate] home equity revolving
credit line loans made or to be made in the future under certain home equity
revolving credit line loan agreements.
Owner: Each Holder of a Trust Certificate.
Owner Trust Estate: All right, title and interest of the Trust in
and to the property and rights assigned to the Trust pursuant to the Assignment,
all funds on deposit from time to time in the Trust Accounts and the Certificate
Distribution Account and all other property of the Trust from time to time,
including any rights of the Owner Trustee and the Trust pursuant to the Master
Servicing Agreement and the Administration Agreement.
Owner Trustee: [____________________], a [_________] banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor Owner Trustee hereunder.
Paying Agent: Any paying agent or co-paying agent appointed pursuant
to Section 3.09 and shall initially be [_____________].
Rating Agency: Any nationally recognized statistical rating
organization asked to rate the Certificates.
Record Date: With respect to any Distribution Date, the close of
business on the day prior to such Distribution Date occurs or, if Definitive
Trust Certificates are issued pursuant to Section 3.13, the last day of the
month preceding such Distribution Date.
Secretary of State: The Secretary of State of the State of Delaware.
Treasury Regulations: Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: The trust established by this Agreement.
Trust Account: Any account set up by the Owner Trustee pursuant to
the provisions of Section 5.01.
Trust Certificate: A certificate evidencing the beneficial interest
of an Owner in the Trust, substantially in the form attached hereto as Exhibit
A.
Section 1.02. Other Definitional Provisions. (a) Capitalized terms
used and not otherwise defined herein have the meanings assigned to them in the
Master Servicing Agreement or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such
3
<PAGE> 8
certificate or other document, and accounting terms partly defined in this
Agreement or in any such certificate or other document to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles. To the extent that the definitions of accounting
terms in this Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Agreement or in any such
certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
ARTICLE II
ORGANIZATION
Section 2.01. Name. The Trust created hereby shall be known as
"[_____________] Home Equity Loan Trust 19 - ," in which name the Owner Trustee
may conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.02. Office. The office of the Trust shall be in care of
the Owner Trustee at the Corporate Trust Office or at such other address in
Delaware as the Owner Trustee may designate by written notice to the Owners, the
Depositor and the Company.
Section 2.03. Purposes and Powers. (a) The purpose of the Trust is
to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the Trust
Certificates pursuant to this Agreement and to sell the Notes and the
Trust Certificates;
(ii) with the proceeds of the sale of the Notes and the Trust
Certificates, to purchase the Mortgage Loans, and to pay the
organizational, start-up and transactional expenses of the Trust and to
pay the balance to the Depositor pursuant to the Master Servicing
Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Trust Estate pursuant to the Indenture and to hold, manage and distribute
to the Owners pursuant to the terms of the Master Servicing Agreement any
portion of the Trust Estate released from the Lien of, and remitted to the
Trust pursuant to, the Indenture;
4
<PAGE> 9
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation
of the Owner Trust Estate and the making of distributions to the Owners
and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
Section 2.04. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
Section 2.05. Initial Capital Contribution of Owner Trust Estate.
The Depositor hereby sells, assigns, transfers, conveys and sets over to the
Owner Trustee, as of the date hereof, the sum of $[_____________]. The Owner
Trustee hereby acknowledges receipt in trust from the Depositor, as of the date
hereof, of the foregoing contribution, which shall constitute the initial Owner
Trust Estate and shall be deposited in the Certificate Distribution Account. The
Depositor shall pay organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.
Section 2.06. Declaration of Trust. The Owner Trustee hereby
declares that it will hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the Owners, subject
to the obligations of the Trust under the Basic Documents. It is the intention
of the parties hereto that the Trust constitute a business trust under the
Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, solely for income and franchise tax purposes, the Trust shall be treated
as a partnership, with the assets of the partnership being the Mortgage Loans
and other assets held by the Trust, the partners of the partnership being the
Certificateholders, and the Notes being debt of the partnership. The parties
agree that, unless otherwise required by appropriate tax authorities, the Trust
will file or cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a partnership
for such tax purposes. Effective as of the date hereof, the Owner Trustee shall
have all rights, powers and duties set forth herein and in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.07. Liability of the Owners. (a) The Depositor shall be
liable directly to and will indemnify any injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Owner Trust Estate) to the extent that the Depositor
would be liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Depositor were a general partner;
provided, however, that the Depositor shall not be liable for any losses
incurred by a Certificateholder in the capacity of an investor in the Trust
Certificates, or a Noteholder in the capacity of an investor in the Notes. In
addition, any third party creditors of the Trust (other than in connection with
the obligations described
5
<PAGE> 10
in the preceding sentence for which the Depositor shall not be liable) shall be
deemed third party beneficiaries of this paragraph and paragraph (c) below. The
obligations of the Depositor under this paragraph shall be evidenced by the
Trust Certificates described in Section 3.10, which for purposes of the Business
Trust Statute shall be deemed to be a separate class of Trust Certificates from
all other Trust Certificates issued by the Trust; provided that the rights and
obligations evidenced by all Trust Certificates, regardless of class shall,
except as provided in this Section , be identical.
(b) No Owner, other than to the extent set forth in paragraph (a),
shall have any personal liability for any liability or obligation of the Trust.
Section 2.08. Title to Trust Property. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
Section 2.09. Situs of Trust. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of ________. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware or ________, and
payments will be made by the Trust only from Delaware or ________. The only
office of the Trust will be at the Corporate Trust Office in Delaware.
Section 2.10. Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Owner Trustee that:
(a) The Depositor is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware, with
power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently
conducted.
(b) The Depositor is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications.
(c) The Depositor has the power and authority to execute and deliver
this Agreement and to carry out its terms; the Depositor has full power
and authority to sell and assign the property to be sold and assigned to
and deposited with the Trust and the Depositor has duly authorized such
sale and assignment and deposit to the Trust by all necessary corporate
action; and the execution, delivery and performance of this Agreement have
been duly authorized by the Depositor by all necessary corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the certificate
of incorporation or bylaws of the Depositor, or any indenture, agreement
or other instrument to which the Depositor is a party or by which it is
bound; nor
6
<PAGE> 11
result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate any
law or, to the best of the Depositor's knowledge, any order, rule or
regulation applicable to the Depositor of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its properties.
(e) To the Depositor's best knowledge, there are no proceedings or
investigations pending or threatened before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties: (A) asserting the
invalidity of this Agreement, (B) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Depositor of its obligations under, or the validity or
enforceability of, this Agreement.
(f) The representations and warranties of the Depositor in Sections
[___________] of the [________________________] are true and correct.
Section 2.11. Federal Income Tax Allocations. Net income of the
Trust for any month as determined for federal income tax purposes (and each item
of income, gain, loss and deduction entering into the computation thereof) shall
be allocated:
(a) among the Certificate Owners as of the first Record Date
following the end of such month, in proportion to their ownership of principal
amount of Trust Certificates on such date, net income in an amount up to the sum
of (i) the Certificateholders' Monthly Interest Distributable Amount for such
month, (ii) interest on the excess, if any, of the Certificateholders' Interest
Distributable Amount for the preceding Distribution Date over the amount in
respect of interest that is actually deposited in the Certificate Distribution
Account on such preceding Distribution Date, to the extent permitted by law, at
the Pass-Through Rate from such preceding Distribution Date through the current
Distribution Date, (iii) the portion of the market discount on the Mortgage
Loans accrued during such month that is allocable to the excess, if any, of the
initial aggregate principal amount of the Trust Certificates over their initial
aggregate issue price, (iv) any amount expected to be distributed to the
Certificateholders pursuant to the Master Servicing Agreement (to the extent not
previously allocated pursuant to this clause), (v) any Certificateholders'
Prepayment Premium distributable to the Certificateholders with respect to such
month and (vi) any other amounts of income payable to the Certificateholders for
such month; such sum to be reduced by any amortization by the Trust of premium
on Mortgage Loans that corresponds to any excess of the issue price of
Certificates over their principal amount; and
(b) to the Depositor, to the extent of any remaining net income. If
the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in the preceding
sentence. Net losses of the Trust, if any, for any month as determined for
federal income tax purposes (and each item of income, gain, loss and deduction
entering into the computation thereof) shall be allocated to the Depositor to
the extent the Depositor is reasonably expected to bear the economic burden of
such net losses, and any remaining net losses shall be allocated among the
Certificate Owners as of the first Record Date following the end of such month
in proportion to their ownership of principal amount of Trust Certificates on
such Record Date. The Depositor is authorized to modify the allocations in this
paragraph if necessary or appropriate, in its
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<PAGE> 12
sole discretion, for the allocations to fairly reflect the economic income, gain
or loss to the Depositor or to the Certificate Owners, or as otherwise required
by the Code.
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.01. Initial Ownership. Upon the formation of the Trust by
the contribution by the Depositor pursuant to Section 2.05 and until the
issuance of the Trust Certificates, the Depositor shall be the sole beneficiary
of the Trust.
Section 3.02. The Trust Certificates. The Trust Certificates shall
be issued in minimum denominations of $[_______] and in integral multiples of
$1,000 in excess thereof; provided, however, that the Trust Certificates issued
to the Depositor pursuant to Section 3.10 may be issued in such denomination as
required to include any residual amount. The Trust Certificates shall be
executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee. Trust Certificates bearing the manual
or facsimile signatures of individuals who were, at the time when such
signatures shall have been affixed, authorized to sign on behalf of the Trust,
shall be validly issued and entitled to the benefit of this Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Trust Certificates
or did not hold such offices at the date of authentication and delivery of such
Trust Certificates.
A transferee of a Trust Certificate shall become a Certificateholder
and shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Trust
Certificate duly registered in such transferee's name pursuant to Section 3.04.
Section 3.03. Authentication of Trust Certificates. Concurrently
with the initial sale of the Mortgage Loans to the Trust pursuant to the Master
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in an
aggregate principal amount equal to the Initial Certificate Balance to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president, any vice president, secretary or any assistant treasurer, without
further corporate action by the Depositor, in authorized denominations. No Trust
Certificate shall entitle its Holder to any benefit under this Agreement or be
valid for any purpose unless there shall appear on such Trust Certificate a
certificate of authentication substantially in the form set forth in Exhibit A,
executed by the Owner Trustee or [____________], as the Owner Trustee's
authenticating agent, by manual signature; such authentication shall constitute
conclusive evidence that such Trust Certificate shall have been duly
authenticated and delivered hereunder. All Trust Certificates shall be dated the
date of their authentication.
Section 3.04. Registration of Transfer and Exchange of Trust
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.08, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. [___________]
shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate
at the office or agency maintained pursuant to Section 3.08, the Owner Trustee
shall execute, authenticate and deliver
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(or shall cause [_______________] as its authenticating agent to authenticate
and deliver), in the name of the designated transferee or transferees, one or
more new Trust Certificates in authorized denominations of a like aggregate
amount dated the date of authentication by the Owner Trustee or any
authenticating agent. At the option of a Holder, Trust Certificates may be
exchanged for other Trust Certificates of authorized denominations of a like
aggregate amount upon surrender of the Trust Certificates to be exchanged at the
office or agency maintained pursuant to Section 3.08.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Trust Certificate surrendered for registration of transfer or exchange
shall be cancelled and subsequently disposed of by the Owner Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make, and the Certificate Registrar shall not register
transfers or exchanges of, Trust Certificates for a period of 15 days preceding
the due date for any payment with respect to the Trust Certificates.
Section 3.05. Mutilated, Destroyed, Lost or Stolen Trust
Certificates. If (a) any mutilated Trust Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss or theft of any Trust Certificate and
(b) there shall be delivered to the Certificate Registrar and the Owner Trustee
such security or indemnity as may be required by them to save each of them
harmless, then in the absence of notice that such Trust Certificate has been
acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust
shall execute and the Owner Trustee or [_______________], as the Owner Trustee's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Certificate, a new Trust
Certificate of like tenor and denomination. In connection with the issuance of
any new Trust Certificate under this Section , the Owner Trustee or the
Certificate Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Certificate issued pursuant to this Section shall constitute
conclusive evidence of ownership in the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Trust Certificate shall be found at any
time.
Section 3.06. Persons Deemed Owners. Prior to due presentation of a
Trust Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar or any Paying Agent may treat the Person in whose name any
Trust Certificate is registered in the Certificate Register as the owner of such
Trust Certificate for the purpose of receiving distributions pursuant to Section
5.02 and for all other purposes whatsoever, and none of the Owner Trustee, the
Certificate Registrar or any Paying Agent shall be bound by any notice to the
contrary.
Section 3.07. Access to List of Certificateholders' Names and
Addresses. The Owner Trustee shall furnish or cause to be furnished to the
Master Servicer and the Depositor, within 15 days after receipt by the Owner
Trustee of a written request therefor from the Master Servicer or the Depositor,
a list, in such form as the Master Servicer or the Depositor may reasonably
require, of
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the names and addresses of the Certificateholders as of the most recent Record
Date. If three or more Certificateholders or one or more Holders of Trust
Certificates evidencing not less than 25% of the Certificate Balance apply in
writing to the Owner Trustee, and such application states that the applicants
desire to communicate with other Certificateholders with respect to their rights
under this Agreement or under the Trust Certificates and such application is
accompanied by a copy of the communication that such applicants propose to
transmit, then the Owner Trustee shall, within five Business Days after the
receipt of such application, afford such applicants access during normal
business hours to the current list of Certificateholders. Each Holder, by
receiving and holding a Trust Certificate, shall be deemed to have agreed not to
hold any of the Depositor, the Depositor, the Certificate Registrar or the Owner
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
Section 3.08. Maintenance of Office or Agency. The Owner Trustee
shall maintain in the Borough of Manhattan, The City of New York, an office or
offices or agency or agencies where Trust Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Trust Certificates and the Basic Documents
may be served. The Owner Trustee initially designates
[_______________________________] as its office for such purposes. The Owner
Trustee shall give prompt written notice to the Certificateholders of any change
in the location of the Certificate Register or any such office or agency.
Section 3.09. Appointment of Paying Agent. The Paying Agent shall
make distributions to Certificateholders from the Certificate Distribution
Account pursuant to Section 5.02 and shall report the amounts of such
distributions to the Owner Trustee. Any Paying Agent shall have the revocable
power to withdraw funds from the Certificate Distribution Account for the
purpose of making the distributions referred to above. The Owner Trustee may
revoke such power and remove the Paying Agent if the Owner Trustee determines in
its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect. The Paying Agent
initially shall be [___________], and any co-paying agent chosen by
[___________] and acceptable to the Owner Trustee. [____________] shall be
permitted to resign as Paying Agent upon 30 days' written notice to the Owner
Trustee. In the event that [___________] shall no longer be the Paying Agent,
the Owner Trustee shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company). The Owner Trustee shall cause such successor Paying
Agent or any additional Paying Agent appointed by the Owner Trustee to execute
and deliver to the Owner Trustee an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Owner Trustee that, as
Paying Agent, such successor Paying Agent or additional Paying Agent will hold
all sums, if any, held by it for payment to the Certificateholders in trust for
the benefit of the Certificateholders entitled thereto until such sums shall be
paid to such Certificateholders. The Paying Agent shall return all unclaimed
funds to the Owner Trustee and upon removal of a Paying Agent such Paying Agent
shall also return all funds in its possession to the Owner Trustee. The
provisions of Sections 7.01, 7.03, 7.04 and 8.01 shall apply to the Owner
Trustee also in its role as Paying Agent, for so long as the Owner Trustee shall
act as Paying Agent and, to the extent applicable, to any other paying agent
appointed hereunder. Any reference in this Agreement to the Paying Agent shall
include any co-paying agent unless the context requires otherwise.
Section 3.10. Ownership by Depositor of Trust Certificates. The
Depositor shall on the Closing Date purchase Trust Certificates representing at
least __% of the Initial Certificate Balance and shall thereafter retain
beneficial and record ownership of Trust Certificates representing at least __%
of the Certificate Balance. Any attempted transfer of any Trust Certificate that
would reduce such interest of the Depositor below __% of the Certificate Balance
shall be void. The Owner
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Trustee shall cause any Trust Certificate issued to the Depositor to contain a
legend stating "THIS CERTIFICATE IS NON TRANSFERABLE".]
Section 3.11. Book-Entry Trust Certificates. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book-Entry Trust Certificates, to
be delivered to The Depository Trust Depositor, the initial Clearing Agency, by,
or on behalf of, the Trust; provided, however, that one Definitive Trust
Certificate may be issued to the Depositor pursuant to Section 3.11. Such Trust
Certificate or Trust Certificates shall initially be registered on the
Certificate Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Certificate Owner will receive a definitive Trust
Certificate representing such Certificate Owner's interest in such Trust
Certificate, except as provided in Section 3.13. Unless and until definitive,
fully registered Trust Certificates (the "Definitive Trust Certificates") have
been issued to Certificate Owners pursuant to Section 3.13:
(a) The provisions of this Section shall be in full force and
effect;
(b) The Certificate Registrar and the Owner Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this Agreement
(including the payment of principal of and interest on the Trust Certificates
and the giving of instructions or directions hereunder) as the sole Holder of
the Trust Certificates and shall have no obligation to the Certificate Owners;
(c) To the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section shall
control;
(d) The rights of Certificate Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to the Certificate Depository Agreement,
unless and until Definitive Trust Certificates are issued pursuant to Section
3.13, the initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit payments of principal of
and interest on the Trust Certificates to such Clearing Agency Participants; and
(e) Whenever this Agreement requires or permits actions to be taken
based upon instructions or directions of Holders of Trust Certificates
evidencing a specified percentage of the Certificate Balance, the Clearing
Agency shall be deemed to represent such percentage only to the extent that it
has received instructions to such effect from Certificate Owners and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in the Trust Certificates and has
delivered such instructions to the Owner Trustee.
Section 3.12. Notices to Clearing Agency. Whenever a notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Trust Certificates shall have been issued to Certificate
Owners pursuant to Section 3.13, the Owner Trustee shall give all such notices
and communications specified herein to be given to Certificateholders to the
Clearing Agency, and shall have no obligations to the Certificate Owners.
Section 3.13. Definitive Trust Certificates. If (i) the
Administrator advises the Owner Trustee in writing that the Clearing Agency is
no longer willing or able to properly discharge its responsibilities with
respect to the Trust Certificates and the Administrator is unable to locate a
qualified successor, (ii) the Administrator at its option advises the Owner
Trustee in writing that it elects to terminate the book-entry system through the
Clearing Agency or (iii) after the occurrence of
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an Event of Default or a Master Servicer Default, Certificate Owners
representing beneficial interests aggregating at least a majority of the
Certificate Balance advise the Clearing Agency in writing that the continuation
of a book-entry system through the Clearing Agency is no longer in the best
interest of the Certificate Owners, then the Clearing Agency shall notify all
Certificate Owners and the Owner Trustee of the occurrence of any such event and
of the availability of the Definitive Trust Certificates to Certificate Owners
requesting the same. Upon surrender to the Owner Trustee of the typewritten
Trust Certificate or Trust Certificates representing the Book-Entry Trust
Certificates by the Clearing Agency, accompanied by registration instructions,
the Owner Trustee shall execute and authenticate the Definitive Trust
Certificates in accordance with the instructions of the Clearing Agency. Neither
the Certificate Registrar nor the Owner Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Trust Certificates, the Owner Trustee shall recognize the Holders of the
Definitive Trust Certificates as Certificateholders. The Definitive Trust
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Owner Trustee, as evidenced
by its execution thereof.
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.01. Prior Notice to Owners with Respect to Certain
Matters. With respect to the following matters, the Owner Trustee shall not take
action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Owners shall not have notified the Owner Trustee in writing prior
to the 30th day after such notice is given that such Owners have withheld
consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of the Mortgage
Loans) and the compromise of any action, claim or lawsuit brought by or against
the Trust (except with respect to the aforementioned claims or lawsuits for
collection of the Mortgage Loans;
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under the
Business Trust Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Owners;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Owners; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a
successor Certificate Registrar, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its
obligations under the Indenture or this Agreement, as applicable.
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Section 4.02. Action by Owners with Respect to Certain Matters. The
Owner Trustee shall not have the power, except upon the direction of the Owners,
to (a) remove the Administrator under the Administration Agreement pursuant to
Section [ ] thereof, (b) appoint a successor Administrator pursuant to Section [
] of the Administration Agreement, (c) remove the Master Servicer under the
Master Servicing Agreement pursuant to Section [ ] thereof or (d) except as
expressly provided in the Basic Documents, sell the Mortgage Loans after the
termination of the Indenture. The Owner Trustee shall take the actions referred
to in the preceding sentence only upon written instructions signed by the
Owners.
Section 4.03. Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Owners and the delivery to the Owner Trustee by each such Owner of a certificate
certifying that such Owner reasonably believes that the Trust is insolvent.
Section 4.04. Restrictions on Owners' Power. The Owners shall not
direct the Owner Trustee to take or to refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust or the Owner
Trustee under this Agreement or any of the Basic Documents or would be contrary
to Section 2.03, nor shall the Owner Trustee be obligated to follow any such
direction, if given.
Section 4.05. Majority Control. Except as expressly provided herein,
any action that may be taken by the Owners under this Agreement may be taken by
the Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance. Except as expressly provided herein, any written notice of
the Owners delivered pursuant to this Agreement shall be effective if signed by
Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance at the time of the delivery of such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.01. Establishment of Trust Account. The Owner Trustee, for
the benefit of the Certificateholders, shall establish and maintain in the name
of the Trust an Eligible Deposit Account (the "Certificate Distribution
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders.
The Owner Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Certificate Distribution Account and
in all proceeds thereof. Except as otherwise expressly provided herein, the
Certificate Distribution Account shall be under the sole dominion and control of
the Owner Trustee for the benefit of the Certificateholders. If, at any time,
the Certificate Distribution Account ceases to be an Eligible Deposit Account,
the Owner Trustee (or the Depositor on behalf of the Owner Trustee, if the
Certificate Distribution Account is not then held by the Owner Trustee or an
affiliate thereof) shall within 10 Business Days (or such longer period, not to
exceed 30 calendar days, as to which each Rating Agency may consent) establish a
new Certificate Distribution Account as an Eligible Deposit Account and shall
transfer any cash and/or any investments to such new Certificate Distribution
Account.
Section 5.02. Application of Trust Funds. (a) On each Distribution
Date, the Owner Trustee will distribute to Certificateholders, on a pro rata
basis, amounts deposited in the Certificate Distribution Account.
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(b) On each Distribution Date, the Owner Trustee shall send to each
Certificateholder the statement or statements provided to the Owner Trustee by
the Master Servicer pursuant to Section [____] of the Master Servicing Agreement
with respect to such Distribution Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to an Owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section . The Owner
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to an Owner
shall be treated as cash distributed to such Owner at the time it is withheld by
the Trust and remitted to the appropriate taxing authority. If there is a
possibility that withholding tax is payable with respect to a distribution (such
as a distribution to a non-U.S. Owner), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this paragraph (c).
Section 5.03. Method of Payment. Subject to Section 9.01(c),
distributions required to be made to Certificateholders on any Distribution Date
shall be made to each Certificateholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Distribution Date
and such Holder's Trust Certificates in the aggregate evidence a denomination of
not less than $[____________], or, if not, by check mailed to such
Certificateholder at the address of such holder appearing in the Certificate
Register.
Section 5.04. No Segregation of Moneys; No Interest. Subject to
Sections 5.01 and 5.02, moneys received by the Owner Trustee hereunder need not
be segregated in any manner except to the extent required by law or the Master
Servicing Agreement and may be deposited under such general conditions as may be
prescribed by law, and the Owner Trustee shall not be liable for any interest
thereon.
Section 5.05. Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others. The Owner Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis and the
accrual method of accounting, (b) deliver to each Owner, as may be required by
the Code and applicable Treasury Regulations, such information as may be
required (including Schedule K-1) to enable each Owner to prepare its federal
and state income tax returns, (c) file such tax returns relating to the Trust
(including a partnership information return, IRS Form 1065) and make such
elections as from time to time may be required or appropriate under any
applicable state or federal statute or any rule or regulation thereunder so as
to maintain the Trust's characterization as a partnership for federal income tax
purposes, (d) cause such tax returns to be signed in the manner required by law
and (e) collect or cause to be collected any withholding tax as described in and
in accordance with Section 5.02(c) with respect to income or distributions to
Owners. The Owner Trustee shall elect under Section 1278 of the Code to include
in income currently any market discount that accrues with respect to the
Mortgage Loans. The Owner Trustee shall not make the election provided under
Section 754 of the Code.
Section 5.06. Signature on Returns; Tax Matters Partner. (a) The
Owner Trustee shall sign on behalf of the Trust the tax returns of the Trust,
unless applicable law requires an Owner to sign such documents, in which case
such documents shall be signed by the Depositor.
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(b) The Depositor shall be designated the "tax matters partner" of
the Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury
Regulations.
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.01. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument, in each case, in such form as the
Depositor shall approve, as evidenced conclusively by the Owner Trustee's
execution thereof. In addition to the foregoing, the Owner Trustee is
authorized, but shall not be obligated, to take all actions required of the
Trust pursuant to the Basic Documents. The Owner Trustee is further authorized
from time to time to take such action as the Administrator recommends with
respect to the Basic Documents.
Section 6.02. General Duties. It shall be the duty of the Owner
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents to which the
Trust is a party and to administer the Trust in the interest of the Owners,
subject to the Basic Documents and in accordance with the provisions of this
Agreement. Notwithstanding the foregoing, the Owner Trustee shall be deemed to
have discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Administrator has agreed in the Administration
Agreement to perform any act or to discharge any duty of the Owner Trustee
hereunder or under any Basic Document, and the Owner Trustee shall not be held
liable for the default or failure of the Administrator to carry out its
obligations under the Administration Agreement.
Section 6.03. Action upon Instruction. (a) Subject to Article IV and
in accordance with the terms of the Basic Documents, the Owners may by written
instruction direct the Owner Trustee in the management of the Trust. Such
direction may be exercised at any time by written instruction of the Owners
pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Owners requesting instruction as to the course of action to be adopted, and to
the extent the Owner Trustee acts in good faith in accordance with any written
instruction of the Owners received, the Owner Trustee shall not be liable on
account of such action to any Person. If the Owner Trustee shall not have
received appropriate instruction within 10 days of such notice (or within such
shorter period of time as reasonably may be specified in such notice or may be
necessary under the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the Owners, and
shall have no liability to any Person for such action or inaction.
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(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Owners
requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable on account of such action or
inaction to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period of time
as reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
Section 6.04. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.03; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 6.05. No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.03.
Section 6.06. Restrictions. The Owner Trustee shall not take any
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation for federal income tax
purposes. The Owners shall not direct the Owner Trustee to take action that
would violate the provisions of this Section .
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.01. Acceptance of Trusts and Duties. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon
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the terms of this Agreement. The Owner Trustee also agrees to disburse all
moneys actually received by it constituting part of the Owner Trust Estate upon
the terms of the Basic Documents and this Agreement. The Owner Trustee shall not
be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful [malfeasance, bad faith or gross]
negligence or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.03 expressly made by the Owner Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) The Owner Trustee shall not be liable for any error of judgment
made by a Trust Officer of the Owner Trustee;
(b) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or any Owner;
(c) No provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Basic Document if the Owner Trustee shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured or provided to it;
(d) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) The Owner Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution hereof by
the Depositor or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate, or for or in respect of the validity
or sufficiency of the Basic Documents, other than the certificate of
authentication on the Trust Certificates, and the Owner Trustee shall in no
event assume or incur any liability, duty, or obligation to any Noteholder or to
any Owner, other than as expressly provided for herein or expressly agreed to in
the Basic Documents;
(f) The Owner Trustee shall not be liable for the default or
misconduct of the Administrator, [the Seller or] Depositor, the Indenture
Trustee or the Master Servicer under any of the Basic Documents or otherwise and
the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Agreement or the Basic Documents that are
required to be performed by the Administrator under the Administration
Agreement, the Indenture Trustee under the Indenture or the Master Servicer [or
the Seller] or Depositor under the Master Servicing Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to institute, conduct
or defend any litigation under this Agreement or otherwise or in relation to
this Agreement or any Basic Document, at the request, order or direction of any
of the Owners, unless such Owners have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its [willful malfeasance, bad faith or gross
negligence] in the performance of any such act.
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Section 7.02. Furnishing of Documents. The Owner Trustee shall
furnish to the Owners promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
Section 7.03. Representations and Warranties. The Owner Trustee
hereby represents and warrants to the Depositor, for the benefit of the Owners,
that:
(a) It is a banking corporation duly organized and validly existing
in good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Agreement,
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will contravene any
federal or Delaware law, governmental rule or regulation governing the banking
or trust powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or bylaws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by which
any of its properties may be bound.
Section 7.04. Reliance; Advice of Counsel. (a) The Owner Trustee
shall incur no liability to anyone in acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, report, opinion, bond,
or other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled Persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Agreement or
any Basic Document.
Section 7.05. Not Acting in Individual Capacity. Except as provided
in this Article VII, in accepting the trusts hereby created
[_____________________] acts solely as Owner Trustee hereunder and not in its
individual capacity, and all Persons having any claim against the Owner
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Trustee by reason of the transactions contemplated by this Agreement or any
Basic Document shall look only to the Owner Trust Estate for payment or
satisfaction thereof.
Section 7.06. Owner Trustee Not Liable for Trust Certificates or
Mortgage Loans. The recitals contained herein and in the Certificates (other
than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Depositor, and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Trust Certificates (other than the signature and
countersignature of the Owner Trustee on the Trust Certificates) or the Notes,
or of any Mortgage Loan or related documents. The Owner Trustee shall at no time
have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Mortgage Loan, or for or with respect to the
sufficiency of the Owner Trust Estate or its ability to generate the payments to
be distributed to Certificateholders under this Agreement or the Noteholders
under the Indenture, including, without limitation: the existence, condition and
ownership of any property securing a Mortgage Loan; the existence and
enforceability of any insurance thereon; the validity of the assignment of any
Mortgage Loan to the Trust or of any intervening assignment; the performance or
enforcement of any Mortgage Loan; the compliance by the Depositor, or the Master
Servicer with any warranty or representation made under any Basic Document or in
any related document or the accuracy of any such warranty or representation, or
any action of the Administrator, the Indenture Trustee or the Master Servicer or
any subservicer taken in the name of the Owner Trustee.
Section 7.07. Owner Trustee May Own Trust Certificates and Notes.
The Owner Trustee in its individual or any other capacity may become the owner
or pledgee of Trust Certificates or Notes and may deal with the Depositor, the
Administrator, the Indenture Trustee and the Master Servicer in banking
transactions with the same rights as it would have if it were not Owner Trustee.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.01. Owner Trustee's Fees and Expenses. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Depositor and the
Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Depositor for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
Section 8.02. Indemnification. The Depositor shall be liable as
primary obligor for, and shall indemnify the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Depositor shall not be
liable for or required to indemnify an Indemnified Party from and against
Expenses arising or resulting from any of the matters described in the third
sentence of Section 7.01. The indemnities contained in this
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Section shall survive the resignation or termination of the Owner Trustee or the
termination of this Agreement. In any event of any claim, action or proceeding
for which indemnity will be sought pursuant to this Section, the Owner Trustee's
choice of legal counsel shall be subject to the approval of the Depositor, which
approval shall not be unreasonably withheld.
Section 8.03. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.01. Termination of Trust Agreement. (a) This Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the final distribution by the Owner Trustee of all moneys
or other property or proceeds of the Owner Trust Estate in accordance with the
terms of the Indenture, the Master Servicing Agreement and Article V. The
bankruptcy, liquidation, dissolution, death or incapacity of any Owner shall not
(x) operate to terminate this Agreement or the Trust or (y) entitle such Owner's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Owner Trust Estate or (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in Section 9.01(a), neither the Depositor nor
any Owner shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which Certificateholders shall surrender their Trust
Certificates to the Paying Agent for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
termination from the Master Servicer stating (i) the Distribution Date upon or
with respect to which final payment of the Trust Certificates shall be made upon
presentation and surrender of the Trust Certificates at the office of the Paying
Agent therein designated, (ii) the amount of any such final payment and (iii)
that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Trust Certificates at the office of the Paying Agent therein specified. The
Owner Trustee shall give such notice to the Certificate Registrar (if other than
the Owner Trustee) and the Paying Agent at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Trust Certificates,
the Paying Agent shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 5.02.
In the event that all of the Certificateholders shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Trust Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed by the Owner
Trustee to the Depositor.
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(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.01. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate trust
powers; having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities; and
having (or having a parent that has) a rating of at least [____] by
[__________]. If such corporation shall publish reports of condition at least
annually pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section , the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section , the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.02.
Section 10.02. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator. Upon receiving such
notice of resignation, the Administrator shall promptly appoint a successor
Owner Trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Owner Trustee and one copy to the successor
Owner Trustee. If no successor Owner Trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
Section 10.03. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.02 shall execute, acknowledge and deliver to
the Administrator and to its
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predecessor Owner Trustee an instrument accepting such appointment under this
Agreement, and thereupon the resignation or removal of the predecessor Owner
Trustee shall become effective, and such successor Owner Trustee, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor under this Agreement, with
like effect as if originally named as Owner Trustee. The predecessor Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee all documents and statements and monies held by it under this
Agreement; and the Administrator and the predecessor Owner Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor Owner
Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section , the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 10.04. Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, without the execution or filing of any instrument or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, that such corporation shall be eligible pursuant to
Section 10.01 and, provided, further, that the Owner Trustee shall mail notice
of such merger or consolidation to the Rating Agencies.
Section 10.05. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate may at the time be located, the Administrator and the
Owner Trustee acting jointly shall have the power and shall execute and deliver
all instruments to appoint one or more Persons approved by the Administrator and
Owner Trustee to act as co-trustee, jointly with the Owner Trustee, or as
separate trustee or separate trustees, of all or any part of the Owner Trust
Estate, and to vest in such Person, in such capacity, such title to the Trust or
any part thereof and, subject to the other provisions of this Section , such
powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor Owner Trustee pursuant
to Section 10.01 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
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(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement; and
(c) The Administrator and the Owner Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor co-trustee or separate trustee.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Supplements and Amendments. This Agreement may be
amended by the Depositor and the Owner Trustee, with prior written notice to the
Rating Agencies, without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions in this Agreement or
of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel satisfactory to the Owner Trustee, adversely affect in
any material respect the interests of any Noteholder or Certificateholder.
This Agreement may also be amended from time to time by the
Depositor and the Owner Trustee, with prior written notice to the Rating
Agencies, with the consent of the Holders (as defined in the Indenture) of Notes
evidencing not less than a majority of the Principal Balance of the
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Notes and the consent of the Holders of Certificates evidencing not less than a
majority of the Certificate Balance, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Mortgage Loans or distributions that shall be
required to be made for the benefit of the Noteholders or the Certificateholders
or (b) reduce the aforesaid percentage of the Principal Balance of the Notes and
the Certificate Balance required to consent to any such amendment, without the
consent of the holders of all the outstanding Notes and Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders,
Noteholders or the Indenture Trustee pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof. The manner of obtaining
such consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment that affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
Section 11.02. No Legal Title to Owner Trust Estate in Owners. The
Owners shall not have legal title to any part of the Owner Trust Estate. The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Articles V and IX.
No transfer, by operation of law or otherwise, of any right, title or interest
of the Owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
Section 11.03. Limitations on Rights of Others. Except for Section
2.07, the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Owners, the Administrator and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Agreement (other than Section 2.07), whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
Section 11.04. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that
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notice to the Owner Trustee shall be deemed given only upon actual receipt by
the Owner Trustee), if to the Owner Trustee, addressed to the Corporate Trust
Office; if to the Depositor, addressed to Morgan Stanley ABS Capital I Inc.,
1585 Broadway, New York, New York 10036, Attention: [_______________]; or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
Section 11.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 11.06. Separate Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 11.07. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of the
Depositor, the Owner Trustee and its successors and each Owner and its
successors and permitted assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by an Owner shall bind
the successors and assigns of such Owner.
Section 11.08. No Petition. The Owner Trustee, by entering into this
Agreement, each Certificateholder, by accepting a Trust Certificate, and the
Indenture Trustee and each Noteholder, by accepting the benefits of this
Agreement, hereby covenant and agree that they will not at any time institute
against the Trust, or join in any institution against the Trust of, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Trust
Certificates, the Notes, this Agreement or any of the Basic Documents.
Section 11.09. No Recourse. Each Certificateholder by accepting a
Trust Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Depositor, the Master Servicer, the Depositor, the
Administrator, the Owner Trustee, the Indenture Trustee or any Affiliate thereof
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated in this Agreement, the Trust Certificates
or the Basic Documents.
Section 11.10. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 11.11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE
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OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 11.12. Depositor Payment Obligation. The Depositor shall be
responsible for payment of the Administrator's fees under the Administration
Agreement and shall reimburse the Administrator for all expenses and liabilities
of the Administrator incurred thereunder.
Section 11.13. The Trust Certificates may not be acquired by (a) an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA, (b) a plan described in Section 4975(e)(1)
of the Code or (c) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a 'Benefit Plan'). By
accepting and holding this Trust Certificate, the Holder hereof shall be deemed
to have represented and warranted that it is not a Benefit Plan.
* * * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
Morgan Stanley ABS Capital I Inc.,
as Depositor,
by: ________________________________________
Name:
Title:
[_______________________________________],
not in its individual capacity but solely as
Owner Trustee,
by: ________________________________________
Name:
Title:
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<PAGE> 32
EXHIBIT A
FORM OF TRUST CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NUMBER $_________
R-__________ CUSIP NO. _________
[_____________ ] HOME EQUITY LOAN TRUST 199__-__
[_____]% HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES
199__-__
evidencing a fractional undivided beneficial ownership interest in the Trust, as
defined below, the property of which includes a pool of [adjustable rate] home
equity revolving credit line loans caused to be sold to the Trust by
[_______________].
(This Trust Certificate does not represent an interest in or obligation of
Morgan Stanley ABS Capital I Inc., or any of its respective affiliates, except
to the extent described below.)
THIS CERTIFIES THAT [________________________] is the registered owner of
[____________________] DOLLARS nonassessable, fully paid, fractional undivided
interest in [___________] HOME EQUITY LOAN TRUST 199__-__ (the "Trust") formed
by Morgan Stanley ABS Capital I Inc., a Delaware corporation (the "Depositor"),
and [_______________], a [__________] (the "Owner Trustee").
A-1
<PAGE> 33
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
[_______________________], [___________________________],
as Owner Trustee or as Owner Trustee
by: ______________________ by: [_____________________],
Authorized Signatory as Authenticating Agent
by: [___________________],
Authorized Signatory
A-2
<PAGE> 34
The Trust was created pursuant to a Trust Agreement, dated as of
_____, 199__ (the "Trust Agreement"), between the Depositor and [____________],
as owner trustee (the "Owner Trustee"), a summary of certain of the pertinent
provisions of which is set forth below. To the extent not otherwise defined
herein, the capitalized terms used herein have the meanings assigned to them in
the Trust Agreement or the Master Servicing Agreement dated as of ___________,
199__ (as amended and supplemented from time to time, the "Master Servicing
Agreement"), among the Trust, the Depositor and [_______________], as servicer
(the "Master Servicer"), as applicable.
This Certificate is one of a duly authorized issue of Home Equity
Loan Asset-Backed Certificates, Series 199__-__ (herein called the "Trust
Certificates"). Also issued under the Indenture dated as of ___________, 199__
between the Trust and [________________], as indenture trustee, are the
[_______] classes of Notes designated as [_________________________
________________________________________________________________________________
______________________________________________] (collectively, the "Notes").
This Trust Certificate is issued under and is subject to the terms, provisions
and conditions of the Trust Agreement, to which Trust Agreement the Holder of
this Trust Certificate by virtue of its acceptance hereof assents and by which
such Holder is bound. The property of the Trust consists of a pool of
[adjustable rate] home equity loan revolving credit line loans made or to be
made in the future (the "Mortgage Loans"), under certain home equity revolving
credit line loan agreements and secured first, second and third or deeds of
trust or mortgages on residential properties that are primarily one- to
four-family properties (the "Mortgaged Properties"); the collections in respect
of the Mortgage Loans received after the Cut-off Date; property that secured a
Mortgage Loan which has been acquired by foreclosure or deed in lieu of
foreclosure; [a surety bond] [a letter of credit]; an assignment of the
Depositor's rights under the [________________]; rights under certain hazard
insurance policies covering the Mortgaged Properties; and certain other
property. [The rights of the Holders of the Trust Certificates are subordinated
to the rights of the Holders of the Notes, as set forth in the Master Servicing
Agreement.]
Under the Trust Agreement, there will be distributed on the
[_______] day of each month or, if such [_______] day is not a Business Day, the
next Business Day (each, a "Distribution Date"), commencing on ___________,
199__, to the Person in whose name this Trust Certificates is registered at the
close of business on the first day of the month or, if Definitive Certificates
are issued, the [_______] day of the prior month (the "Record Date"), such
Certificateholder's fractional undivided interest in the amount to be
distributed to Certificateholders on such Distribution Date. No distributions of
principal will be made on any Certificate until all of the Notes have been paid
in full.
[The Holder of this Trust Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Trust Certificate are
subordinated to the rights of the Noteholders as described in the Master
Servicing Agreement and the Indenture.]
It is the intent of the Depositor, the Master Servicer and the
Certificateholders that, for purposes of federal income, state and local income
and single business tax and any other income taxes, the Trust will be treated as
a partnership and the Certificateholders (including the Depositor) will be
treated as partners in that partnership. The Depositor and the other
Certificateholders, by acceptance of a Trust Certificate, agree to treat, and to
take no action inconsistent with the treatment of, the Trust Certificates for
such tax purposes as partnership interests in the Trust.
Each Certificateholder or Certificate Owner, by its acceptance of a Trust
Certificate or, in the case of a Certificate Owner, a beneficial interest in a
Trust Certificate, covenants and agrees that such Certificateholder or
Certificate Owner, as the case may be, will not at any time institute against
the Depositor, or join in any institution against the Depositor of, any
bankruptcy, reorganization,
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<PAGE> 35
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States federal or state bankruptcy or similar law in connection with
any obligations relating to the Trust Certificates, the Notes, the Trust
Agreement or any of the Basic Documents.
Distributions on this Trust Certificate will be made as provided in
the Trust Agreement by the Owner Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Trust Certificate or the making of any notation hereon,
except that with respect to Trust Certificates registered on the Record Date in
the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Trust Agreement and notwithstanding the above, the final distribution on
this Trust Certificate will be made after due notice by the Owner Trustee of the
pendency of such distribution and only upon presentation and surrender of this
Trust Certificate at the office or agency maintained for that purpose by the
Owner Trustee in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, by manual signature,
this Trust Certificate shall not entitle the Holder hereof to any benefit under
the Trust Agreement or the Master Servicing Agreement or be valid for any
purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and
not in its individual capacity, has caused this Trust Certificate to be duly
executed.
[Owner Trustee]
by: [__________________], not in its individual
capacity but solely as Owner Trustee
Dated: by:_________________________________________
Authorized Signatory
A-4
<PAGE> 36
[REVERSE OF TRUST CERTIFICATE]
The Trust Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Owner Trustee or any
affiliates of any of them and no recourse may be had against such parties or
their assets, except as expressly set forth or contemplated herein or in the
Trust Agreement or the Basic Documents. In addition, this Trust Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Loans (and certain other amounts), all as more specifically set forth
herein and in the Master Servicing Agreement. A copy of each of the Master
Servicing Agreement and the Trust Agreement may be examined by any
Certificateholder upon written request during normal business hours at the
principal office of the Depositor and at such other places, if any, designated
by the Depositor.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Depositor and the rights of the Certificateholders under the
Trust Agreement at any time by the Depositor, and the Owner Trustee with the
consent of the Holders of the Trust Certificates and the Notes, each voting as a
class, evidencing not less than a majority of the Certificate Balance and the
outstanding principal balance of the Notes of each such class. Any such consent
by the Holder of this Trust Certificate shall be conclusive and binding on such
Holder and on all future Holders of this Trust Certificate and of any Trust
Certificate issued upon the transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent is made upon this Trust
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the Trust
Certificates.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Trust Certificate is
registerable in the Certificate Register upon surrender of this Trust
Certificate for registration of transfer at the offices or agencies of the
Certificate Registrar maintained by the Owner Trustee in the Borough of
Manhattan, The City of New York, accompanied by a written instrument of transfer
in form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Trust Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee. The initial Certificate Registrar appointed under
the Trust Agreement is [_________________], New York, New York.
Except as provided in the Trust Agreement, the Trust Certificates
are issuable only as registered Trust Certificates without coupons in
denominations of $[__________] and in integral multiples of $[_______] in excess
thereof. As provided in the Trust Agreement and subject to certain limitations
therein set forth, Trust Certificates are exchangeable for new Trust
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Registrar and any agent of the
Owner Trustee or the Certificate Registrar may treat the Person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Owner Trustee, the Certificate Registrar or any such agent shall be affected
by any notice to the contrary.
A-5
<PAGE> 37
The obligations and responsibilities created by the Trust Agreement
and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Master Servicing Agreement and the disposition of all
property held as part of the Owner Trust Estate. The Master Servicer of the
Mortgage Loans may at its option purchase the Owner Trust Estate at a price
specified in the Master Servicing Agreement, and such purchase of the Mortgage
Loans and other property of the Trust will effect early retirement of the Trust
Certificates; however, such right of purchase is exercisable only as of the last
day of any Collection Period as of which the Pool Balance is less than or equal
to [____]% of the Original Pool Balance.
The Trust Certificates may not be acquired by (a) an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA, (b) a plan described in Section 4975(e)(1) of
the Code or (c) any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a 'Benefit Plan'). By accepting and
holding this Trust Certificate, the Holder hereof shall be deemed to have
represented and warranted that it is not a Benefit Plan.
A-6
<PAGE> 38
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
to transfer said Trust Certificate on the books of the Certificate Registrar,
with full power of substitution in the premises.
Dated:
___________________________*
Signature Guaranteed:
________________*/
- --------
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-7
<PAGE> 39
EXHIBIT B
CERTIFICATE OF TRUST OF
[___________] HOME EQUITY LOAN TRUST 199___
THIS Certificate of Trust of [___________] HOME EQUITY LOAN TRUST
199__-__ (the "Trust"), dated , 199__, is being duly executed and filed by
[_____________________], a [___________________________], as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 et
seq.).
1. Name. The name of the business trust formed hereby is
[COUNTRYWIDE] HOME EQUITY LOAN TRUST 199__-__.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is [______________], Delaware [____],
Attention: [_______________________________].
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
[_______________________],
not in its individual capacity but solely as owner
trustee under a Trust Agreement dated
__________________, 199__
By:_______________________________________
Name:
Title:
<PAGE> 40
EXHIBIT C
[Form of Certificate Depository Agreement]
<PAGE> 1
Exhibit 4.5
Subject to Completion
[_________________] HOME EQUITY LOAN TRUST 1996-__,
Issuer
AND
[_________________]
INDENTURE TRUSTEE
-----------------------------------------
INDENTURE
Dated as of _________, 199_
------------------------------------------
HOME EQUITY LOAN ASSET BACKED NOTES
SERIES 199__-__
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITION
Section 1.01. Definitions............................................ 1
Section 1.02. Incorporation by Reference of Trust Indenture Act...... 2
Section 1.03. Rules of Construction.................................. 2
ARTICLE II
ORIGINAL ISSUANCE OF NOTES
Section 2.01. Form................................................... 2
Section 2.02. Execution, Authentication and Delivery................. 3
Section 2.03. Opinions of Counsel.................................... 3
ARTICLE III
COVENANTS
Section 3.01. Collection of Payments on Mortgage Loan Accounts....... 4
Section 3.02. Maintenance of Office or Agency........................ 4
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent;
Certificate Paying Agent............................... 4
Section 3.04. Existence.............................................. 6
Section 3.05. Payment of Principal and Interest; Defaulted Interest.. 6
Section 3.06. Protection of Trust Estate............................. 8
Section 3.07. Opinions as to Trust Estate..............................9
Section 3.08. [Reserved]............................................. 9
Section 3.09. Performance of Obligations; Master Servicing Agreement. 9
Section 3.10. Negative Covenants..................................... 11
Section 3.11. Annual Statement as to Compliance...................... 11
Section 3.12. Recording of Assignments............................... 11
Section 3.13. Representations and Warranties Concerning the Mortgage
Loans ................................................. 12
Section 3.14. Indenture Trustee's Review of Related Documents........ 12
Section 3.15. Trust Estate; Related Documents........................ 12
Section 3.16. Amendments to Master Servicing Agreement............... 13
Section 3.17. Master Servicer as Agent and Bailee of Indenture
Trustee ............................................... 14
Section 3.18. Investment Company Act................................. 14
Section 3.19. Issuer May Consolidate, etc............................ 14
Section 3.20. Successor or Transferee................................ 16
Section 3.21. No Other Business...................................... 16
i
<PAGE> 3
Section 3.22. No Borrowing........................................... 16
Section 3.23. Guarantees, Loans, Advances and Other Liabilities...... 16
Section 3.24. Capital Expenditures................................... 16
Section 3.25. [Reserved]............................................. 16
Section 3.26. Restricted Payments.................................... 16
Section 3.27. Notice of Events of Default............................ 17
Section 3.28. Further Instruments and Acts........................... 17
Section 3.29. Statements to Noteholders.............................. 17
Section 3.30. [Reserved] [Grant of the Additional Loans.............. 17
[Section 3.31. Determination of Note Rate and Certificate Rate....... 18
[Section 3.32. Payments under the Credit Enhancement Instrument...... 18
[Section 3.33. Replacement Credit Enhancement Instrument............. 18
ARTICLE IV
THE NOTES; SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.01. The Notes.............................................. 19
Section 4.02. Registration of and Limitations on Transfer and
Exchange of Notes; Appointment of Certificate Registrar 20
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes............. 20
Section 4.04. Persons Deemed Owners.................................. 21
Section 4.05. Cancellation........................................... 21
Section 4.06. Book-Entry Notes....................................... 22
Section 4.07. Notices to Depository.................................. 22
Section 4.08. Definitive Notes....................................... 22
Section 4.09. Tax Treatment.......................................... 23
Section 4.10. Satisfaction and Discharge of Indenture................ 23
Section 4.11. Application of Trust Money............................. 24
[Section 4.12. Subrogation and Cooperation........................... 24
Section 4.13. Repayment of Moneys Held by Paying Agent............... 25
ARTICLE V
REMEDIES
Section 5.01. Events of Default...................................... 25
Section 5.02. Acceleration of Maturity; Rescission and Annulment..... 25
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee...................................... 26
Section 5.04. Remedies; Priorities................................... 28
Section 5.05. Optional Preservation of the Trust Estate.............. 29
Section 5.06. Limitation of Suits.................................... 30
Section 5.07. Unconditional Rights of Noteholders To Receive
Principal and Interest ................................ 30
Section 5.08. Restoration of Rights and Remedies..................... 30
Section 5.09. Rights and Remedies Cumulative......................... 31
Section 5.10. Delay or Omission Not a Waiver......................... 31
Section 5.11. Control by Noteholders................................. 31
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<PAGE> 4
Section 5.12. Waiver of Past Defaults................................ 31
Section 5.13. Undertaking for Costs.................................. 32
Section 5.14. Waiver of Stay or Extension Laws....................... 32
Section 5.15. Sale of Trust Estate................................... 32
Section 5.16. Action on Notes........................................ 34
Section 5.17. Performance and Enforcement of Certain Obligations..... 34
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee............................ 34
Section 6.02. Rights of Indenture Trustee............................ 36
Section 6.03. Individual Rights of Indenture Trustee................. 36
Section 6.04. Indenture Trustee's Disclaimer......................... 36
Section 6.05. Notice of Event of Default............................. 36
Section 6.06. Reports by Indenture Trustee to Holders................ 36
Section 6.07. Compensation and Indemnity............................. 37
Section 6.08. Replacement of Indenture Trustee....................... 37
Section 6.09. Successor Indenture Trustee by Merger.................. 38
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee ..................................... 38
Section 6.11. Eligibility; Disqualification.......................... 39
Section 6.12. Preferential Collection of Claims Against Issuer....... 39
Section 6.13. Representation and Warranty............................ 40
Section 6.14. Directions to Indenture Trustee........................ 40
Section 6.15. No Consent to Certain Acts of Depositor................ 40
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer To Furnish Indenture Trustee Names and Addresses of
Noteholders............................................ 40
Section 7.02. Preservation of Information; Communications to
Noteholders ........................................... 40
Section 7.03. Reports by Issuer...................................... 41
Section 7.04. Reports by Indenture Trustee........................... 41
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money.................................... 41
Section 8.02. Trust Accounts......................................... 42
Section 8.03. Opinion of Counsel..................................... 43
Section 8.04. Termination Upon Distribution to Noteholders........... 43
Section 8.05. Release of Trust Estate................................ 43
Section 8.06. Surrender of Notes Upon Final Payment.................. 44
iii
<PAGE> 5
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders. 44
Section 9.02. Supplemental Indentures With Consent of Noteholders.... 45
Section 9.03. Execution of Supplemental Indentures................... 46
Section 9.04. Effect of Supplemental Indenture....................... 46
Section 9.05. Conformity with Trust Indenture Act.................... 47
Section 9.06. Reference in Notes to Supplemental Indentures.......... 47
ARTICLE X
[RESERVED]
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc............. 47
Section 11.02. Form of Documents Delivered to Indenture Trustee...... 49
Section 11.03. Acts of Noteholders................................... 49
Section 11.04. Notices, etc.......................................... 50
Section 11.05. Notices to Noteholders; Waiver........................ 51
Section 11.06. Alternate Payment and Notice Provisions............... 51
Section 11.07. Conflict with Trust Indenture Act..................... 51
Section 11.08. Effect of Headings.................................... 51
Section 11.09. Successors and Assigns................................ 52
Section 11.10. Separability.......................................... 52
Section 11.11. Benefits of Indenture................................. 52
Section 11.12. Legal Holidays........................................ 52
Section 11.13. GOVERNING LAW......................................... 52
Section 11.14. Counterparts.......................................... 52
Section 11.15. Recording of Indenture................................ 52
Section 11.16. Issuer Obligation..................................... 52
Section 11.17. No Petition........................................... 53
Section 11.18. Inspection............................................ 53
Section 11.19. Authority of the Administrator........................ 53
APPENDIX A - Definitions
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Mortgage Loan Schedule
iv
<PAGE> 6
Cross-reference sheet showing the location in the indenture of the
provisions inserted pursuant to Sections 310 through 318(a) inclusive of the
Trust Indenture Act of 1939.
TIA Indenture Section
- --- -----------------
Section 310
(a) (1) ........................................................6.11
(a) (2) ........................................................6.11
(a) (3) ..................................................6.10(b)(i)
(a) (4) ..............................................Not Applicable
(a) (5) ........................................................6.11
(b) ........................................................6.11
........................................................6.08
.......................................................11.05
(c) ..............................................Not Applicable
Section 311
(a) ........................................................6.12
(b) ........................................................6.12
Section 312
(a) ..................................................7.01(a)(i)
..................................................7.02(a)(i)
(b) .................................................7.02(a)(ii)
(c) ................................................7.02(a)(iii)
Section 313
(a) ........................................................7.04
(b) ........................................................7.04
(c) ........................................................7.04
.......................................................11.05
(d) ........................................................7.04
Section 314
(a) ........................................................7.03
.......................................................11.05
........................................................3.11
(b) (1) ........................................................2.03
(b) (2) ........................................................3.07
(c) (1) ........................................................2.03
........................................................4.10
.......................................................11.01
(c) (2) ........................................................2.03
........................................................4.10
.......................................................11.01
(c) (3) ........................................................1.01
........................................................2.02
(d) (1) ........................................................1.01
........................................................8.05
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<PAGE> 7
(d) (2) ........................................................1.01
..............................................Not Applicable
(d) (3) ........................................................1.01
........................................................2.02
(e) .......................................................11.01
Section 315
(a) .....................................................6.01(b)
..................................................6.01(c)(i)
(b) ........................................................6.05
.......................................................11.05
(c) .....................................................6.01(a)
(d) .....................................................6.01(c)
(d) .....................................................6.01(b)
(d) (2) .................................................6.01(c)(ii)
(d) (3) ................................................6.01(c)(iii)
(e) ........................................................5.16
Section 316
(a) (1) (A).....................................................5.11
........................................................8.01
(a) (1) (B).....................................................5.02
........................................................5.12
(a) (2) ..............................................Not Applicable
(b) ........................................................5.07
(c) ..............................................Not Applicable
Section 317
(a) (1) ........................................................5.03
(a) (2) .................................................5.03(d)(iv)
(b) ........................................................3.03
Section 318
(a) .......................................................11.07
vi
<PAGE> 8
This Indenture, dated as of ______, 199_, between [____________]
HOME EQUITY LOAN TRUST 199_-_, a Delaware business trust, as Issuer (the
"Issuer"), and [________________], as Indenture Trustee (the "Indenture
Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Issuer's Home
Equity Loan Asset Backed Notes, Series 199__-__ (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing
Date, as Indenture Trustee for the benefit of the Holders of the Notes, all of
the Issuer's right, title and interest in and to whether now existing or
hereafter created (a) the Mortgage Loans and all monies and proceeds due thereon
after the Cut-off Date (exclusive of payments in respect of accrued interest due
on a prior to the Cut-off Date or due in the month of ___________) (b) an
assignment of the Depositor's rights under the Mortgage Loan Purchase Agreement
(c) all funds on deposit in the Funding Account, including all income from the
investment and reinvestment of funds therein (d) all funds on deposit from time
to time in the Collection Account allocable to the Mortgage Loans; (e) all funds
on deposit from time to time in the Payment Account and in all proceeds thereof;
[(f) the Policy]; (g) all Additional Balances; (h) all REO properties; (i) the
[Letter of Credit] [Surity Bond] and (j) all present and future claims, demands,
causes and chooses in action in respect of any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
respect of, any or all of the foregoing and all payments on or under, and all
proceeds of every kind and nature whatsoever in the conversion thereof,
voluntary or involuntary, into cash or other liquid property, all cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, checks, deposit
accounts, rights to payment of any and every kind (including but not limited to
all proceeds of any hazard insurance policy with respect to any Mortgaged
Property), and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the "Trust Estate" or the
"Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders
of the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. For all purposes of this Indenture,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms used but not otherwise defined herein shall have the
meanings assigned to such terms in Appendix A hereto which are incorporated by
reference herein. All other capitalized terms used herein shall have the
meanings specified herein.
<PAGE> 9
Section 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to time
amended, modified or supplemented and includes (in the case of agreements
or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
ARTICLE II
ORIGINAL ISSUANCE OF NOTES
Section 2.01. Form. The Notes together with the Indenture Trustee's
certificate of authentication, shall be in substantially the forms set forth in
Exhibit A with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture
2
<PAGE> 10
and may have such letters, numbers or other marks of identification and such
legends or endorsements placed thereon as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
of the Notes. Any portion of the text of any Note may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms
of this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$______________. The aggregate principal amount of Notes outstanding at any time
may not exceed $_________________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum initial Security Balances
of $[________] and in integral multiples of $______ in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. Opinions of Counsel. On the Closing Date, the
Indenture Trustee shall have received: (i) an Opinion of Counsel, in form and
substance reasonably satisfactory to the Indenture Trustee and its counsel, with
respect to securities law matters; (ii) an Opinion of Counsel, in form and
substance reasonably satisfactory to the Indenture Trustee and its counsel, with
respect to the tax status of the arrangement created by the Indenture; and (iii)
an Opinion of Counsel to the Issuer, in form and substance reasonably
satisfactory to the Indenture Trustee and its counsel, with respect to the due
authorization, valid execution and delivery of this Indenture and with respect
to its binding effect on the Issuer.
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ARTICLE III
COVENANTS
Section 3.01. Collection of Payments on Mortgage Loan Accounts. The
Indenture Trustee shall establish and maintain with itself a trust account (the
"Payment Account") in which the Indenture Trustee shall, subject to the terms of
this paragraph, deposit, on the same day as it is received from the Master
Servicer, each remittance received by the Indenture Trustee with respect to the
Mortgage Loans. The Indenture Trustee shall make all payments of principal of
and interest on the Notes, subject to Section 3.03 as provided in Section 3.05
herein from moneys on deposit in the Payment Account.
Section 3.02. Maintenance of Office or Agency. The Issuer will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where, subject to satisfaction of conditions set forth herein, Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Issuer hereby initially appoints the Indenture Trustee to serve as
its agent for the foregoing purposes. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
Section 3.03. Money for Payments To Be Held in Trust; Paying Agent;
Certificate Paying Agent. (a) As provided in Section 3.01, all payments of
amounts due and payable with respect to any Notes that are to be made from
amounts withdrawn from the Payment Account pursuant to Section 3.01 shall be
made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent,
and no amounts so withdrawn from the Payment Account for payments of Notes shall
be paid over to the Issuer except as provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as herein
provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge in the making of any payment
required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
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(iv) immediately resign as Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of
Notes if at any time it ceases to meet the standards required to be met by
a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent, and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any
money held by the Indenture Trustee or any Paying Agent in trust for the payment
of any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request, and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee shall also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
The Issuer hereby appoints [__________________] as Certificate
Paying Agent and Residual Ownership Interest Paying Agent to make payments to
Certificateholders and holders of the Residual Ownership Interest on behalf of
the Issuer in accordance with the provisions of the Certificates, Section 3.05
hereof and the provisions of the Trust Agreement, and [_______________] hereby
accepts such appointment and further agrees that it will be bound by the
provisions of the Trust Agreement relating to the Certificate Paying Agent and
Residual Ownership Interest Paying Agent and will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Certificates and the Residual Ownership Interest in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein provided
and as provided in the Trust Agreement and pay such sums to such Persons
as herein and therein provided;
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(ii) give the Owner Trustee notice of any default by the
Issuer of which it has actual knowledge in the making of any payment
required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such default,
upon the written request of the Owner Trustee forthwith pay to the Owner
Trustee on behalf of the Issuer all sums so held in trust by such
Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Issuer all sums held
by it in trust for the payment of Certificates and the Residual Ownership
Interest if at any time it ceases to meet the standards required to be met
by the Certificate Paying Agent or the Residual Ownership Interest Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Certificates or the
holders of the Residual Ownership Interest of any applicable withholding
taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith; and
(vi) deliver to the Owner Trustee a copy of the report to
Certificateholders and holders of Residual Ownership Interest prepared
with respect to each Payment Date by the Master Servicer pursuant to
Section _____ of the Master Servicing Agreement.
Section 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.
Section 3.05. Payment of Principal and Interest; Defaulted Interest.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8.02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee, on behalf of the Issuer shall pay
to the Noteholders and the Certificate Paying Agent, on behalf of the Issuer
shall pay to the Certificateholders and the Certificate Paying Agent, on behalf
of the Issuer shall pay to the holders of the Residual Ownership Interest, and
the Indenture Trustee, in its capacity as agent for the Issuer shall pay to
other Persons, the amounts to which they are entitled as set forth below:
(i) The sum of (x) to the Noteholders the sum of (a) one
month's interest at the Note Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued and
unpaid interest for prior Payment Dates and (y) to the Certificateholders,
the Certificate Distribution Amount for such Payment Date;
(ii) as principal on the Notes and the Certificates, the
applicable Security Percentage of the Principal Collection Distribution
Amount;
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(iii) to the Noteholders and the Certificateholders, as the
case may be, as principal on the Notes and the Certificates, pro rata,
based on the Security Balances from the amount remaining on deposit in the
Payment Account, up to the applicable Security Percentage of Liquidation
Loss Amounts for the related Collection Period;
(iv) to the Noteholders and the Certificateholders, as the
case may be, as principal on the Notes and the Certificates, pro rata,
based on the Security Balances from the amount remaining on deposit in the
Payment Account, up to the applicable Security Percentage of Carryover
Loss Amounts;
[(v) to the Credit Enhancer, in the amount of the premium for
the Credit Enhancement Instrument [and for any Additional Credit
Enhancement Instrument];
[(vi) to the Credit Enhancer, to reimburse it for prior draws
made on the Credit Enhancement Instrument [and on any Additional Credit
Enhancement Instrument] (with interest thereon as provided in the
Insurance Agreement);]
(vii) to the Noteholders and the Certificateholders, as the
case may be, as principal on the Notes and the Certificates, pro rata,
based on the Security Balances from Security Interest Collections, up to
the Accelerated Principal Distribution Amount for such Payment Date (such
amount, if any, paid pursuant to this clause (vii) being referred to
herein as the "Accelerated Principal Payment Amount");
[(viii) to the Credit Enhancer, any other amounts owed to the
Credit Enhancer pursuant to the Insurance Agreement;]
(ix) [Reserved];
(x) to reimburse the Administrator for expenditures made on
behalf of the Issuer with respect to the performance of its duties under
the Indenture; and
(xi) any remaining amounts to the holders of the [Residual
Ownership Interest];
provided, however, [in the event that on a Payment Date a Credit Enhancer
Default shall have occurred and be continuing then the priorities of
distributions described above will be adjusted such that payments of the
Certificate Distribution Amount and all other amounts to be paid in respect of
principal on the Certificates will not be paid until the full amount of interest
and principal in accordance with clauses (a)(x) and (ii) through (iv) above that
are due on the Notes on such Payment Date have been paid and provided, further,]
that on the Final Scheduled Payment Date or other final Payment Date, the amount
to be paid pursuant to clause (ii) above shall be equal to the Security Balances
of the Securities immediately prior to such Payment Date.
The amounts paid to Noteholders shall be paid to each Class in
accordance with paragraph (b) below. Interest will accrue on the Notes during an
Interest Period on the basis of the actual number of days in such Interest
Period and a year assumed to consist of 360 days.
Any installment of interest or principal, if any, payable on any
Note or Certificate that is punctually paid or duly provided for by the Issuer
on the applicable Payment Date shall, if such
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Holder holds Notes or Certificates other than the [Designated Certificate] of an
aggregate initial Principal Balance of at least $[___________] be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; provided, however, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.
(b) The principal of each Note shall be due and payable in full on
the Final Scheduled Payment Date for such Note as provided in the related form
of Note set forth in Exhibit A. All principal payments on each Class of Notes
shall be made to the Noteholders of such Class entitled thereto in accordance
with the Percentage Interests represented by such Notes. Upon notice to the
Indenture Trustee by the Issuer, the Indenture Trustee shall notify the Person
in whose name a Note is registered at the close of business on the Record Date
preceding the Final Scheduled Payment Date or other final Payment Date. Such
notice shall be mailed no later than five Business Days prior to such Final
Scheduled Payment Date or other final Payment Date and shall specify that
payment of the principal amount and any interest due with respect to such Note
at the Final Scheduled Payment Date or other final Payment Date will be payable
only upon presentation and surrender of such Note and shall specify the place
where such Note may be presented and surrendered for such final payment.
Section 3.06. Protection of Trust Estate. (a) The Issuer will from
time to time execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee and the Noteholders in such Trust Estate
against the claims of all persons and parties.
(b) Except as otherwise provided in the Master Servicing Agreement
or this Indenture, the Indenture Trustee shall not remove any portion of the
Trust Estate that consists of money or is evidenced by an instrument,
certificate or other writing from the jurisdiction in which it was held at the
date of the most recent Opinion of Counsel delivered pursuant to Section 3.07
(or from the jurisdiction in which it was held as described in the Opinion of
Counsel delivered at the Closing Date pursuant to Section 3.07(a) if no Opinion
of Counsel has yet been delivered pursuant to Section 3.07(b)) unless the
Trustee shall have first received an Opinion of Counsel to the effect that the
lien and security interest created by this Indenture with respect to such
property will continue to be maintained after giving effect to such action or
actions.
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The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. Opinions as to Trust Estate. (a) On the Closing Date,
the Issuer shall furnish to the Indenture Trustee, the Owner Trustee and to the
Administrator an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the delivery of the Mortgage
Notes, the recording of the Assignments of Mortgage, the recording and filing of
this Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the lien and security interest of this Indenture and reciting the
details of such action, or stating that, in the opinion of such counsel, no such
action is necessary to make such lien and security interest effective.
(b) On or before December 31 in each calendar year, beginning in
199_, the Issuer shall furnish to the Indenture Trustee and to the Administrator
an Opinion of Counsel at the expense of the Issuer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording of the Assignments of Mortgage, the recording, filing, re-recording
and refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and security interest created by this Indenture and reciting the details of
such action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and the execution and filing of any financing statements and continuation
statements that will, in the opinion of such counsel, be required to maintain
the lien and security interest of this Indenture until December 31 in the
following calendar year.
Section 3.08. [Reserved].
Section 3.09. Performance of Obligations; Master Servicing
Agreement. (a) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate. Except as
otherwise expressly provided therein, the Issuer shall not waive, amend, modify,
supplement or terminate any Basic Document, including without limitation the
Master Servicing Agreement or any provision thereof without the consent of the
Indenture Trustee or the Holders of at least a majority of the Security Balances
of the Notes, the Master Servicer [and the Credit Enhancer]. Upon the taking of
any such action with respect to any Basic Document the Issuer shall give written
notice thereof to the Rating Agencies.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or
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which would result in the amendment, hypothecation, subordination, termination
or discharge of, or impair the validity or effectiveness of, any of the
documents relating to the Mortgage Loans or any such instrument, except such
actions as the Master Servicer is expressly permitted to take in the Master
Servicing Agreement.
(d) If the Issuer shall have knowledge of the occurrence of an Event
of Servicing Termination, the Issuer shall promptly notify the Indenture Trustee
thereof, and shall specify in such notice the action, if any, the Issuer is
taking in respect of such Event of Servicing Termination. If such Event of
Servicing Termination arises from the failure of the Master Servicer to perform
any of its duties or obligations under the Master Servicing Agreement with
respect to the Mortgage Loans, the Issuer may remedy such failure, provided that
if such Event of Servicing Termination arises from the failure by the Master
Servicer to comply with requirements imposed upon it under Section 3.12 of the
Master Servicing Agreement with respect to hazard insurance for the Mortgaged
Properties securing the Mortgage Loans, the Issuer shall promptly, as the case
may be, pay such premiums or obtain substitute insurance coverage meeting the
requirements of said Section 3.12. So long as any such Event of Servicing
Termination shall be continuing, the Indenture Trustee may exercise its remedies
set forth in Section 7.01 of the Master Servicing Agreement. Unless granted or
permitted by [the Credit Enhancer or] the Holders of Securities to the extent
provided above, the Issuer may not waive any such Event of Servicing Termination
or terminate the rights and powers of the Master Servicer under the Master
Servicing Agreement.
(e) Upon any termination of the Master Servicer's rights and powers
pursuant to Section 7.01 of the Master Servicing Agreement, all rights, powers,
duties and responsibilities of the Master Servicer with respect to the Mortgage
Loans shall vest in and be assumed by the Indenture Trustee, and the Indenture
Trustee shall be the successor in all respect to the Master Servicer in its
capacity as servicer with respect to the Mortgage Loans under the Master
Servicing Agreement. Upon any such termination, the Indenture Trustee is hereby
authorized, and the Indenture Trustee hereby agrees, to mail a notice to each
Mortgagor directing each such Mortgagor to mail all payments in respect of the
related Mortgage Loan to the Indenture Trustee or its agent at the address
specified in such notice. The Indenture Trustee may resign as the Master
Servicer by giving written notice of such resignation to the Issuer [and the
Credit Enhancer] and in such event will be released from such duties and
obligations, such release to be effective on the date a new servicer enters into
a servicing agreement with the Issuer as provided below. Upon delivery of any
such notice to the Issuer, the Issuer shall obtain a new servicer, satisfactory
in all respects to the Indenture Trustee [and the Credit Enhancer], which shall
enter into a servicing agreement with the Issuer and the Indenture Trustee,
[such agreement to be not less favorable to the Credit Enhancer in its
reasonable judgment, or the Noteholders if a Credit Enhancer Default shall have
occurred and be continuing, than the Master Servicing Agreement in any material
respect. If, within 30 days after the delivery of the notice referred to above,
the Issuer shall not have obtained such new servicer, the Indenture Trustee may
appoint, or may petition a court of competent jurisdiction to appoint, a
successor servicer [acceptable to the Credit Enhancer] to service the Mortgage
Loans. In connection with any such appointment, the Indenture Trustee may make
such arrangements for the compensation of such successor as it and such
successor shall agree, and the Issuer shall enter into an agreement with such
successor for the servicing of the Mortgage Loans, such agreement to be
substantially similar to the Master Servicing Agreement [or otherwise acceptable
to the Credit Enhancer]; provided that any such compensation of the successor
servicer [unless otherwise agreed to by the Credit Enhancer,] shall not be in
excess of the Servicing Fee payable to the Master Servicer under the Master
Servicing Agreement. If the Indenture Trustee shall succeed to the Master
Servicer's duties as servicer of the Mortgage Loans as provided herein, it shall
do so in its individual capacity and not in its capacity as Indenture Trustee.
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(f) The Issuer shall at all times retain an Administrator [(approved
by the Credit Enhancer under the Administration Agreement)] and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.10. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture, sell,
transfer, exchange or otherwise dispose of the Trust Estate, unless
directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than amounts
properly withheld from such payments under the Code) or assert any claim
against any present or former Noteholder by reason of the payment of the
taxes levied or assessed upon any part of the Trust Estate; or
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or permit
any Person to be released from any covenants or obligations with respect
to the Notes under this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture) to
be created on or extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the proceeds thereof
or (C) permit the lien of this Indenture not to constitute a valid first
priority security interest in the Trust Estate.
Section 3.11. Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year 199_), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a default
in its compliance with any such condition or covenant, specifying each
such default known to such Authorized Officer and the nature and status
thereof.
Section 3.12. Recording of Assignments. The Issuer shall exercise
its right under the Mortgage Loan Purchase Agreement with respect to the
obligation of the Seller to submit or cause to be submitted for recording all
Assignments of Mortgages on or prior to _________, 199_ with respect to the
Initial Loans and within [__] days following the related Deposit Date with
respect to any Additional Loans.
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Section 3.13. Representations and Warranties Concerning the Mortgage
Loans. The Issuer has pledged to the Indenture Trustee all of its right under
the Mortgage Loan Purchase Agreement and the Indenture Trustee has the benefit
of the representations and warranties made by the Seller in Section [_____]
thereof, Section [____] thereof and Section [__] thereof concerning the Mortgage
Loans and the right to enforce any remedy against the Seller provided in such
Section [_____] or Section [_____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
Section 3.14. Indenture Trustee's Review of Related Documents. (a)
The Indenture Trustee agrees, for the benefit of the holders of the Notes, to
review, or the related Custodian shall review, unless the Indenture Trustee or
such Custodian made such review prior to the Closing Date, on or prior to
________, 199_ the Related Documents delivered to it on or prior to the Closing
Date and within 90 days of the related Deposit Date, the Related Documents
delivered to it in connection with any Additional Loan, in each case in
connection with the Grant of the Mortgage Loan listed on the Schedule of
Mortgage Loans as security for the Notes. Such review shall be limited to a
determination that all documents referred to in the definition of the term
Related Documents have been executed and are appropriately endorsed in the
manner called for in the Mortgage Loan Purchase Agreement and that the Related
Documents have been delivered with respect to each such Mortgage Loan (other
than the documents related to (i) any Mortgage Loan so listed which has been
subject to a Prepayment in full and termination of related Mortgage Loan, the
proceeds of which have been deposited in the Collection Account in lieu of
delivery of the applicable Related Documents, (ii) any Mortgage Loan with
respect to which the related Mortgaged Property was foreclosed, repossessed or
otherwise converted subsequent to the Cut-off Date and prior to the Closing Date
or with respect to which foreclosure proceedings have been commenced and for
which the Related Documents are required in connection with the prosecution of
such foreclosure proceedings and for which the Issuer has delivered a trust
receipt called for by Section 3.15(c) and (iii) any Mortgage Loan as to which
the original Assignment of Mortgage has been submitted for recording), that all
such documents have been executed, and that all such documents relate to the
Mortgage Loans listed on the Schedule of Mortgage Loans. In performing such
review, the Trustee may rely upon the purported genuineness and due execution of
any such document and on the purported genuineness of any signature thereon.
(b) If any Related Document is defective in any material respect
which may materially and adversely affect the value of the related Mortgage
Loan, the interest of the Indenture Trustee or the Noteholders in such Mortgage
Loan, or if any document required to be delivered to the Indenture Trustee has
not been delivered, the Indenture Trustee or the related Custodian on behalf of
the Indenture Trustee shall notify the Issuer, the Seller, [the Credit Enhancer]
and the Master Servicer immediately after obtaining knowledge thereof and the
Indenture Trustee, as assignee of the Issuer's rights under the Mortgage Loan
Purchase Agreement, shall exercise its remedies in respect of any such defect
against the Seller as provided in the Mortgage Loan Purchase Agreement.
Section 3.15. Trust Estate; Related Documents. (a) When required by
the provisions of this Indenture, the Indenture Trustee shall execute
instruments to release property from the lien of this Indenture, or convey the
Indenture Trustee's interest in the same, in a manner and under circumstances
which are not inconsistent with the provisions of this Indenture. No party
relying upon an instrument executed by the Indenture Trustee as provided in this
Article III shall be bound to ascertain the Indenture Trustee's authority,
inquire into the satisfaction of any conditions precedent or see to the
application of any moneys.
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(b) In order to facilitate the servicing of the Mortgage Loans, the
Master Servicer is hereby authorized in the name and on behalf of the Indenture
Trustee and the Issuer, to execute assumption agreements, substitution
agreements, and instruments of satisfaction or cancellation or of partial or
full release or discharge, or any other document contemplated by the Master
Servicing Agreement and other comparable instruments with respect to the
Mortgage Loans and with respect to the Mortgaged Properties subject to the
Mortgages (and the Indenture Trustee and the Owner Trustee shall promptly
execute any such documents on request of the Master Servicer), subject to the
obligations of the Master Servicer under the Master Servicing Agreement. If from
time to time the Master Servicer shall deliver to the Indenture Trustee or the
related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05 of
the Master Servicing Agreement, the Indenture Trustee or the related Custodian
shall check that each of such documents purports to be an original executed copy
(or a copy of the original executed document if the original executed copy has
been submitted for recording and has not yet been returned) and, if so, shall
file such documents, and upon receipt of the original executed copy from the
applicable recording office or receipt of a copy thereof certified by the
applicable recording office shall file such originals or certified copies with
the Related Documents. If any such documents submitted by the Master Servicer do
not meet the above qualifications, such documents shall promptly be returned by
the Indenture Trustee or the related Custodian to the Master Servicer, with a
direction to the Master Servicer to forward the correct documentation.
(c) Upon Issuer Request accompanied by an Officers' Certificate of
the Master Servicer pursuant to Section ____ of the Master Servicing Agreement
to the effect that a Mortgage Loan has been the subject of a final payment or a
prepayment in full and the related Mortgage Loan has been terminated or that
substantially all Liquidation Proceeds which have been determined by the Master
Servicer in its reasonable judgment to be finally recoverable have been
recovered, and upon deposit to the Collection Account of such final monthly
payment, prepayment in full together with accrued and unpaid interest to the
date of such payment with respect to such Mortgage Loan or, if applicable,
Liquidation Proceeds, the Indenture Trustee and the Issuer shall promptly
release the Related Documents to the Master Servicer upon the order of the
Issuer, along with such documents as the Master Servicer or the Mortgagor may
request as contemplated by the Master Servicing Agreement to evidence
satisfaction and discharge of such Mortgage Loan. If from time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan, the Master
Servicer requests the Indenture Trustee or the related Custodian to release the
Related Documents and delivers to the Indenture Trustee or the related Custodian
a trust receipt reasonably satisfactory to the Indenture Trustee or the related
Custodian and signed by a Responsible Officer of the Master Servicer, the Issuer
and the Indenture Trustee or the related Custodian shall release the Related
Documents to the Master Servicer. If such Mortgage Loans shall be liquidated and
the Indenture Trustee or the related Custodian receives a certificate from the
Master Servicer as provided above, then, upon request of the Issuer, the
Indenture Trustee or the related Custodian shall release the trust receipt to
the Master Servicer upon the order of the Issuer.
(d) The Indenture Trustee shall, at such time as there are no Notes
Outstanding [and no amounts due to the Credit Enhancer], release all of the
Trust Estate to the Issuer (other than any cash held for the payment of the
Notes pursuant to Section 3.03 or 4.11), subject, however, to the rights of the
Indenture Trustee under Section 6.07.
Section 3.16. Amendments to Master Servicing Agreement. The
Indenture Trustee may enter into any amendment or supplement to the Master
Servicing Agreement only in accordance with Section 8.06 of the Master Servicing
Agreement. The Indenture Trustee may, in its discretion,
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decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
Section 3.17. Master Servicer as Agent and Bailee of Indenture
Trustee. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Indenture Trustee in holding amounts on deposit in the Collection Account
pursuant to Section 3.08 of the Master Servicing Agreement, as well as its agent
and bailee in holding any Related Documents released to the Master Servicer
pursuant to Section 2.03, and any other items constituting a part of the Trust
Estate which from time to time come into the possession of the Master Servicer.
It is intended that, by the Master Servicer's acceptance of such agency pursuant
to Section 2.03 of the Master Servicing Agreement, the Trustee, as a secured
party, will be deemed to have possession of such Related Documents, such moneys
and such other items for purposes of Section 9-305 of the Uniform Commercial
Code of the state in which such property is held by the Master Servicer.
Section 3.18. Investment Company Act. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.18
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.19. Issuer May Consolidate, etc. Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other Person,
unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee, in
form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and
Certificates and the performance or observance of every agreement and
covenant of this Indenture on the part of the Issuer to be performed or
observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that
such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn or to be considered by
either Rating Agency to be below investment grade [without taking into
account the Credit Enhancement Instrument];
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
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(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for relating
to such transaction have been complied with (including any filing required
by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which is
hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America or
any state, (B) expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form satisfactory to
the Indenture Trustee, the due and punctual payment of the principal of
and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agrees by
means of such supplemental indenture that all right, title and interest so
conveyed or transferred shall be subject and subordinate to the rights of
Holders of the Notes, (D) unless otherwise provided in such supplemental
indenture, expressly agrees to indemnify, defend and hold harmless the
Issuer against and from any loss, liability or expense arising under or
related to this Indenture and the Notes and (E) expressly agrees by means
of such supplemental indenture that such Person (or if a group of Persons,
then one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in connection
with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer that
such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer, any Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for relating
to such transaction have been complied with (including any filing required
by the Exchange Act).
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Section 3.20. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.19(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties
of the Issuer pursuant to Section 3.19(b), the Issuer will be released from
every covenant and agreement of this Indenture to be observed or performed on
the part of the Issuer with respect to the Notes immediately upon the delivery
of written notice to the Indenture Trustee that the Issuer is to be so released.
Section 3.21. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans in the manner contemplated by this Indenture and the Basic
Documents and all activities incidental thereto.
Section 3.22. No Borrowing. The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.23. Guarantees, Loans, Advances and Other Liabilities.
Except as contemplated by this Indenture, the Issuer shall not make any loan or
advance or credit to, or guarantee (directly or indirectly or by an instrument
having the effect of assuring another's payment or performance on any obligation
or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the obligations,
stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of, or any
other interest in, or make any capital contribution to, any other Person.
Section 3.24. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.25. [Reserved].
Section 3.26. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; provided, however, that
the Issuer may make, or cause to be made, (w) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under, the Trust Agreement, (x) payment to the Master
Servicer pursuant to the terms of the Master Servicing Agreement and (y)
payments to the Indenture Trustee pursuant to Section _____ of the
Administration Agreement and (z) make distributions to the holders of the
Residual Ownership Interest as contemplated by the Trust Agreement. The Issuer
will not, directly or indirectly, make payments to or distributions from the
Collection Account except in accordance with this Indenture and the Basic
Documents.
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Section 3.27. Notice of Events of Default. The Issuer shall give the
Indenture Trustee, [the Credit Enhancer] and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.28. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.29. Statements to Noteholders. The Indenture Trustee and
the Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Statement delivered to it pursuant to
Section 4.01 of the Master Servicing Agreement.
Section 3.30. [Reserved] [Grant of the Additional Loans. (a) In
consideration of the delivery on each Deposit Date to or upon the order of the
Issuer of all or a portion of the amount in respect of Security Principal
Collections on deposit in the Funding Account, the Issuer shall, to the extent
of the availability thereof, on such Deposit Date during the Funding Period
Grant to the Indenture Trustee all of its right, title and interest in the
Additional Loans and simultaneously with the Grant of the Additional Loans the
Issuer will deliver the related Documents to the Indenture Trustee or the
related Custodian.
(b) The obligation of the Indenture Trustee to accept the Grant of
the Additional Loans and the other property and rights related thereto described
in paragraph (a) above is subject to the satisfaction of each of the following
conditions on or prior to each Deposit Date:
(i) the Indenture Trustee shall not have received written
notice from any Rating Agency [or the Credit Enhancer] to the effect that
such transfer of Additional Loans would adversely affect the then current
rating of the Notes or cause the rating assigned to the Securities to be
below investment grade [without taking into account the Credit Enhancement
Instrument];
(ii) the Indenture Trustee shall have received a revised
Mortgage Loan 40 Schedule, listing the Additional Loans;
(iii) the Master Servicer shall confirm to the Indenture
Trustee that it has deposited in the Collection Account all Principal
Collections and Interest Collections in respect of such Additional Loans
on or after the related Deposit Date for the Additional Loans;
(iv) the Indenture Trustee shall have received a duly
completed and executed Transfer Certificate in the form of [Exhibit 1 to
the Mortgage Loan Purchase Agreement];
(v) the Seller at its expense and the Issuer at its expense,
as appropriate, shall have provided the Rating Agencies [and the Credit
Enhancer] with an opinion of counsel relating to the sale of the
Additional Loans to the Issuer and the Grant of the Additional Loans to
the Indenture Trustee which opinion shall be in the form of [Exhibit 2 to
the Mortgage Loan Purchase Agreement]; and
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(vi) the Issuer shall have delivered to the Indenture Trustee
an Officer's Certificate and an Opinion of Counsel confirming the
satisfaction of each condition precedent specified in this paragraph (b).
(c) The obligation of the Indenture Trustee to accept the Grant of
an Additional Loan on the related Deposit Date is subject to each Additional
Loan and the Additional Loans in the aggregate, as the case may be, satisfying
the conditions set forth in the Mortgage Loan Purchase Agreement.]
[Section 3.31. Determination of Note Rate and Certificate Rate. On
the second LIBOR Business Day immediately preceding (i) the Closing Date in the
case of the first Interest Period and (ii) the first day of each succeeding
Interest Period, the Indenture Trustee shall determine LIBOR and the Note Rate
and the Certificate Rate for such Interest Period and shall inform the Issuer,
the Master Servicer and the Depositor at their respective facsimile numbers
given to the Indenture Trustee in writing thereof.]
[Section 3.32. Payments under the Credit Enhancement Instrument. (a)
On any Payment Date, other than a Dissolution Payment Date, the Indenture
Trustee on behalf of the Noteholders, and in its capacity as Certificate Paying
Agent on behalf of the Certificateholders shall make a draw on the Credit
Enhancement Instrument in an amount if any equal to the sum of (x) the amount by
which the sum of (i) interest accrued at the Note Rate on the Security Balance
of the Notes plus (ii) the Certificate Distribution Amount exceeds the amount on
deposit in the Payment Account available to be distributed therefor on such
Payment Date and (y) the Guaranteed Principal Payment Amount (the "Credit
Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Master Servicing Agreement, the Notice for
Payment (as defined in the Credit Enhancement Instrument) in the amount of the
Credit Enhancement Draw Amount to the Credit Enhancer no later than 2:00 P.M.,
New York City time, on the second Business Day prior to the applicable Payment
Date. Upon receipt of such Credit Enhancement Draw Amount in accordance with the
terms of the Credit Enhancement Instrument, the Indenture Trustee shall deposit
such Credit Enhancement Draw Amount in the Payment Account for distribution to
Holders pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement
Instrument in respect of any Avoided Payment (as defined in and pursuant to the
terms and conditions of the Credit Enhancement Instrument) and the Indenture
Trustee shall submit a Notice for Payment with respect thereto together with the
other documents required to be delivered to the Credit Enhancer pursuant to the
Credit Enhancement Instrument in connection with a draw in respect of any
Avoided Payment.
(c) In the event that any Additional Credit Enhancement Instruments
are issued pursuant to Section _____ and Section _____ of the Insurance
Agreement, the Indenture Trustee shall be authorized to make draws thereon
subject to the terms and conditions therein.]
[Section 3.33. Replacement Credit Enhancement Instrument. In the
event of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in
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full of all amounts owed to the Credit Enhancer, may, but shall not be required
to, substitute a new surety bond or surety bonds for the existing Credit
Enhancement Instrument or may arrange for any other form of credit enhancement;
provided, however, that in each case the Notes and the Certificates shall be
rated no lower than the rating assigned by each Rating Agency to the Notes and
the Certificates immediately prior to such Replacement Event and the timing and
mechanism for drawing on such new credit enhancement shall be reasonably
acceptable to the Indenture Trustee and provided further that the premiums under
the proposed credit enhancement shall not exceed such premiums under the
existing Credit Enhancement Instrument. It shall be a condition to substitution
of any new credit enhancement that there be delivered to the Indenture Trustee
(i) an Opinion of Counsel, acceptable in form to the Indenture Trustee, from
counsel to the provider of such new credit enhancement with respect to the
enforceability thereof and such other matters as the Indenture Trustee may
require and (ii) an Opinion of Counsel to the effect that such substitution
would not (a) adversely affect in any material respect the tax status of the
Notes and the Certificates or (b) cause the Issuer to be subject to a tax at the
entity level or to be classified as a taxable mortgage pool within the meaning
of Section 7701(i) of the Code. Upon receipt of the items referred to above and
payment of all amounts owing to the Credit Enhancer and the taking of physical
possession of the new credit enhancement, the Indenture Trustee shall, within
five Business Days following receipt of such items and such taking of physical
possession, deliver the replaced Credit Enhancement Instrument to the Credit
Enhancer. In the event of any such replacement the Issuer shall give written
notice thereof to the Rating Agencies.]
ARTICLE IV
THE NOTES; SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.01. The Notes. (a) The Notes shall be registered in the
name of a nominee designated by the Depository. Beneficial Owners will hold
interests in the Notes through the book-entry facilities of the Depository in
minimum initial Principal Balances of $[________] and integral multiples of
$[_________] in excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's
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resignation or removal, each Beneficial Owner shall be entitled to certificates
representing the Notes it beneficially owns in the manner prescribed in Section
4.08.
The Notes shall, on original issue, be executed on behalf of the
Issuer by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. Registration of and Limitations on Transfer and
Exchange of Notes; Appointment of Certificate Registrar. The Note Registrar
shall cause to be kept at its Corporate Trust Office a Note Register in which,
subject to such reasonable regulations as it may prescribe, the Note Registrar
shall provide for the registration of Notes and of transfers and exchanges of
Notes as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes
may be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing. Notes delivered upon any such transfer or exchange will
evidence the same obligations, and will be entitled to the same rights and
privileges, as the Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange
shall be cancelled by the Note Registrar and delivered to the Indenture Trustee
for subsequent destruction without liability on the part of either.
The Issuer hereby appoints [___________________] as Certificate
Registrar to keep at its Corporate Trust Office a Certificate Register pursuant
to Section 3.08 of the Trust Agreement in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for the
registration of Residual Ownership Interests and of transfers and exchanges
thereof pursuant to Section 3.04 of the Trust Agreement. [___________________]
hereby accepts such appointment.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such
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security or indemnity as may be required by it to hold the Issuer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Note Registrar or the Indenture Trustee that such Note has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of the
UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note of the same Class;
provided, however, that if any such destroyed, lost or stolen Note, but not a
mutilated Note, shall have become or within seven days shall be due and payable,
instead of issuing a replacement Note, the Issuer may pay such destroyed, lost
or stolen Note when so due or payable without surrender thereof. If, after the
delivery of such replacement Note or payment of a destroyed, lost or stolen Note
pursuant to the proviso to the preceding sentence, a bona fide purchaser of the
original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section 4.03,
the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. Persons Deemed Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
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the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided, that such Issuer
Request is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
Section 4.06. Book-Entry Notes. The Notes, upon original issuance,
will be issued in the form of typewritten Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company, the initial Depository,
by, or on behalf of, the Issuer. Such Notes shall initially be registered on the
Note Register in the name of Cede & Co., the nominee of the initial Depository,
and no Beneficial Owner will receive a definitive Note representing such
Beneficial Owner's interest in such Note, except as provided in Section 4.08.
Unless and until definitive, fully registered Notes (the "Definitive Notes")
have been issued to Beneficial Owners pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in full force
and effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Depository for all purposes of this Indenture
(including the payment of principal of and interest on the Notes and the
giving of instructions or directions hereunder) as the sole holder of the
Notes, and shall have no obligation to the Owners of Notes;
(iii) to the extent that the provisions of this Section 4.06
conflict with any other provisions of this Indenture, the provisions of
this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised only
through the Depository and shall be limited to those established by law
and agreements between such Owners of Notes and the Depository and/or the
Depository Participants pursuant to the Note Depository Agreement. Unless
and until Definitive Notes are issued pursuant to Section 4.08, the
initial Depository will make book-entry transfers among the Depository
Participants and receive and transmit payments of principal of and
interest on the Notes to such Depository Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes evidencing
a specified percentage of the Security Balances of the Notes, the
Depository shall be deemed to represent such percentage only to the extent
that it has received instructions to such effect from Beneficial Owners
and/or Depository Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Notes and has
delivered such instructions to the Indenture Trustee.
Section 4.07. Notices to Depository. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. Definitive Notes. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified
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successor, (ii) the Administrator at its option advises the Indenture Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (iii) after the occurrence of an Event of Default, Owners of Notes
representing beneficial interests aggregating at least a majority of the
Security Balances of the Notes advise the Depository in writing that the
continuation of a book-entry system through the Depository is no longer in the
best interests of the Beneficial Owners, then the Depository shall notify all
Beneficial Owners and the Indenture Trustee of the occurrence of any such event
and of the availability of Definitive Notes to Beneficial Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Notes
representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 4.09. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to the Notes except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.03,
3.04, 3.06, 3.10, 3.19, 3.21 and 3.22, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.07 and the obligations of the Indenture
Trustee under Section 4.11) and (vi) the rights of Noteholders as beneficiaries
hereof with respect to the property so deposited with the Indenture Trustee
payable to all or any of them, and the Indenture Trustee, on demand of and at
the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 4.03 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 3.03) have been
delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable, or
b. will become due and payable at the Final Scheduled
Payment Date within one year, and the Issuer, in the case of a. or
b., has irrevocably deposited
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or caused to be irrevocably deposited with the Indenture Trustee
cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such
Notes and Certificates then outstanding not theretofore delivered to
the Indenture Trustee for cancellation when due on the Final
Scheduled Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee [and the
Credit Enhancer] an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent Certificate
from a firm of certified public accountants, each meeting the applicable
requirements of Section 11.01 and, subject to Section 11.01 each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with and,
if the Opinion of Counsel relates to a deposit made in connection with
Section 4.10(A)(2)b. above, such opinion shall further be to the effect
that such deposit will not have any material adverse tax consequences to
the Issuer, any Noteholders or any Certificateholders.
Section 4.11. Application of Trust Money. All moneys deposited with
the Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or required by law.
[Section 4.12. Subrogation and Cooperation. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes or the Certificates, the Credit Enhancer will be fully
subrogated to the rights of such Holders to receive such principal and interest
from the Issuer, and (ii) the Credit Enhancer shall be paid such principal and
interest but only from the sources and in the manner provided herein and in the
Insurance Agreement for the payment of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all amounts
then payable on the Notes, or under this Indenture in respect to Notes and
all amounts payable under the Insurance Agreement enforce any judgment
obtained and collect from the Issuer moneys adjudged due;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
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(iii) file or record all Assignments that have not previously
been recorded;
(iv) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Credit Enhancer hereunder.]
Section 4.13. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Administrator other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.05 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
REMEDIES
Section 5.01. Events of Default. "Event of Default," wherever used
herein, shall have the meaning provided in Appendix A[; provided, however, that
no Event of Default will occur under clause (i) or clause (ii) of the definition
of "Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument].
The Issuer shall deliver to the Indenture Trustee [and the Credit
Enhancer], within five days after the occurrence of an Event of Default, written
notice in the form of an Officer's Certificate of any event which with the
giving of notice and the lapse of time would become an Event of Default under
clause (iii) of the definition of "Event of Default," its status and what action
the Issuer is taking or proposes to take with respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default should occur and be continuing, then and in every such case
the Indenture Trustee or the Holders of Notes representing not less than a
majority of the Security Balances of all Notes may declare the Notes to be
immediately due and payable, by a notice in writing to the Issuer (and to the
Indenture Trustee if given by Noteholders), and upon any such declaration the
unpaid principal amount of such Class of Notes, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due
and payable. [Unless the prior written consent of the Credit Enhancer shall have
been obtained by the Indenture Trustee, the Payment Date upon which such
accelerated payment is due and payable shall not be a Payment Date under the
Credit Enhancement Instrument and the Indenture Trustee shall not be authorized
under Section 3.32 to make a draw therefor.]
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Security Balances of all Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
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(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the Notes and
all other amounts that would then be due hereunder or upon the Notes
if the Event of Default giving rise to such acceleration had not
occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements
and advances of the Indenture Trustee and its agents and counsel;
and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee. (a) The Issuer covenants that if (i) default is made in
the payment of any interest on any Note when the same becomes due and payable,
and such default continues for a period of five days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee, pay to it, for the benefit of the Holders of Notes [and of
the Credit Enhancer], the whole amount then due and payable on the Notes for
principal and interest, with interest upon the overdue principal, and in
addition thereto such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 11.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 11.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders [and the Credit Enhancer],
by such appropriate Proceedings as the Indenture Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Indenture Trustee by this Indenture or by
law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable federal or state bankruptcy,
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insolvency or other similar law, or in case a receiver, assignee or trustee in
bankruptcy or reorganization, liquidator, sequestrator or similar official shall
have been appointed for or taken possession of the Issuer or its property or
such other obligor or Person, or in case of any other comparable judicial
Proceedings relative to the Issuer or other obligor upon the Notes, or to the
creditors or property of the Issuer or such other obligor, the Indenture
Trustee, irrespective of whether the principal of any Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Indenture Trustee shall have made any demand pursuant to the
provisions of this Section , shall be entitled and empowered, by intervention in
such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel, and
for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the
Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of
the Indenture Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or
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the production thereof in any trial or other Proceedings relative thereto, and
any such action or proceedings instituted by the Indenture Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and compensation
of the Indenture Trustee, each predecessor Indenture Trustee and their
respective agents and attorneys, shall be for the ratable benefit of the Holders
of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 11.17 hereof may do one or more of the following:
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes
or under this Indenture with respect thereto, whether by declaration or
otherwise, and all amounts payable under the Insurance Agreement, enforce
any judgment obtained, and collect from the Issuer and any other obligor
upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Indenture Trustee, the Holders of the Notes [and the
Credit Enhancer]; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, other than a default
in the payment of any principal or interest on the Notes for thirty (30) days or
more, unless (A) the Holders of 100% of the Security Balances of the Securities
[and the Credit Enhancer], which consent will not be unreasonably withheld
consent thereto, (B) the proceeds of such sale or liquidation distributable to
Holders are sufficient to discharge in full all amounts then due and unpaid upon
the Securities for principal and interest [and to reimburse the Credit Enhancer
for any amounts drawn under the Credit Enhancement Instrument and any other
amounts due the Credit Enhancer under the Insurance Agreement] or (C) the
Indenture Trustee determines that the Mortgage Loans will not continue to
provide sufficient funds for the payment of principal of and interest on either
the Notes or the Certificates, as they would have become due if the Notes had
not been declared due and payable, and the Indenture Trustee obtains the consent
of [the Credit Enhancer, which consent will not be unreasonably withheld, and
of] the Holders of not less than 66-2/3% of the Security Balances of the
Securities. In determining such sufficiency or insufficiency with respect to
clause (B) and (C), the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose. Notwithstanding the foregoing,
so long as an Event of Servicer Termination
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has not occurred, any Sale of the Trust Estate shall be made subject to the
continued Servicing of the Mortgage Loans by the Master Servicer as provided in
the Master Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for amounts due under Section 6.07;
SECOND: to each Class of Noteholders for amounts due and unpaid on
the related Class of Notes for interest and to each Noteholder of
such Class in each case, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Class of
Notes for interest from amounts available in the Trust Estate for
such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and unpaid
on the related Class of Notes for principal, from amounts available
in the Trust Estate for such Noteholders, and to each Noteholder of
such Class in each case ratably, without preference or priority of
any kind, according to the amounts due and payable on such Class of
Notes for principal, until the Security Balances of each Class of
Notes is reduced to zero;
FOURTH: to the Issuer for amounts required to be distributed to the
Certificateholders in respect of interest and principal pursuant to
the Trust Agreement;
FIFTH: [Reserved] [To the payment of all amounts due and owing to
the Credit Enhancer under the Insurance Agreement];
SIXTH: to the Issuer for amounts due under Article VIII of the Trust
Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer or
any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Issuer shall mail to each Noteholder and the Indenture
Trustee a notice that states the record date, the payment date and the amount to
be paid.
Section 5.05. Optional Preservation of the Trust Estate. If the
Notes have been declared to be due and payable under Section 5.02 following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Trust Estate. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Securities and other obligations of the
Issuer [including payment to the Credit Enhancer], and the Indenture Trustee
shall take such desire into account when determining whether or not to maintain
possession of the Trust Estate. In determining whether to maintain possession of
the Trust Estate, the Indenture Trustee may, but need not, obtain and rely upon
an opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose.
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Section 5.06. Limitation of Suits. No Holder of any Note shall have
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless and subject to the provisions of Section 11.17
hereof:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security Balances
of the Notes have made written request to the Indenture Trustee to
institute such Proceeding in respect of such Event of Default in its own
name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and liabilities
to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Security Balances of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07. Unconditional Rights of Noteholders To Receive
Principal and Interest. Notwithstanding any other provisions in this Indenture,
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the respective due dates thereof expressed in such Note or
in this Indenture and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
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Section 5.09. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission
of the Indenture Trustee or any Holder of any Note to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. Control by Noteholders. The Holders of a majority of
the Security Balances of Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust Estate
shall be by Holders of Notes representing not less than 100% of the
Security Balances of Notes;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section , then any direction to the Indenture Trustee by
Holders of Notes representing less than 100% of the Security Balances of
Notes to sell or liquidate the Trust Estate shall be of no force and
effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction.
Notwithstanding the rights of Noteholders set forth in this Section , subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. Waiver of Past Defaults. Prior to the declaration of
the acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note [or (c) the
waiver of which would materially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument]. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but
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no such waiver shall extend to any subsequent or other Event of Default or
impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall
be deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15. Sale of Trust Estate. (a) The power to effect any sale
or other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale by public announcement made at the time and place
of such Sale. The Indenture Trustee hereby expressly waives its right to any
amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the
Trust Estate, or any portion thereof, unless
(1) the Holders of all Securities and the Credit Enhancer
consent to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes,
Certificateholders under the Certificates [and the Credit Enhancer in respect of
amounts drawn under the Credit Enhancement Instrument and
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any other amounts due the Credit Enhancer under the Insurance Agreement], in
full payment thereof in accordance with Section 5.02, on the Payment Date next
succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05, [and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld] and the Holders
representing at least [66-2/3]% of the Security Balances of the Securities
consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders [and the Credit Enhancer] have otherwise
consented or directed the Indenture Trustee, at any public Sale of all or any
portion of the Trust Estate at which a minimum bid equal to or greater than the
amount described in paragraph (2) of subsection (b) of this Section 5.15 has not
been established by the Indenture Trustee and no Person bids an amount equal to
or greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust
Estate
(1) any Holder or Holders of Notes may bid for and [with the
consent of the Credit Enhancer] purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the purchase
price by crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes and Holders of Certificates
[and amounts owing to the Credit Enhancer] as a result of such Sale in
accordance with Section 5.04(b) on the Payment Date next succeeding the date of
such Sale and (B) the expenses of the Sale and of any Proceedings in connection
therewith which are reimbursable to it, without being required to produce the
Notes in order to complete any such Sale or in order for the net Sale price to
be credited against such Notes, and any property so acquired by the Indenture
Trustee shall be held and dealt with by it in accordance with the provisions of
this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
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(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.
Section 5.16. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
Section 5.17. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and observance
by the Seller and the Master Servicer, as applicable, of each of their
obligations to the Issuer under or in connection with the Mortgage Loan Purchase
Agreement and the Master Servicing Agreement, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Mortgage Loan Purchase Agreement and the Master
Servicing Agreement to the extent and in the manner directed by the Indenture
Trustee, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Master Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee [subject to the rights of the Credit Enhancer under the Master
Servicing Agreement] may, and at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Holders of 66-2/3% of the Security Balances of the Notes shall, exercise all
rights, remedies, powers, privileges and claims of the Issuer against the Seller
or the Master Servicer under or in connection with the Mortgage Loan Purchase
Agreement and the Master Servicing Agreement, including the right or power to
take any action to compel or secure performance or observance by the Seller or
the Master Servicer, as the case may be, of each of their obligations to the
Issuer thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Mortgage Loan Purchase Agreement and the Master
Servicing Agreement, as the case may be, and any right of the Issuer to take
such action shall not be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee. (a) If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this
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Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture and
no implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance with a
direction received by it (A) pursuant to Section 5.11 [or (B) from the
Credit Enhancer, which it is entitled to give under any of the Basic
Documents].
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section
6.01.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
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Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that the Indenture Trustee's
conduct does not constitute willful misconduct, [______] negligence or bad
faith.
(e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. Notice of Event of Default. If an Event of Default
occurs and is continuing and if it is known to a Responsible Officer of the
Indenture Trustee, [the Indenture Trustee shall give notice thereof to the
Credit Enhancer.] The Indenture Trustee shall mail to each Noteholder notice of
the Event of Default within 90 days after it occurs. Except in the case of an
Event of Default in payment of principal of or interest on any Note, the
Indenture Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture
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Trustee shall promptly furnish information reasonably requested by the Issuer
that is reasonably available to the Indenture Trustee to enable the Issuer to
perform its federal and state income tax reporting obligations.
Section 6.07. Compensation and Indemnity. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant
to this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer [and the Credit Enhancer]. The
Holders of a majority of Security Balances of the Notes may remove the Indenture
Trustee by so notifying the Indenture Trustee [and the Credit Enhancer] and may
appoint a successor Indenture Trustee. The Issuer shall remove the Indenture
Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee.
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A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section , the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. Successor Indenture Trustee by Merger. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11. The Indenture Trustee shall provide
the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture,
at any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Trust Estate may at the time be located,
the Indenture Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Trust Estate, or any part hereof,
and, subject to the other provisions of this Section , such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.08 hereof.
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(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee
or co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Estate or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [____] or better by [______]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b).
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An Indenture Trustee who has resigned or been removed shall be subject to TIA
ss. 311(a) to the extent indicated.
Section 6.13. Representation and Warranty. The Indenture Trustee
represents and warrants to the Issuer, for the benefit of the Noteholders, that
this Indenture has been executed and delivered by one of its Responsible
Officers who is duly authorized to execute and deliver such document in such
capacity on its behalf.
Section 6.14. Directions to Indenture Trustee. The Indenture Trustee
is hereby directed:
(a) to accept assignment of the Mortgage Loans and hold the assets
of the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the
form prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by
the terms of this Indenture.
Section 6.15. No Consent to Certain Acts of Depositor. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [_______________] of the Depositor's Certificate of
Incorporation.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer To Furnish Indenture Trustee Names and
Addresses of Noteholders. The Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not more than five days after each Record Date, a
list, in such form as the Indenture Trustee may reasonably require, of the names
and addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee [and the Credit Enhancer] may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. Preservation of Information; Communications to
Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA ss. 312(c).
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Section 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) that the Issuer may be
required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission in
accordance with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with respect
to compliance by the Issuer with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, documents and reports required
to be filed by the Issuer pursuant to clauses (i) and (ii) of this Section
7.03(a) and by rules and regulations prescribed from time to time by the
Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with ___________, 199_,
the Indenture Trustee shall mail to each Noteholder as required by TIA ss.
313(c) [and to the Credit Enhancer] a brief report dated as of such date that
complies with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA
ss. 313(b).
A copy of each report at the time of its mailing to Noteholders
shall be filed by the Indenture Trustee with the Commission and each stock
exchange, if any, on which the Notes are listed. The Issuer shall notify the
Indenture Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to
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any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V.
Section 8.02. Trust Accounts. (a) On or prior to the Closing Date,
the Issuer shall cause the Indenture Trustee to establish and maintain, in the
name of the Indenture Trustee, for the benefit of the Noteholders and the
Certificateholders [and the Credit Enhancer], the Payment Account as provided in
Section 3.01 of this Indenture.
(b) All moneys deposited from time to time in the Payment Account
pursuant to the Master Servicing Agreement and all deposits therein pursuant to
this Indenture are for the benefit of the Noteholders, the Certificateholders
and the holders of the Residual Ownership Interest and all investments made with
such moneys including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Master Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in its
[__________] Short Term Investment Fund so long as it is an Eligible Investment.
[(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture Trustee to invest any funds in the
Funding Account in Eligible Investments maturing no later than the Business Day
preceding each Payment Date and shall not be sold or disposed of prior to the
maturity. [Unless otherwise instructed by the Master Servicer, the Indenture
Trustee shall invest all funds in the Payment Account in its
_________________________ Fund so long as it is an Eligible Investment.] During
the Funding Period, any amounts received by the Indenture Trustee in respect of
Net Principal Collections for deposit in the Funding Account, together with any
Eligible Investments in which such moneys are or will be invested or reinvested
during the term of the Notes, shall be held by the Indenture Trustee in the
Funding Account as part of the Trust Estate, subject to disbursement and
withdrawal as herein provided.
(i) Amounts on deposit in the Funding Account in respect of
Net Principal Collections may be withdrawn on each Deposit Date and (1)
paid to the Issuer in payment for Additional Loans by the deposit of such
amount to the Collection Account and (2) at the end of the Funding Period
any amounts remaining in the Funding Account after the withdrawal called
for by clause (1) shall be deposited in the Payment Account to be included
in the payment of principal on the Payment Date that is the last day of
the Funding Period.
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(ii) Amounts on deposit in the Funding Account in respect of
investment earnings shall be withdrawn on each Payment Date and deposited
in the Payment Account and included in the amounts paid to Noteholders and
Certificateholders.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.]
Section 8.03. Opinion of Counsel. The Indenture Trustee shall
receive at least seven days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Noteholders in contravention of the provisions of this Indenture;
provided, however, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Trust Estate. Counsel rendering any such
opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
Section 8.04. Termination Upon Distribution to Noteholders. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificateholders, holders of the Residual Ownership Interest and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. Release of Trust Estate. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article IV hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as (i) there are no
Notes Outstanding, (ii) all sums due the Indenture Trustee pursuant to this
Indenture have been paid, [and (iii) all sums due the Credit Enhancer have been
paid,] release any remaining portion of the Trust Estate that secured the Notes
from the lien of this Indenture. The Indenture Trustee shall release property
from the lien of this Indenture pursuant to this Section 8.05 only upon receipt
of an request from the Issuer accompanied by an Officers' Certificate, an
Opinion of Counsel, and (if required by the TIA) Independent Certificates in
accordance with TIA ss. 314(c) and 314(d)(1) meeting the applicable requirements
as described herein[, and a letter from the President or any Vice President or
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any Secretary of the Credit Enhancer, if any, stating that the Credit Enhancer
has no objection to such request from the Issuer].
Section 8.06. Surrender of Notes Upon Final Payment. By acceptance
of any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of
Noteholders. (a) Without the consent of the Holders of any Notes but with [the
consent of the Credit Enhancer and] prior notice to the Rating Agencies [and the
Credit Enhancer], the Issuer and the Indenture Trustee, when authorized by an
Issuer Request, at any time and from time to time, may enter into one or more
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject to
the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein and
in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be inconsistent
with any other provision herein or in any supplemental indenture or to
make any other provisions with respect to matters or questions arising
under this Indenture or in any supplemental indenture; provided, that such
action shall not adversely affect the interests of the Holders of the
Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes and
to add to or change any of the provisions of this Indenture as shall be
necessary to facilitate the administration of the trusts hereunder by more
than one trustee, pursuant to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification
of this Indenture under the TIA or under any similar federal statute
hereafter enacted and to add to this Indenture such other provisions as
may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an
Issuer Request, may, also without the consent of any of the Holders of the Notes
but with [the consent of the Credit Enhancer and] prior notice to the Rating
Agencies [and the Credit Enhancer], enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, (i) adversely affect in any material respect the interests
of any Noteholder or (ii) cause the Issuer to be subject to an entity level tax
or be classified as a taxable mortgage pool within the meaning of Section
7701(i) of the Code.
Section 9.02. Supplemental Indentures With Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, [with the written consent of
the Credit Enhancer and] with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes, by Act of such Holders
delivered to the Issuer and the Indenture Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each Note affected thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof or the
interest rate thereon, change the provisions of this Indenture relating to
the application of collections on, or the proceeds of the sale of, the
Trust Estate to payment of principal of or interest on the Notes, or
change any place of payment where, or the coin or currency in which, any
Note or the interest thereon is payable, or impair the right to institute
suit for the enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to the
payment of any such amount due on the Notes on or after the respective due
dates thereof;
(ii) reduce the percentage of the Security Balances of the
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required
for any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception in
the definition of the term "Holder";
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(iv) reduce the percentage of the Security Balances of the
Notes required to direct the Indenture Trustee to direct the Issuer to
sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot be
modified or waived without the consent of the Holder of each Note affected
thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including the
calculation of any of the individual components of such calculation); or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time subject
hereto or deprive the Holder of any Note of the security provided by the
lien of this Indenture; and provided, further, that such action shall not,
as evidenced by an Opinion of Counsel, cause the Issuer to be subject to
an entity level tax or be classified as a taxable mortgage pool within the
meaning of Section 7701(i) of the Code.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section 9.02, the Indenture
Trustee shall mail to the Holders of the Notes to which such amendment or
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture Trustee
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
Section 9.04. Effect of Supplemental Indenture. Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed
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to be modified and amended in accordance therewith with respect to the Notes
affected thereby, and the respective rights, limitations of rights, obligations,
duties, liabilities and immunities under this Indenture of the Indenture
Trustee, the Issuer and the Holders of the Notes shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
[RESERVED]
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon
any application or request by the Issuer to the Indenture Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Indenture Trustee [and to the Credit Enhancer] (i) an Officer's Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section 11.01, except that, in the case of any
such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and
the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is necessary
to enable such signatory to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (i)
above, the Issuer shall also deliver to the Indenture Trustee an
Independent Certificate as to the same matters, if the fair value to the
Issuer of the securities to be so deposited and of all other such
securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Issuer, as set forth
in the certificates delivered pursuant to clause (i) above and this clause
(ii), is 10% or more of the Security Balances of the Notes, but such a
certificate need not be furnished with respect to any securities so
deposited, if the fair value thereof to the Issuer as set forth in the
related Officer's Certificate is less than $25,000 or less than one
percent of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be released
from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the
opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed to
be released and stating that in the opinion of such person the proposed
release will not impair the security under this Indenture in contravention
of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (iii)
above, the Issuer shall also furnish to the Indenture Trustee an
Independent Certificate as to the same matters if the fair value of the
property or securities and of all other property, other than property as
contemplated by clause (v) below or securities released from the lien of
this Indenture since the commencement of the then-current calendar year,
as set forth in the certificates required by clause (iii) above and this
clause (iv), equals 10% or more of the Security Balances of the Notes, but
such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $25,000 or less than one
percent of the then Security Balances of the Notes.
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(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other
provisions of this Section 11.01, (A) collect, sell or otherwise dispose
of Mortgage Loans and Mortgaged Properties as and to the extent permitted
or required by the Basic Documents or (B) make cash payments out of the
Payment Account as and to the extent permitted or required by the Basic
Documents, so long as the Issuer shall deliver to the Indenture Trustee
every six months, commencing __________, 199_, an Officer's Certificate of
the Issuer stating that all the dispositions of Collateral described in
clauses (A) or (B) above that occurred during the preceding six calendar
months were in the ordinary course of the Issuer's business and that the
proceeds thereof were applied in accordance with the Basic Documents.
Section 11.02. Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Seller, the Issuer or the Administrator, stating that the information with
respect to such factual matters is in the possession of the Seller, the Issuer
or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 11.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or
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instruments are delivered to the Indenture Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.01)
conclusive in favor of the Indenture Trustee and the Issuer, if made in the
manner provided in this Section 11.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, [Credit
Enhancer] and Rating Agencies. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Indenture Trustee at the Corporate
Trust Office, or
(ii) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and mailed
first-class, postage prepaid to the Issuer addressed to: [___________]
Home Equity Loan Trust 199_-__ in care of [_____________],
[______________] Attention of [_________] with a copy to the Administrator
at [______________], Attention: [_____________], or at any other address
previously furnished in writing to the Indenture Trustee by the Issuer or
the Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
[(iii) the Credit Enhancer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [_______________], Attention:
[______________], Telephone: [_____________], Telecopier: [___________].]
Notices required to be given to the Rating Agencies by the Issuer,
the Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to [(i) in the
case of DCR, at the following address: [________________];] [and] [(ii) in the
case of Fitch Investors Service, L.P., at the following address:
[______________];] [and] [(iii) in the case of Moody's, at the following
address: Moody's Investors Service, ABS Monitoring Department, 99 Church Street,
New York, New York 10007]; [and] [(iv) in the case of Standard & Poor's, at the
following address: Standard & Poor's Corporation, 26 Broadway (15th
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Floor), New York, New York 10004, Attention of Asset Backed Surveillance
Department;] or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 11.06. Alternate Payment and Notice Provisions.
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Indenture Trustee or any
Administrator to such Holder, that is different from the methods provided for in
this Indenture for such payments or notices. The Issuer will furnish to the
Indenture Trustee a copy of each such agreement and the Indenture Trustee will
cause payments to be made and notices to be given in accordance with such
agreements.
Section 11.07. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 11.08. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
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Section 11.09. Successors and Assigns. All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 11.10. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.11. Benefits of Indenture. [The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture.] Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 11.12. Legal Holidays. In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.14. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.15. Recording of Indenture. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
Section 11.16. Issuer Obligation. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Issuer, the Owner Trustee
or the Indenture Trustee on the Notes or under this Indenture or any certificate
or other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
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owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
Section 11.17. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 11.18. Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Indenture Trustee, during
the Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The
Indenture Trustee shall and shall cause its representatives to hold in
confidence all such information except to the extent disclosure may be required
by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its obligations hereunder.
Section 11.19. Authority of the Administrator. Each of the parties
to this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
[___________] HOME EQUITY LOAN
TRUST 199_-__ as Issuer
By: [_________________________________],
not in its individual capacity
but solely as Owner Trustee
By: [__________________________________]
Name:
Title:
[_______________________________________],
as Indenture Trustee, as Certificate Paying
Agent and as Certificate Registrar
By: ______________________________________
Name:
Title:
[___________________]
hereby accepts the appointment as Certificate Paying Agent pursuant to Section
3.03 hereof and as Certificate Registrar pursuant to Section 4.02 hereof.
___________________________________
By:
Title:
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at _________________, __________________ _____, that he is the
________________________ of the Owner Trustee, one of the corporations described
in and which executed the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that he signed his name thereto by like order.
_______________________________
Notary Public
[NOTARIAL SEAL]
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
________ __________________, to me known, who being by me duly sworn, did depose
and say, that he resides at ________________________________________, that he is
the ______________ of _________________, as Indenture Trustee, one of the
corporations described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
______________________________
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
_________ ________________, to me known, who being by me duly sworn, did depose
and say, that he resides at ________________________________________, that he is
an ________________ of _______________, as Indenture Trustee, one of the
corporations described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
______________________________
Notary Public
[NOTARIAL SEAL]
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APPENDIX A
DEFINITIONS
Accelerated Principal Distribution Amount: With respect to any Payment
Date, the lesser of (x) the amount remaining in the Payment Account after the
application of funds on deposit therein in accordance with clauses (i) through
(vi) of Section 3.05 of the Indenture and (y) the amount required to reach the
Required Overcollateralization Amount.
Accelerated Principal Payment Amount: As defined in Section 3.05 of the
Indenture.
Additional Balance: With respect to any Mortgage Loan, any future Draw
made by the related Mortgagor pursuant to the related Loan Agreement after the
Cut-off Date in the case of an Initial Loan, or after the Deposit Date in the
case of an Additional Loan; provided, however, that if an Amortization Event
occurs, then any Draw after such Amortization Event shall not be acquired by the
Issuer and shall not be an Additional Balance.
Additional Loans: All home equity line of credit loans sold by the
Depositor to the Issuer after the Closing Date pursuant to [Section _ of the
Loan Purchase Agreement].
Administration Agreement: The Administration Agreement dated as of
___________, 199_ among the Issuer, the Indenture Trustee and [______________],
as Administrator, as it may be amended from time to time.
Administrator: [______________], as administrator under the Administration
Agreement or any successor Administrator appointed pursuant to the terms of the
Administration Agreement.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Aggregate Security Balance: With respect to any Payment Date, the
aggregate of the Principal Balances of all Securities as of such date.
[Amortization Event: Any one of the following events:
(a) the failure on the part of the Seller (i) to make any payment or
deposit required to be made under the Loan Purchase Agreement within four
Business Days after the date such payment or deposit is required to be
made; or (ii) to observe or perform in any material respect any other
covenants or agreements of the Seller set forth in the Loan Purchase
Agreement, which failure continues unremedied for a period of 60 days
after written notice and such failure materially and adversely affects the
interests of the Securityholders or the Credit Enhancer;
(b) if any representation or warranty made by the Seller in the Loan
Purchase Agreement proves to have been incorrect in any material respect
when made and which continues to be incorrect in any material respect for
a period of 45 days with respect to any
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representation or warranty of the Seller made in Section [___] of the Loan
Purchase Agreement or 90 days with respect to any representation or
warranty made in Section [___] or [___] of the Loan Purchase Agreement
after written notice and as a result of which the interests of the
Securityholders or the Credit Enhancer are materially and adversely
affected; provided, however, that an Amortization Event shall not be
deemed to occur if the Seller has repurchased or substituted for the
related Mortgage Loans or all Mortgage Loans, if applicable, during such
period (or within an additional 60 days with the consent of the Indenture
Trustee and the Credit Enhancer) in accordance with the provisions of the
Indenture;
(c) The entry against the Seller of a decree or order by a court or
agency or supervisory authority having jurisdiction in the premises for
the appointment of a trustee, conservator, receiver or liquidator in any
insolvency, conservatorship, receivership, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for the
winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive
days;
(d) The Seller shall voluntarily go into liquidation, consent to the
appointment of a conservator, receiver, liquidator or similar person in
any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Seller or of or
relating to all or substantially all of its property, or a decree or order
of a court, agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Seller and
such decree or order shall have remained in force undischarged, unbonded
or unstayed for a period of 60 days; or the Seller shall admit in writing
its inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations;
(e) the Issuer becomes subject to regulation by the Commission as an
investment company within the meaning of the Investment Company Act of
1940, as amended;
(f) an Event of Servicing Termination relating to the Master
Servicer occurs under the Master Servicing Agreement and the Master
Servicer is the Seller; or
(g) the aggregate of all draws under the Credit Enhancement
Instrument exceed 1% of the sum of (i) the Cutoff Date Asset Balance and
(ii) the amount by which the Pool Balance as of the latest date that the
Additional Loans have been transferred to the Issuer exceeds the Cut-off
Date Asset Balance.
In the case of any event described in (a), (b) or (f), an Amortization
Event will be deemed to have occurred only if, after any applicable grace period
described in such clauses, either the Indenture Trustee, the Credit Enhancer or,
with the consent of the Credit Enhancer, Securityholders evidencing not less
than 51% of the Security Balance of each of the Notes and the Certificates by
written notice to the Seller, the Master Servicer, the Depositor and the Owner
Trustee (and to the Indenture Trustee, if given by the Credit Enhancer or the
Securityholders) may declare that an Amortization Event has occurred as of the
date of such notice. In the case of any event described in clauses (c), (d),
(e), (g)
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or (h), an Amortization Event will be deemed to have occurred without any notice
or other action on the part of the Indenture Trustee, the Securityholders or the
Credit Enhancer immediately upon the occurrence of such event; provided, that
any Amortization Event described in clauses (g) or (h) may be waived and deemed
of no effect with the written consent of the Credit Enhancer and each Rating
Agency, subject to the satisfaction of any conditions to such waiver.]
Appraised Value: With respect to any Mortgaged Property, either (x) the
value set forth in an appraisal of such Mortgaged Property made to establish
compliance with the underwriting criteria then in effect in connection with the
later of the application for the Mortgage Loan secured by such Mortgaged
Property or any subsequent increase or decrease in the related Credit Limit or
to reduce or eliminate the amount of any primary insurance, or (y) if the sales
price of the Mortgaged Property is considered in accordance with the
underwriting criteria applicable to the Mortgage Loan, the lesser of (i) the
appraised value referred to in (x) above and (ii) the sales price of such
Mortgaged Property.
Asset Balance: With respect to any Mortgage Loan, other than a Liquidated
Mortgage Loan, and as of any day, the related Cut-off Date Asset Balance or
Deposit Date Asset Balance, [plus (i) any Additional Balances in respect of such
Mortgage Loan conveyed to the Issuer,] minus [(ii)] all collections credited as
principal in respect of any such Mortgage Loan in accordance with the related
Loan Agreement (except for any such collections that are allocable to the
Excluded Amount) and applied in reduction of the Asset Balance thereof. For
purposes of this definition, a Liquidated Mortgage Loan shall be deemed to have
an Asset Balance equal to the Asset Balance of the related Mortgage Loan
immediately prior to the final recovery of all related Liquidation Proceeds and
an Asset Balance of zero thereafter.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the conveyance of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering the Mortgage Loans secured by Mortgaged Properties located
in the same jurisdiction.
Authorized Newspaper: A newspaper of general circulation in the Borough of
Manhattan, The City of New York, printed in the English language and customarily
published on each Business Day, whether or not published on Saturdays, Sundays
or holidays.
Authorized Officer: With respect to the Issuer, any officer of the Owner
Trustee who is authorized to act for the Owner Trustee in matters relating to
the Issuer and who is identified on the list of Authorized Officers delivered by
the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may
be modified or supplemented from time to time thereafter) and, so long as the
Administration Agreement is in effect, any Responsible Officer of the
Administrator who is authorized to act for the Administrator in matters relating
to the Issuer and to be acted upon by the Administrator pursuant to the
Administration Agreement and who is identified on the list of Authorized
Officers delivered by the Administrator to the Indenture Trustee on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter).
Basic Documents: The Trust Agreement, the Certificate of Trust, the
Indenture, the Loan Purchase Agreement, the Agreement, the Administration
Agreement, the Master Servicing Agreement, the Custodial Agreement and the other
documents and certificates delivered in connection with any of the above.
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Beneficial Owner: With respect to any Note, the Person who is the
beneficial owner of such Note as reflected on the books of the Depository or on
the books of a Person maintaining an account with such Depository (directly as a
Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
Billing Cycle: With respect to any Mortgage Loan and Due Date, the
calendar month preceding such Due Date.
Book-Entry Notes: Beneficial interests in the Notes, ownership and
transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the State of New York, [_______________] or
[_____________] are required or authorized by law to be closed.
Business Trust Statute: Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code ss.ss.3801 et seq., as the same may be amended from time to time.
Carryover Loss Amount: With respect to any Payment Date, the aggregate of
Loss Amounts (other than Loss Amounts arising during the related Collection
Period) with respect to which either (i) payments of principal have not been
previously made on the Notes and the Certificates or (ii) were not reflected in
a reduction (not below zero) of the Overcollateralization Amount.
Certificate Distribution Amount: With respect to any Payment Date, the sum
of (x) the amount accrued during the related Interest Period on the Principal
Balance of the Certificates at the Certificate Rate for such Interest Period and
(y) any Unpaid Certificate Distribution Amount Shortfall. The amount available
for distribution on any Payment Date shall be allocated first to the amount in
clause (x) above, and second to the amount in clause (y) above.
Certificate Paying Agent: The meaning specified in Section 3.03 of the
Indenture.
Certificate Percentage: With respect to any Payment Date, the ratio,
expressed as a percentage, of the aggregate of the Principal Balance of the
Certificates immediately prior to such Payment Date to the sum of the aggregate
of the Principal Balance of the Securities immediately prior to such date.
Certificate Rate: With respect to any Interest Period, the per annum rate
determined by the Master Servicer equal to the sum of (i) LIBOR and (ii)
[______]%; provided, however, that in no event shall the Certificate Rate with
respect to any Interest Period exceed the Maximum Rate.
Certificate Register: The register maintained by the Certificate Registrar
in which the Certificate Registrar shall provide for the registration of
Certificates and of transfers and exchanges of Certificates.
Certificate Registrar: Initially, [______________], in its capacity as
Certificate Registrar, or any successor to the Indenture Trustee in such
capacity.
Certificate of Trust: The Certificate of Trust filed for the Trust
pursuant to Section 3810(a) of the Business Trust Statute.
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Certificates: The Home Equity Loan Asset-Backed Certificates, Series
199_-_, each evidencing undivided beneficial interests in the Issuer and
executed by the Owner Trustee in substantially the form set forth in Exhibit A
to the Trust Agreement.
Certificateholder: The Person in whose name a Certificate is registered in
the Certificate Register except that, any Certificate registered in the name of
the Issuer, the Owner Trustee or the Indenture Trustee or any Affiliate of any
of them shall be deemed not to be outstanding and the registered holder will not
be considered a Certificateholder or a holder for purposes of giving any
request, demand, authorization, direction, notice, consent or waiver under the
Indenture or the Trust Agreement provided that, in determining whether the
Indenture Trustee or the Owner Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Indenture Trustee or the Owner Trustee knows to be so
owned shall be so disregarded. Owners of Certificates that have been pledged in
good faith may be regarded as Holders if the pledgee establishes to the
satisfaction of the Indenture Trustee or the Owner Trustee, as the case may be,
the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
Class: The Notes or the Certificates, as the case may be.
Closing Date: ___________, 199_.
Code: The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
Collateral: The meaning specified in the Granting Clause of the Indenture.
Collection Account: The account or accounts created and maintained
pursuant to Section [ ] of the Master Servicing Agreement. The Collection
Account shall be an Eligible Account.
Collection Period: With respect to any Mortgage Loan and Payment Date
other than the first Payment Date, the calendar month preceding any such Payment
Date and with respect to the first Payment Date, the period from _____________
through [___________].
Combined Loan-to-Value Ratio: With respect to any Mortgage Loan and any
date, the percentage equivalent of a fraction, the numerator of which is the sum
of (i) the greater of (x) the Credit Limit and (y) the Cut-off Date Asset
Balance of such Mortgage Loan and (ii) the outstanding principal balance as of
the date of the origination of such Mortgage Loan (or any subsequent date as of
which such outstanding principal balance may be determined in connection with an
increase or decrease in the Credit Limit or to reduce the amount of primary
insurance for such Mortgage Loan) of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
Corporate Trust Office: With respect to the Indenture Trustee, Certificate
Registrar, Certificate Paying Agent and Paying Agent, the principal corporate
trust office of the Indenture Trustee and Note Registrar at which at any
particular time its corporate trust business shall be administered, which office
at the date of the execution of this instrument is located at [______________],
except that for purposes of Section 4.02 of the Indenture and Section 3.08 of
the
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Trust Agreement, such term shall include the Indenture Trustee's office or
agency at [__________] to the Owner Trustee, the principal corporate trust
office of the Owner Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of the execution of
this Trust Agreement is located at [___________], Attention:
[__________________].
[Credit Enhancement Draw Amount: As defined in Section 3.32 of the
Indenture.
Credit Enhancement Instrument: The [Letter of Credit] [Surity Bond] number
[__________], dated as of the Closing Date, issued by the Credit Enhancer to the
Indenture Trustee for the benefit of the Noteholders and to the Certificate
Paying Agent as agent for the Issuer for the benefit of the Certificateholders.
Credit Enhancer: [______________________], a [_______________], any
successor thereto or any replacement credit enhancer substituted pursuant to
Section 3.33 of the Indenture.
Credit Enhancer Default: If the Credit Enhancer fails to make a payment
required under the Credit Enhancement Instrument in accordance with its terms.]
Credit Limit: With respect to any Mortgage Loan, the maximum Asset Balance
permitted under the terms of the related Loan Agreement.
Custodial Agreement: Any Custodial Agreement between the Custodian, the
Indenture Trustee, the Issuer and the Master Servicer relating to the custody of
the Mortgage Loans and the Related Documents.
Custodian: With respect to the Mortgage Loans, [______________], a
[_______________], and its successors and assigns.
Cut-Off Date: With respect to the Initial Loans ________, 199_.
[DCR: Duff & Phelps Credit Rating Co. or its successor in interest.]
Default: Any occurrence which is or with notice or the lapse of time or
both would become an Event of Default.
Definitive Notes: The meaning specified in Section 4.06 of the Indenture.
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with an
Eligible Substitute Mortgage Loan.
[Deposit Date: The applicable date as of which any Additional Loan is sold
to the Issuer pursuant to the Loan Purchase Agreement.
Deposit Date Asset Balance: With respect to any Additional Loan, the Asset
Balance thereof as of the Deposit Date.]
Depositor: Morgan Stanley ABS I, Inc., a Delaware corporation, or its
successor in interest.
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Depository or Depository Agency: The Depository Trust Company or a
successor appointed by the Indenture Trustee with the approval of the Depositor.
Any successor to the Depository shall be an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
Depository Participant: A Person for whom, from time to time, the
Depository effects book-entry transfers and pledges of securities deposited with
the Depository.
[Designated Certificate: The meaning specified in Section 3.11 of the
Trust Agreement.]
Dissolution Payment Date: Following an Event of Default under the
Indenture and an acceleration of the Maturity Date of the Notes, a date on which
the proceeds of the sale of the Trust Estate are paid to Securityholders.
Draw: With respect to any Mortgage Loan, a borrowing by the Mortgagor
under the related Loan Agreement.
Due Date: With respect to the Mortgage Loans, the [__]th day of the month.
Eligible Account: An account that is any of the following: (i) maintained
with a depository institution the short-term debt obligations of which have been
rated by each Rating Agency in its highest rating available, or (ii) an account
or accounts in a depository institution in which such accounts are fully insured
to the limits established by the FDIC, provided that any deposit not so insured
shall, to the extent acceptable to each Rating Agency, as evidenced in writing,
be maintained such that (as evidenced by an Opinion of Counsel delivered to the
Indenture Trustee and each Rating Agency) the Indenture Trustee have a claim
with respect to the funds in such account or a perfected first security interest
against any collateral (which shall be limited to Eligible Investments) securing
such funds that is superior to claims of any other depositors or creditors of
the depository institution with which such account is maintained, or (iii) in
the case of the Collection Account, either (A) a trust account or accounts
maintained at the Corporate Trust Department of the Indenture Trustee or (B) an
account or accounts maintained at the Corporate Trust Department of the
Indenture Trustee, as long as its short term debt obligations are rated [___] by
[_____] and [___] by [_____________] or the equivalent or better by each Rating
Agency and its long term debt obligations are rated [___] by [___] and [___] by
[___________] or the equivalent or better by each Rating Agency, or (iv) in the
case of the Collection Account and the Payment Account, a trust account or
accounts maintained in the corporate trust division of the Indenture Trustee, or
(v) an account or accounts of a depository institution acceptable to each Rating
Agency as evidenced in writing by each Rating Agency that use of any such
account as the Collection Account or the Payment Account will not reduce the
rating assigned to any of the Securities by such Rating Agency below investment
grade [without taking into account the Credit Enhancement Instrument.]
Eligible Investments: One or more of the following:
(i) obligations of the United States or any agency thereof, provided such
obligations are backed by the full faith and credit of the United States; (ii)
general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the related Series of Securities, or such lower
rating as will not result in the downgrading or withdrawal of the ratings then
assigned to the Securities by each such Rating Agency; (iii) commercial or
finance company paper (including, without limitation, commercial
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paper issued by _________________ or any of its Affiliates) which is then
receiving the highest commercial or finance company paper rating of each such
Rating Agency, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Securities by each such Rating
Agency; (iv) certificates of deposit, demand or time deposits, or bankers'
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 long term unsecured debt obligations
of such depository institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company, but only if
Moody's is not a Rating Agency) are then rated one of the two highest long-term
and the highest short-term ratings of each such Rating Agency for such
securities, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities by any such Rating
Agency; (iv) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings institution to the extent that such deposits
are fully insured by the FDIC; (v) guaranteed reinvestment agreements issued by
any bank, insurance company or other corporation containing, at the time of the
issuance of such agreements, such terms and conditions as will not result in the
downgrading or withdrawal of the rating then assigned to the Securities by any
such Rating Agency; (vi) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered into with a
depository institution or trust company (acting as principal) described in
clause (iv) above; (vii) securities (other than stripped bonds, stripped coupons
or instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in the downgrading or withdrawal of the rating then
assigned to the Securities by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; and (viii) such other investments
having a specified stated maturity and bearing interest or sold at a discount
acceptable to each Rating Agency as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities of such Series by any
such Rating Agency, as evidenced by a signed writing delivered by each such
Rating Agency; provided that no such instrument shall be a Permitted Investment
if such instrument evidences the right to receive interest only payments with
respect to the obligations underlying such instrument.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
Depositor for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officers' Certificate delivered to the
Indenture Trustee, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in the
Collection Account in the month of substitution); (ii) have a Loan Rate not less
than the Loan Rate of the Deleted Mortgage Loan and not more than __% in excess
of the Loan Rate of such Deleted Mortgage Loan; (iii) have a Loan Rate based on
the same index with adjustments to such Loan Rate made on the same interest rate
adjustment date as that of the Deleted Mortgage Loan; (iv) have a Margin that is
not less than the Margin of the Deleted Mortgage Loan and not more than _____
basis points higher than the Margin for the Deleted Mortgage Loan; (v) have a
mortgage of the same or higher level of priority as the mortgage relating to the
Deleted Mortgage Loan; (vi) have a remaining term to maturity not more than ____
months earlier and not more than ____ months later than the
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remaining term to maturity of the Deleted Mortgage Loan; (vii) comply with each
representation and warranty as to the Mortgage Loans set forth in the Loan
Purchase Agreement (deemed to be made as of the date of substitution); (viii) in
general, have an original Combined Loan-to-Value Ratio not greater than that of
the Deleted Mortgage Loans; and (ix) satisfy certain other conditions specified
in the Purchase Agreement. To the extent the Principal Balance of an Eligible
Substitute Mortgage Loan is less than the Principal Balance of the related
Deleted Mortgage Loan, the Seller will be required to make a deposit to the
Collection Account equal to such difference; and (x) not be __ days or more
delinquent.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Event of Default: With respect to the Indenture, any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) a default in the payment of any interest on any Note when the
same becomes due and payable, and such default shall continue for a period
of five days; or
(ii) a default in the payment of the principal of or any installment
of the principal of any Note when the same becomes due and payable; or
(iii) [a Credit Enhancer Default shall have occurred and be
continuing and] there occurs a default in the observance or performance of
any covenant or agreement of the Issuer made in the Indenture, or any
representation or warranty of the Issuer made in the Indenture or in any
certificate or other writing delivered pursuant hereto or in connection
herewith proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue
or not be cured, or the circumstance or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been
given, by registered or certified mail, to the Issuer by the Indenture
Trustee or to the Issuer and the Indenture Trustee by the Holders of at
least 25% of the Outstanding Amount of the Notes, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of
default hereunder; or
(iv) [a Credit Enhancer Default shall have occurred and be
continuing and] there occurs the filing of a decree or order for relief by
a court having jurisdiction in the premises in respect of the Issuer or
any substantial part of the Trust Estate in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust Estate, or ordering the
winding-up or liquidation of the Issuer's affairs, and such decree or
order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(v) [a Credit Enhancer Default shall have occurred and be continuing
and] there occurs the commencement by the Issuer of a voluntary case under
any applicable federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by the Issuer to the entry
of an order for relief in an involuntary case under any such law, or the
consent by the Issuer to the appointment or taking possession by a
receiver, liquidator,
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assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the assets of the Trust Estate, or
the making by the Issuer of any general assignment for the benefit of
creditors, or the failure by the Issuer generally to pay its debts as such
debts become due, or the taking of any action by the Issuer in furtherance
of any of the foregoing.
Event of Servicer Termination: With respect to the Master Servicing
Agreement, an Event of Default as defined in Section 7.01 of the Master
Servicing Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
Excluded Amount: For any Payment Date on or after the occurrence of an
Amortization Event, with respect to all collections whether interest or
principal (other than any amounts received in respect of a Repurchase Price and
pursuant to Section [ ] of the Master Servicing Agreement) ("Total Collections")
on all Initial Loans and Additional Loans in each case including all Draws
whether or not transferred to the Issuer (collectively, "Total Balances of
Obligors"), an amount equal to the product of (A) Total Collections during the
related Collection Period and (B) a fraction equal to one (1) minus a fraction
the numerator of which is (x) the aggregate Asset Balances of the end of the
last Collection Period and the denominator of which is (y) the Total Balances of
Obligors.
Expenses: The meaning specified in Section 8.02 of the Trust Agreement.
FDIC: The Federal Deposit Insurance Corporation or any successor thereto.
Final Scheduled Payment Date: To the extent not previously paid, the
principal balance of each Class of Notes will be due on the Payment Date in
____________ ____.
[Fitch: Fitch Investors Service, L.P. or its successor in interest.]
FNMA: The Federal National Mortgage Association, or any successor thereto.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Asset Balance (plus accrued and unpaid interest thereon
at the applicable Loan Rate from the date interest was last paid through the
date of receipt of the final Liquidation Proceeds) of such Liquidated Mortgage
Loan immediately prior to the final recovery of its Liquidation Proceeds.
[Funding Account: The trust account created and maintained with the
Indenture Trustee pursuant to Section 8.02 of the Indenture and referred to
therein as the Funding Account. Funds deposited in the Funding Account shall be
held in trust for the uses and purposes set forth in Article VIII of the
Indenture.
Funding Period: The period commencing on the Cut-off Date and ending on
the earlier of (x) the Payment Date in __________, 199_ and (y) the occurrence
of an Amortization Event.]
Grant: Mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to the Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting
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party thereunder, including the immediate and continuing right to claim for,
collect, receive and give receipt for principal and interest payments in respect
of such collateral or other agreement or instrument and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
Gross Margin: With respect to any Mortgage Loan, the percentage set forth
as the "Gross Margin" for such Mortgage Loan on the Mortgage Loan Schedule, as
adjusted from time to time with respect to any [______________] Loan in
accordance with the terms of the Master Servicing Agreement.
[Guaranteed Principal Payment Amount: With respect to any Payment Date,
other than the Dissolution Payment Date, the amount, if any, by which the
Aggregate Security Balance (after giving effect to all amounts allocable and
distributable to principal on the Securities on such Payment Date) exceeds the
sum of (A) the Pool Balance plus (B) all amounts on deposit in the Funding
Account on such date (after giving effect to all withdrawals therefrom and
deposits thereto pursuant to Sections 8.02(b) and 8.02(c) of the Indenture on
such Payment Date). With respect to the Payment Date in ________ 20__, if such
Payment Date is not a Dissolution Payment Date, the amount, if any, by which the
aggregate of the Security Balances (after giving effect to all amounts allocable
and distributable to principal on the Securities) exceeds the amount on deposit
in the Payment Account available to be paid as principal on the Securities
(after giving effect to all amounts allocable and distributable as principal on
the Securities on such date).]
Holder: Any of the Noteholders or Certificateholders.
Indemnified Party: The meaning specified in Section 8.02 of the Trust
Agreement.
Indenture: The indenture dated as of _________, 199_ between the Issuer
and the Indenture Trustee, as Indenture Trustee.
Indenture Trustee: [______________], and its successors and assigns or any
successor indenture trustee appointed pursuant to the terms of the Indenture.
Independent: When used with respect to any specified Person, the Person
(i) is in fact independent of the Issuer, any other obligor on the Notes, the
Seller, the Depositor and any Affiliate of any of the foregoing Persons, (ii)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Seller, the Depositor or any
Affiliate of any of the foregoing Persons and (iii) is not connected with the
Issuer, any such other obligor, the Seller, the Depositor or any Affiliate of
any of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
Independent Certificate: A certificate or opinion to be delivered to the
Indenture Trustee under the circumstances described in, and otherwise complying
with, the applicable requirements of Section 11.01 of the Indenture, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
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Index Rate: [The rate [equal to] [based on] the highest "prime rate"
published in the 'Money Rates' table of The Wall Street Journal as of the first
Business Day of each calendar month.]
Initial Loans: All home equity lines of credit sold by the Seller to the
Purchaser on ________, 199_ pursuant to the terms of the Loan Purchase
Agreement, as specified in the Mortgage Loan Schedule.
Initial Principal Balance: With respect to the Certificates,
$______________; and the Notes, $__________.
Insolvency Event: With respect to a specified Person, (a) the filing of a
decree or order for relief by a court having jurisdiction in the premises in
respect of such Person or any substantial part of its property in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for such Person or for any substantial
part of its property, or ordering the winding-up or liquidation of such Person's
affairs, and such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or (b) the commencement by such Person of a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by such Person to the entry of an
order for relief in an involuntary case under any such law, or the consent by
such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts generally, or the adoption by the Board of
Directors or managing member of such Person of a resolution which authorizes
action by such Person in furtherance of any of the foregoing.
[Insurance Agreement: The insurance and reimbursement agreement dated as
of ______________, 199_ among the Master Servicer, the Seller, the Depositor,
the Issuer and the Credit Enhancer, including any amendments and supplements
thereto.]
Insurance Proceeds: Proceeds paid by any insurer pursuant to any insurance
policy covering a Mortgage Loan which are required to be remitted to the Master
Servicer, or amounts required to be paid by the Master Servicer pursuant to the
last sentence of Section [ ] of the Master Servicing Agreement, net of any
component thereof (i) covering any expenses incurred by or on behalf of the
Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
Interest Collections: With respect to any Payment Date, the sum of all
payments by or on behalf of Mortgagors and any other amounts constituting
interest (including without limitation such portion of Insurance Proceeds, Net
Liquidation Proceeds and Repurchase Prices as is allocable to interest on the
applicable Mortgage Loan) as is paid by the Seller or the Master Servicer or is
collected by the Servicer under the Mortgage Loans, reduced by the Servicing
Fees for the related Collection Period and by any fees (including annual fees)
or late charges or similar administrative fees paid by Mortgagors during the
related Collection Period. The terms of the related Loan Agreement
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shall determine the portion of each payment in respect of such Mortgage Loan
that constitutes principal or interest.
Interest Period: With respect to any Payment Date other than the first
Payment Date, the period beginning on the preceding Payment Date and ending on
the day preceding such Payment Date, and in the case of the first Payment Date,
the period beginning on the Closing Date and ending on the day preceding the
first Payment Date.
Issuer: [____________] Home Equity Loan Trust 199_-_, a Delaware business
trust, or its successor in interest.
Issuer Request: A written order or request signed in the name of the
Issuer by any one of its Authorized Officers and delivered to the Indenture
Trustee.
[LIBOR: For any Interest Period other than the first Interest Period, the
rate for United States dollar deposits for one month which appears on the
Telerate Screen Page 3750 as of 11:00 A.M., London time, on the second LIBOR
Business Day prior to the first day of such Interest Period. With respect to the
first Interest Period, the rate for United States dollar deposits for one month
which appears on the Telerate Screen Page 3750 as of _____ A.M.,
_________________ time, two LIBOR Business Days prior to the Closing Date. If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be reasonably selected
by the Indenture Trustee after consultation with the Master Servicer), the rate
will be the Reference Bank Rate. If no such quotations can be obtained and no
Reference Bank Rate is available, LIBOR will be LIBOR applicable to the
preceding Payment Date.]
[LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in the State of New York, [__________] or
[________], or in the city of London, England are required or authorized by law
to be closed.]
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however, that any assignment pursuant to Section [ ] of the Master Servicing
Agreement shall not be deemed to constitute a Lien.
Lifetime Rate Cap: With respect to each Mortgage Loan with respect to
which the related Mortgage Note provides for a lifetime rate cap, the maximum
Loan Rate permitted over the life of such Mortgage Loan under the terms of such
Mortgage Note, as set forth on the Mortgage Loan Schedule and initially as set
forth on Exhibit A to the Master Servicing Agreement.
Liquidated Mortgage Loan: With respect to any Payment Date, any Mortgage
Loan in respect of which the Master Servicer has determined, in accordance with
the servicing procedures specified in the Master Servicing Agreement, as of the
end of the related Collection Period that
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substantially all Liquidation Proceeds which it reasonably expects to recover
with respect to the disposition of the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead) which
are incurred by or on behalf of the Master Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any insurance policy,
such expenses including, without limitation, legal fees and expenses, any
unreimbursed amount expended (including, without limitation, amounts advanced to
correct defaults on any mortgage loan which is senior to such Mortgage Loan and
amounts advanced to keep current or pay off a mortgage loan that is senior to
such Mortgage Loan) respecting the related Mortgage Loan and any related and
unreimbursed expenditures for real estate property taxes or for property
restoration, preservation or insurance against casualty loss or damage.
Liquidation Loss Amounts: With respect to any Payment Date and any
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered portion of the related Asset Balance thereof
at the end of such Collection Period, after giving effect to the Net Liquidation
Proceeds applied in reduction of the Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds [but not
including amounts drawn under the Credit Enhancement Instrument]) received in
connection with the liquidation of any Mortgage Loan or related REO, whether
through trustee's sale, foreclosure sale or otherwise.
Loan Agreement: With respect to any Mortgage Loan, the credit line account
agreement executed by the related Mortgagor and any amendment or modification
thereof.
Loan Purchase Agreement: The Loan Purchase Agreement, dated as of the
Cut-off Date, between the Seller, as seller, and the Depositor, as purchaser,
with respect to the Mortgage Loans.
Loan Rate: With respect to any Mortgage Loan and any day, the sum of the
Index Rate and the Margin.
Margin: The [spread].
Master Servicer: [_____________________________], and its successors and
assigns.
Master Servicing Agreement: The Master Servicing Agreement dated as of
______________, 199_ between [______________], as Indenture Trustee, and the
Master Servicer, as master servicer.
Master Servicing Fee: With respect to any Collection Period, the product
of (i) the Master Servicing Fee Rate divided by 12 and (ii) the aggregate Asset
Balance of the Mortgage Loans, as of the first day of such Collection Period.
Master Servicing Fee Rate: With respect to any [______________] Loan,
[____]% per annum.
Maximum Pool Balance: As to any Payment Date the highest Pool Balance at
the end of any Collection Period from the Closing Date up to and including the
related Collection Period.
Maximum Rate: With respect to any Interest Period, the Weighted Average
Net Loan Rate related to the Due Date in the month preceding the month in which
such Interest Period ends
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(adjusted to an effective rate reflecting accrued interest calculated on the
basis of the actual number of days in the Collection Period commencing in the
month in which such Interest Period commences and a year assumed to consist of
360 days).
Moody's: Moody's Investors Service, Inc. or its successor in interest.
Mortgage: The mortgage, deed of trust or other instrument creating a first
or second lien on an estate in fee simple interest in real property securing a
Mortgage Loan.
Mortgage File: The file containing the Related Documents pertaining to a
particular Mortgage Loan and any additional documents required to be added to
the Mortgage File pursuant to the Loan Purchase Agreement or the Master
Servicing Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule of Mortgage
Loans included in the Trust Estate on such date. The initial schedule of
Mortgage Loans as of the Cut-Off Date is the schedule set forth in Exhibit A of
the Master Servicing Agreement, which schedule sets forth as to each Mortgage
Loan (i) the Cut-Off Date Trust Balance, (ii) the Credit Limit, (iii) the Gross
Margin, (iv) the name of the Mortgagor, (v) the Lifetime Rate Cap, if any, (vi)
the loan number, (vii) an indication as to the applicable Mortgage Loan Group,
and (viii) the lien position of the related Mortgage. The Mortgage Loan Schedule
will be amended from time to time by annex to reflect Additional Loans.
Mortgage Loans: At any time, collectively, all Initial Loans [and
Additional Loans, in each case including Additional Balances, if any, that have
been sold to the Depositor under the Loan Purchase Agreement,] in each case
together with the Related Documents, and that remain subject to the terms
thereof.
Mortgage Note: With respect to a Mortgage Loan, the Loan Agreement
pursuant to which the related mortgagor agrees to pay the indebtedness evidenced
thereby and secured by the related Mortgage as modified or amended.
Mortgaged Property: The underlying property, including real property and
improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Loan Agreement.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and any day, the related
Loan Rate less the related Servicing Fee Rate.
[Net Principal Collections: With respect to any Distribution Date, the
excess, if any, of Security Principal Collections for the related Collection
Period over the amount of Additional Balances created during the related
Collection Period.]
Notes: The Notes designated as the "Notes" in the Indenture.
Note Owner: The Beneficial Owner of a Note.
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Note Rate: With respect to any Interest Period, a per annum rate
determined by the Master Servicer equal to [LIBOR as of the second LIBOR
Business Day] prior to the first day of such Interest Period and [___]%;
provided however, that in no event shall the Note Rate with respect to any
Interest Period exceed the Maximum Rate for such Interest Period.
Note Register: The register maintained by the Note Registrar in which the
Note Registrar shall provide for the registration of Notes and of transfers and
exchanges of Notes.
Note Registrar: The Indenture Trustee, in its capacity as Note Registrar.
Noteholder: The Person in whose name a Note is registered in the Note
Register, except that, any Note registered in the name of the Depositor, the
Issuer or the Indenture Trustee or any Affiliate of any of them shall be deemed
not to be outstanding and the registered holder will not be considered a
Noteholder or holder for purposes of giving any request, demand, authorization,
direction, notice, consent or waiver under the Indenture or the Trust Agreement
provided that, in determining whether the Indenture Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes that the Indenture Trustee or the Owner Trustee
knows to be so owned shall be so disregarded. Owners of Notes that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons.
Officer's Certificate: With respect to the Master Servicer, a certificate
signed by the President, Managing Director, a Director, a Vice President or an
Assistant Vice President, of the Master Servicer and delivered to the Indenture
Trustee. With respect to the Issuer, a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01 of the Indenture,
and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in the Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer.
Opinion of Counsel: A written opinion of counsel who may be in-house
counsel for the Master Servicer if acceptable to the Indenture Trustee, [the
Credit Enhancer] and the Rating Agencies or counsel for the Depositor, as the
case may be.
Outstanding: With respect to the Notes, as of the date of determination,
all Notes theretofore executed, authenticated and delivered under this Indenture
except:
(i) Notes theretofore cancelled by the Note Registrar or delivered
to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other Notes have been
executed, authenticated and delivered pursuant to the Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a holder in due course;
[provided, however, that for purposes of effectuating the Credit Enhancer's
right of subrogation as set forth in Section 4.12 of the Indenture only, all
Notes that have been paid with funds provided under the Credit Enhancement
Instrument shall be deemed to be Outstanding until the Credit Enhancer has been
reimbursed with respect thereto.]
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Overcollateralization Amount: With respect to any Payment Date, the amount
by which the sum of (x) the Pool Balance as of the last day of the related
Collection Period and (y) the amount on deposit in the Funding Account in
respect of Net Principal Collections, on such Payment Date exceeds the Aggregate
Security Balance on such Payment Date (after giving effect to all amounts
distributed and allocable to principal on the Securities and deposits to and
withdrawals from the Funding Account that are applied to reduce the Security
Balances on such Payment Date).
Owner Trust Estate: The corpus of the Issuer created by the Trust
Agreement which consists of the Mortgage Loans, such assets as shall from time
to time be deposited in the Collection Account and/or the Payment Account
allocable to the Mortgage Loans in accordance with the Trust Agreement, property
that secured a Mortgage Loan and that has become REO, certain hazard insurance
policies maintained by the Mortgagors or by or on behalf of the Master Servicer
in respect of the Mortgage Loans, [the Credit Enhancement Instrument,] an
assignment of the Depositor's rights under the Loan Purchase Agreement and the
obligation of the Depositor to purchase Additional Balances under the Loan
Purchase Agreement and all proceeds of each of the foregoing.
Owner Trustee: [______________], and its successors and assigns or any
successor owner trustee appointed pursuant to the terms of the Trust Agreement.
Paying Agent: Any paying agent or co-paying agent appointed pursuant to
Section 3.03 of the Indenture, which initially shall be [______________].
Payment Account: The account established by the Indenture Trustee pursuant
to Section 8.02 of the Indenture and Section [ ] of the Master Servicing
Agreement. The Payment Account shall be an Eligible Account.
Payment Date: The [___] day of each month, or if such day is not a
Business Day, then the next Business Day.
Percentage Interest: With respect to any Note, the percentage obtained by
dividing the Security Balance of such Note by the aggregate of the Security
Balances of all Notes of the same Class. With respect to any Certificate, the
percentage obtained by dividing the denomination specified on such Certificate
by the Initial Principal Balance of the Certificates.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
[Policy: The irrevocable and unconditional limited financial guaranty
insurance policy number [__________], dated as of the Closing Date, issued by
the Credit Enhancer to the Indenture Trustee for the benefit of the Noteholders
and to the Certificate Paying Agent as agent for the Issuer for the benefit of
the Certificateholders.]
Pool Balance: With respect to any date, the aggregate of the Asset
Balances of all Mortgage Loans as of such date.
Principal Balance: With respect to any Payment Date, the Initial Principal
Balance thereof, reduced by all distributions of principal thereon prior to such
Payment Date.
17
<PAGE> 81
Principal Collection Distribution Amount: For any Payment Date, (i) so
long as an Amortization Event has not occurred, Net Principal Collections and
(ii) following an Amortization Event, Security Principal Collections; provided,
however, on any Payment Date with respect to which the Overcollateralization
Amount that would result if determined without regard to this proviso exceeds
the Required Overcollateralization Amount the Principal Collection Distribution
Amount will be reduced by the amount of such excess until the
Overcollateralization Amount equals the Required Overcollateralization Amount.
Principal Collections: With respect to any Payment Date and any Mortgage
Loan, the aggregate of the following amounts:
(i) the total amount of payments made by or on behalf of the
Mortgagor, received and applied as payments of principal on the Mortgage
Loan during the related Collection Period, as reported by the related
Subservicer;
(ii) any Net Liquidation Proceeds, allocable as a recovery of
principal, received in connection with the Mortgage Loan during the
related Collection Period;
(iii) if the Mortgage Loan was purchased by the Master Servicer
pursuant to Section 3.14 of the Master Servicing Agreement, or was
repurchased by the Seller pursuant to, during the related Collection
Period, 100% of the Asset Balance of the Mortgage Loan as of the date of
such purchase or repurchase; and
(iv) any other amounts received as payments on or proceeds of the
Mortgage Loan during the Collection Period to the extent applied in
reduction of the principal amount thereof;
provided that Principal Collections shall not include any Foreclosure Profits,
and shall be reduced by any amounts withdrawn from the Collection Account
pursuant to clauses (iii), (iv), (vii) and (viii) of Section [ ] of the Master
Servicing Agreement other than any portion of such amounts that are attributable
to the Excluded Amount in respect of any Mortgage Loan that are allocable to
principal of such Mortgage Loan and not otherwise excluded from the amounts
specified in (i) - (iv) above.
Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.
[Purchaser: ______________, a Delaware corporation, and its successors and
assigns.]
[Qualified Insurer: A mortgage guaranty insurance company duly qualified
as such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in such states and to write the
insurance provided by the insurance policy issued by it, approved as an insurer
by the Master Servicer and as a FNMA-approved mortgage insurer.]
Rating Agency: Any nationally recognized statistical rating organization,
or its successor, that rated the Securities at the request of the Depositor at
the time of the initial issuance of the Securities. Initially, [________] or
[__________]. If such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, designated by the Depositor, notice of
which designation shall be given to the Indenture Trustee. References herein to
the highest short term unsecured rating category of a Rating
18
<PAGE> 82
Agency shall mean ["___"] or better in the case of [__________]and ["___"] or
better in the case of [_____] and in the case of any other Rating Agency shall
mean such equivalent ratings. References herein to the highest long-term rating
category of a Rating Agency shall mean "[___]" in the case of [__________] and
["_____"] in the case of [________] and in the case of any other Rating Agency,
such equivalent rating.
Record Date: With respect to the Notes and any Payment Date, the Business
Day next preceding such Payment Date and with respect to the Certificates and
any Payment Date, the last Business Day of the month preceding the month of such
Payment Date.
[Reference Bank Rate: With respect to any Interest Period, as follows: the
arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth of
a percent) of the offered rates for United States dollar deposits for one month
which are offered by the Reference Banks as of _____ A.M., _________________
time, on the second LIBOR Business Day prior to the first day of such Interest
Period to prime banks in the London interbank market for a period of one month
in amounts approximately equal to the sum of the Outstanding Amount of Notes and
the Certificate Principal Balance; provided that at least two such Reference
Banks provide such rate. If fewer than two offered rates appear, the Reference
Bank Rate will be the arithmetic mean of the rates quoted by one or more major
banks in New York City, selected by the Depositor after consultation with the
Indenture Trustee, as of ______ a.m., ______________ time, on such date for
loans in U.S. Dollars to leading European Banks for a period of one month in
amounts approximately equal to the Aggregate Security Balance. If no such
quotations can be obtained, the Reference Bank Rate shall be the Reference Bank
Rate applicable to the preceding Interest Period.]
Reference Banks: [_________________________________________ ____ and
______________________.]
Related Documents: With respect to each Mortgage Loan, the documents
specified in Section 2.01 of the Master Servicing Agreement and any documents
required to be added to such documents pursuant to the Loan Purchase Agreement
or the Trust Agreement.
[Replacement Event: As defined in Section 3.33 of the Indenture.]
REO: A Mortgaged Property that is acquired by the Issuer in foreclosure or
by deed in lieu of foreclosure.
Repurchase Price: With respect to any Mortgage Loan required to be
repurchased on any date pursuant to the Loan Purchase Agreement or purchased by
the Master Servicer pursuant to the Master Servicing Agreement, an amount equal
to the sum of (i) 100% of the Asset Balance thereof (without reduction for any
amounts charged off) and (ii) unpaid accrued interest at the Loan Rate on the
outstanding principal balance thereof from the Due Date to which interest was
last paid by the Mortgagor to the first day of the month following the month of
purchase. No portion of any Repurchase Price shall be included in the Excluded
Amount for any Payment Date.
[Required Overcollateralization Percentage: The greater of [___]% and a
percentage as determined by [_________] during the Funding Period in connection
with the delivery of Additional Loans.
19
<PAGE> 83
Required Overcollateralization Amount: As to any Payment Date prior to the
Payment Date in [___________], the Required Overcollateralization Percentage of
the greater of (i) the Pool Balance as of the Cut-off Date and (ii) the Maximum
Pool Balance as of the end of the Related Collection Period (the "Initial
Required Overcollateralization Amount"). As to any Payment Date on or after the
Payment Date in [_______], the greater of (A) the lesser of (x) the Initial
Required Overcollateralization Amount and (y) [___]% of the Pool Balance as of
the end of the related Collection Period and (B) [___]% of the greater of (i)
the Pool Balance as of the Cut-off Date and (ii) the Maximum Pool Balance. Any
scheduled reduction to the Required Overcollateralization Amount described above
shall not be made as of any Payment Date unless (i) the outstanding Principal
Balance of the Mortgage Loans delinquent __ days or more averaged over the last
12 months as a percentage of the aggregate outstanding Principal Balance of all
Mortgage Loans averaged over the last 12 months does not exceed [____]% (or if
the Pool Balance is less than [___]% of the Maximum Pool Balance, [___]%) and
(ii) aggregate Liquidated Loss Amounts on the Mortgage Loans to date for such
Payment Date occurring during the first two years after the Closing Date or
occurring during the ___, ___, ___, or ___ year (or any year thereafter) after
the Closing Date, are less than [___], [___], [____], [___] or [___]%
respectively, of the Maximum Pool Balance and (iii) there has been no draw on
the Credit Enhancement Instrument. The Required Overcollateralization Amount may
be reduced with the prior written consent of the Credit Enhancer and the Rating
Agencies.]
Residual Ownership Interest: Collectively, the beneficial ownership
interests in the Issuer established under the Trust Agreement that are entitled
to receive all amounts to be paid to the Issuer or its designee pursuant to
Section 3.05(a)(xi) of the Indenture, over the term thereof.
Residual Ownership Interest Paying Agent: Any residual ownership interest
paying agent appointed pursuant to Section 3.03 of the Indenture, which
initially shall be [______________].
Responsible Officer: With respect to the Indenture Trustee, any officer of
the Indenture Trustee with direct responsibility for the administration of the
Trust Agreement and also, with respect to a particular matter, any other officer
to whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Security: Any of the Certificates or Notes.
Security Balance: The Principal Balance of the Notes or the Certificates,
as the case may be.
Securityholder or Holder: Any Noteholder or a Certificateholder.
Security Interest Collections: With respect to any Payment Date, Interest
Collections during the related Collection Period excluding the portion thereof
allocable to the Excluded Amount.
Security Percentage: With respect to any Payment Date and Security, the
percentage equivalent of a fraction the numerator of which is the Security
Balance of such Security immediately prior to such Payment Date and the
denominator of which is the aggregate of the Security Balances of all Securities
as of such date.
20
<PAGE> 84
Security Principal Collections: With respect to any Payment Date,
Principal Collections during the related Collection Period excluding the portion
thereof allocable to the Excluded Amount.
Seller: [_______________], and its successors and assigns.
Servicing Fee: With respect to any Mortgage Loan, the sum of the related
Master Servicing Fee and the related Subservicing Fee.
Servicing Fee Rate: With respect to any Mortgage Loan, the sum of the
related Master Servicing Fee Rate and the related Subservicing Fee Rate.
Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Indenture Trustee by the Master Servicer, as such list may be amended from
time to time.
[Standard & Poor's: Standard & Poor's Ratings Group or its successor in
interest.]
Subservicer: Any Person with whom the Master Servicer has entered into a
Subservicing Agreement as a Subservicer by the Master Servicer, including the
Initial Subservicers.
Subservicing Agreement: The written contract between the Master Servicer
and any Subservicer relating to servicing and administration of certain Mortgage
Loans as provided in Section [ ] of the Master Servicing Agreement.
Subservicing Fee: With respect to any Mortgage Loan and any Collection
Period, the fee retained monthly by the Subservicer (or, in the case of a
nonsubserviced Mortgage Loan, by the Master Servicer) equal to the product of
(i) the Subservicing Fee Rate divided by 12 and (ii) the aggregate Asset Balance
of the Mortgage Loans as of the first day of such Collection Period.
Subservicing Fee Rate: With respect to any Mortgage Loan, [____]% per
annum.
[Substitution Adjustment Amounts: With respect to any Eligible Substitute
Mortgage Loan, the amount as defined in Section [ ] of the Loan Purchase
Agreement.]
[Telerate Screen Page 3750: The display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks). If
such rate does not appear on such page (or such other page as may replace that
page on that service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be selected by the
Issuer after consultation with the Indenture Trustee), the rate will be the
Reference Bank Rate.]
Treasury Regulations: Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust Agreement: The Trust Agreement dated as of __________, 199_ between
the Owner Trustee, and the Depositor.
21
<PAGE> 85
Trust Estate: The meaning specified in the Granting Clause of the
Indenture.
Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as amended
from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Unpaid Certificate Distribution Amount Shortfall: With respect to any
Payment Date, the aggregate amount, if any, of Certificate Distribution Amount
that was accrued in respect of a prior Payment Date and has not been distributed
to Certificateholders.
Weighted Average Net Loan Rate: With respect to the Mortgage Loans in the
aggregate, and any Due Date, the average of the Net Loan Rate for each Mortgage
Loan as of the last day of the related Billing Cycle weighted on the basis of
the related Asset Balances outstanding as of the last day of the related Billing
Cycle (except for the [______________] Loans where the Net Loan Rate will
represent the average Net Loan Rate during the related Billing Cycles weighted
on the basis of the daily Asset Balance during the related Billing Cycle for
such Mortgage Loans) for each Mortgage Loan as determined by the Master Servicer
in accordance with the Master Servicer's normal servicing procedures.
22
<PAGE> 1
Exhibit 4.6
Subject to Completion
MASTER SERVICING AGREEMENT
Dated as of [__________]
among
[_________________] Home Equity Loan Trust 199_,
as Issuer
and
[__________________],
as Master Servicer
and
[_________],
as Trustee
Relating to the Mortgage Loans
Pledged as Collateral for the Issuer's
Asset Backed Notes and Asset Backed Certificates,
Series 199_,
in the Aggregate Initial Principal Amount of $[_______]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES
<S> <C> <C>
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation
to Fund Advances Under Credit Line Agreements..................................... 16
Section 3.01. Administration and Servicing of Mortgage Loans.......................................... 23
Section 4.01. Advances................................................................................ 38
Section 5.01. Servicing Compensation.................................................................. 38
Section 6.01. The Master Servicer..................................................................... 39
Section 7.01. Default................................................................................. 40
Section 8.01. Miscellaneous........................................................................... 43
</TABLE>
SCHEDULES
SCHEDULE I Mortgage Loan Schedule
SCHEDULE II Representations and Warranties of the Master Servicer
SCHEDULE III Representations and Warranties as to the Mortgage Loans
SCHEDULE IV Representations and Warranties of the Issuer
EXHIBITS
EXHIBIT A FORM OF INITIAL CERTIFICATION OF TRUSTEE
EXHIBIT B FORM OF FINAL CERTIFICATION OF TRUSTEE
EXHIBIT C REQUEST FOR RELEASE (for Trustee)
EXHIBIT D REQUEST FOR RELEASE (Mortgage Loan Paid in Full, Repurchased
and Released)
i
<PAGE> 3
MASTER SERVICING AGREEMENT
THIS MASTER SERVICING AGREEMENT is made and entered into as of
[_______], 199_ by and among [______________] Home Equity Loan Trust 199_, a
statutory business trust formed under the laws of the State of [Delaware] (the
"Issuer"), ________, a [________] corporation (the "Master Servicer") and
_______________________, a [ ] corporation (in its capacity as trustee under the
Indenture referred to below, the "Trustee").
PRELIMINARY STATEMENT
The Issuer was formed for the purpose of issuing asset backed
notes and asset backed certificates secured by mortgage collateral. The Issuer
has entered into a trust indenture, dated as of _____, 199_ (the "Indenture"),
between the Issuer and the Trustee, pursuant to which the Issuer intends to
issue its Home Equity Loan Asset Backed Notes and Home Equity Loan Asset Backed
Certificates, Series 199_, in the aggregate initial principal amount of $[ ]
(the "Securities"). Pursuant to the Indenture, as security for the indebtedness
represented by such Securities, the Issuer is and will be pledging to the
Trustee, or granting the Trustee a security interest in, among other things,
certain Mortgage Loans and Additional Balances, its rights under this Agreement,
the Payment Account, the Collection Account [and certain Insurance Policies] (as
each such term is defined herein).
The parties desire to enter into this Agreement to provide,
among other things, for the servicing of the Mortgage Loans by the Master
Servicer. The Master Servicer acknowledges that, in order further to secure the
Securities, the Issuer is and will be granting to the Trustee a security
interest in, among other things, its rights under this Agreement, and the Master
Servicer agrees that all covenants and agreements made by the Master Servicer
herein with respect to the Mortgage Loans shall also be for the benefit and
security of the Trustee and Holders of the Securities. For its services
hereunder, the Master Servicer will receive a Master Servicing Fee (as defined
herein) with respect to each Mortgage Loan serviced hereunder.
ARTICLE I
DEFINITIONS
Except as otherwise specified or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Agreement, and the definitions of such terms are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms:
Advance: The payment required to be made by the Master Servicer with
respect to any Distribution Date pursuant to Article IV, the amount of any such
payment being equal to the aggregate of payments of principal and interest (net
of the Master Servicing Fee and net of any net income in the case of any REO
Property) on the Mortgage Loans that were due on the related Due Date and not
received as of the close of business on the related Determination Date, less the
aggregate amount of any such delinquent payments that the Master Servicer has
determined would constitute a Nonrecoverable Advance if advanced.
Additional Balance: With respect to any Mortgage Loan, any future Draw
made by the related Mortgagor pursuant to the related Loan Agreement after the
Cut-off Date in the case of an Initial Loan, or after the Deposit Date in the
case of an Additional Loan; provided, however, that if
<PAGE> 4
an Amortization Event occurs, then any Draw after such Amortization Event shall
not be acquired by the Issuer and shall not be an Additional Balance.
Additional Loans: All home equity line of credit loans sold by the
Depositor to the Issuer after the Closing Date pursuant to [Section __ of the
Loan Purchase Agreement.]
Adjusted Net Mortgage Rate: ______________.
Administration Agreement: The Administration Agreement dated as of
___________, 199_ among the Issuer, the Trustee and [______________], as
Administrator, as it may be amended from time to time.
Administrator: [______________], as administrator under the
Administration Agreement or any successor Administrator appointed pursuant to
the terms of the Administration Agreement.
Agreement: Means this Master Servicing Agreement, as the same may be
amended or supplemented from time to time.
Appraised Value: With respect to any Mortgaged Property, either (x) the
value set forth in an appraisal of such Mortgaged Property made to establish
compliance with the underwriting criteria then in effect in connection with the
later of the application for the Mortgage Loan secured by such Mortgaged
Property or any subsequent increase or decrease in the related Credit Limit or
to reduce or eliminate the amount of any primary insurance, or (y) if the sales
price of the Mortgaged Property is considered in accordance with the
underwriting criteria applicable to the Mortgage Loan, the lesser of (i) the
appraised value referred to in (x) above and (ii) the sales price of such
Mortgaged Property.
Asset Balance: With respect to any Mortgage Loan, other than a
Liquidated Mortgage Loan, and as of any day, the related Cut-off Date Asset
Balance or Deposit Date Asset Balance, [plus (i) any Additional Balances in
respect of such Mortgage Loan conveyed to the Issuer,] minus [(ii)] all
collections credited as principal in respect of any such Mortgage Loan in
accordance with the related Loan Agreement (except for any such collections that
are allocable to the Excluded Amount) and applied in reduction of the Asset
Balance thereof. For purposes of this definition, a Liquidated Mortgage Loan
shall be deemed to have an Asset Balance equal to the Asset Balance of the
related Mortgage Loan immediately prior to the final recovery of all related
Liquidation Proceeds and an Asset Balance of zero thereafter.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the conveyance of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering the Mortgage Loans secured by Mortgaged Properties located
in the same jurisdiction.
Bankruptcy Code: Means the United States Bankruptcy Reform Act of 1978,
as amended.
Basic Documents: The Trust Agreement, the Certificate of Trust, the
Indenture, the Loan Purchase Agreement, [the Insurance Agreement], the
Administration Agreement, the Master Servicing Agreement, the Custodial
Agreement and the other documents and certificates delivered in connection with
any of the above.
2
<PAGE> 5
Billing Cycle: With respect to any Mortgage Loan and Due Date, the
calendar month preceding such Due Date.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York, [_______________] or
[_____________] are required or authorized by law to be closed.
Certificateholder: The Person in whose name a Certificate is registered
in the Certificate Register except that, any Certificate registered in the name
of the Issuer, the Owner Trustee or the Trustee or any Affiliate of any of them
shall be deemed not to be outstanding and the registered holder will not be
considered a Certificateholder or a holder for purposes of giving any request,
demand, authorization, direction, notice, consent or waiver under the Indenture
or the Trust Agreement provided that, in determining whether the Trustee or the
Owner Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Certificates that the
Trustee or the Owner Trustee knows to be so owned shall be so disregarded.
Owners of Certificates that have been pledged in good faith may be regarded as
Holders if the pledgee establishes to the satisfaction of the Trustee or the
Owner Trustee, as the case may be, the pledgee's right so to act with respect to
such Certificates and that the pledgee is not the Issuer, any other obligor upon
the Certificates or any Affiliate of any of the foregoing Persons.
Certificates: The Home Equity Loan Asset Backed Certificates, Series
199_-_, each evidencing undivided beneficial interests in the Issuer and
executed by the Owner Trustee in substantially the form set forth in Exhibit A
to the Trust Agreement.
Class: The Notes or the Certificates, as the case may be.
Closing Date: ___________, 199_.
Code: The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
Collateral: The meaning specified in the Granting Clause of the
Indenture.
Collection Account: Means the Eligible Account or Accounts established
and maintained by the Master Servicer in accordance with Section 3.08(b).
Collection Period: With respect to any Mortgage Loan and Payment Date
other than the first Payment Date, the calendar month preceding any such Payment
Date and with respect to the first Payment Date, the period from _____________
through [___________].
Combined Loan-to-Value Ratio: With respect to any Mortgage Loan and any
date, the percentage equivalent of a fraction, the numerator of which is the sum
of (i) the greater of (x) the Credit Limit and (y) the Cut-off Date Asset
Balance of such Mortgage Loan and (ii) the outstanding principal balance as of
the date of the origination of such Mortgage Loan (or any subsequent date as of
which such outstanding principal balance may be determined in connection with an
increase or decrease in the Credit Limit or to reduce the amount of primary
insurance for such Mortgage Loan) of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
3
<PAGE> 6
Corporate Trust Office: The designated office of the Trustee in the
State of ________ at which at any particular time its corporate trust business
with respect to this Agreement shall be administered, which office at the date
of the execution of this Agreement is located at ____________________________
(Attn: ___________________________, facsimile no. ________________, and which is
the address to which notices to and correspondence with the Trustee should be
directed.
Credit Limit: With respect to any Mortgage Loan, the maximum Asset
Balance permitted under the terms of the related Loan Agreement.
Custodial Agreement: Any Custodial Agreement between the Custodian, the
Trustee, the Issuer and the Master Servicer relating to the custody of the
Mortgage Loans and the Related Documents.
Custodian: With respect to the Mortgage Loans, [______________], a
[_______________], and its successors and assigns.
Cut-Off Date: With respect to the Initial Loans ________, 199_.
[DCR: Means Duff & Phelps Credit Rating Company, or any successor
thereto. If DCR is designated as a Rating Agency in the Indenture, for purposes
of Section 8.03 the address for notices to DCR shall be Duff & Phelps Credit
Rating Company, 55 E. Monroe Street, 35th Floor, Chicago, Illinois 60603,
Attention: MBS Monitoring, or such other address as DCR may hereafter furnish to
the Issuer and the Master Servicer.]
Deleted Mortgage Loan: Has the meaning ascribed thereto in Article V.
[Deposit Date: The applicable date as of which any Additional Loan is
sold to the Issuer pursuant to the Loan Purchase Agreement.
Deposit Date Asset Balance: With respect to any Additional Loan, the
Asset Balance thereof as of the Deposit Date.]
Depositor: Morgan Stanley ABS Capital I Inc., a Delaware corporation,
or its successor in interest.
Determination Date: As to any Distribution Date, the ____ day of each
month or if such ____ day is not a Business Day the next preceding Business Day;
provided, however, that if such ____ day or such Business Day, whichever is
applicable, is less than two Business Days prior to the related Distribution
Date, the Determination Date shall be the first Business Day which is two
Business Days preceding such Distribution Date.
Distribution Date: The ____ day of each calendar month after the
initial issuance of the Certificates, or if such ____ day is not a Business Day,
the next succeeding Business Day, commencing in ____________, 199_.
Draw: With respect to any Mortgage Loan, a borrowing by the Mortgagor
under the related Loan Agreement.
4
<PAGE> 7
Due Date: With respect to the Mortgage Loans, the __th day of the
month.
Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest
short-term ratings of each Rating Agency at the time any amounts are held on
deposit therein, or (ii) an account or accounts in a depository institution or
trust company in which such accounts are insured by the FDIC (to the limits
established by the FDIC) and the uninsured deposits in which accounts are
otherwise secured such that, as evidenced by an Opinion of Counsel delivered to
the Trustee and to each Rating Agency, the Securityholders have a claim with
respect to the funds in such account or a perfected first priority security
interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, or (iii) a trust account or accounts maintained with
(a) the trust department of a federal or state chartered depository institution
or (b) a trust company, acting in its fiduciary capacity or (iv) any other
account acceptable to each Rating Agency. Eligible Accounts may bear interest,
and may include, if otherwise qualified under this definition, accounts
maintained with the Trustee.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
Depositor for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officers' Certificate delivered to the Trustee,
(i) have an outstanding principal balance, after deduction of the principal
portion of the monthly payment due in the month of substitution (or in the case
of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an
aggregate outstanding principal balance, after such deduction), not in excess of
the outstanding principal balance of the Deleted Mortgage Loan (the amount of
any shortfall to be deposited by the Seller in the Collection Account in the
month of substitution); (ii) have a Loan Rate not less than the Loan Rate of the
Deleted Mortgage Loan and not more than __% in excess of the Loan Rate of such
Deleted Mortgage Loan; (iii) have a Loan Rate based on the same index with
adjustments to such Loan Rate made on the same interest rate adjustment date as
that of the Deleted Mortgage Loan; (iv) have a Margin that is not less than the
Margin of the Deleted Mortgage Loan and not more than _____ basis points higher
than the Margin for the Deleted Mortgage Loan; (v) have a mortgage of the same
or higher level of priority as the mortgage relating to the Deleted Mortgage
Loan; (vi) have a remaining term to maturity not more than ____ months earlier
and not more than ____ months later than the remaining term to maturity of the
Deleted Mortgage Loan; (vii) comply with each representation and warranty as to
the Mortgage Loans set forth in the Loan Purchase Agreement (deemed to be made
as of the date of substitution); (viii) in general, have an original Combined
Loan-to-Value Ratio not greater than that of the Deleted Mortgage Loans; and
(ix) satisfy certain other conditions specified in the Purchase Agreement. To
the extent the Principal Balance of an Eligible Substitute Mortgage Loan is less
than the Principal Balance of the related Deleted Mortgage Loan, the Seller will
be required to make a deposit tot he Collection Account equal to such
difference; and (x) not be __ days or more delinquent.
Escrow Account: Means the Eligible Account or Accounts established and
maintained pursuant to Section 3.09 hereof.
Excess Proceeds: With respect to any Liquidated Mortgage Loan, the
amount, if any, by which the sum of any Liquidation Proceeds of such Mortgage
Loan received in the calendar month in which such Mortgage Loan became a
Liquidated Mortgage Loan, net of any amounts previously
5
<PAGE> 8
reimbursed to the Master Servicer as Nonrecoverable Advance(s) with respect to
such Mortgage Loan pursuant to Section 3.11(a)(iii), exceeds (i) the unpaid
principal balance of such Liquidated Mortgage Loan as of the Due Date in the
month in which such Mortgage Loan became a Liquidated Mortgage Loan plus (ii)
accrued interest at the Mortgage Rate from the Due Date as to which interest was
last paid or advanced (and not reimbursed) to Securityholders up to the Due Date
applicable to the Distribution Date immediately following the calendar month
during which such liquidation occurred.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FIRREA: The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989.
[Fitch: Fitch Investors Service, L.P., or any successor thereto. If
Fitch is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 8.03 the address for notices to Fitch shall be Fitch
Investors Service, L.P., One State Street Plaza, New York, New York 10004,
Attention: _______________________________________, or such other address as
Fitch may hereafter furnish to the Depositor and the Master Servicer.]
FNMA: The Federal National Mortgage Association, a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, or any successor thereto.
Gross Margin: With respect to any Mortgage Loan, the percentage set
forth as the "Gross Margin" for such Mortgage Loan on the Mortgage Loan
Schedule, as adjusted from time to time with respect to any [______________]
Loan in accordance with the terms of this Agreement.
Holder: Any of the Noteholders or Securityholders.
Increased Senior Lien Limitation: The meaning set forth in Section
3.01(b).
Indenture: Means the trust indenture, dated as of the date hereof,
between the Issuer and the Trustee, as such Indenture may be amended or
supplemented from time to time in accordance with its terms.
[Insurance Agreement: The insurance and reimbursement agreement dated
as of ______________, 199_ among the Master Servicer, the Seller, the Depositor,
the Issuer and the Credit Enhancer, including any amendments and supplements
thereto.]
Insurance Policy: Means, with respect to any Mortgage Loan, any
insurance policy, including all riders and endorsements thereto in effect,
including any replacement policy or policies for any Insurance Policies.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan which are required to be remitted to
the Master Servicer, or amounts required to be paid by the Master Servicer
pursuant to the last sentence of Section [_____] of the Master Servicing
Agreement, net of any component thereof (i) covering any expenses incurred by or
on behalf of the
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Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
Interest Period: With respect to any Payment Date other than the first
Payment Date, the period beginning on the preceding Payment Date and ending on
the day preceding such Payment Date, and in the case of the first Payment Date,
the period beginning on the Closing Date and ending on the day preceding the
first Payment Date.
Issuer: [____________] Home Equity Loan Trust 199_-_, a Delaware
business trust, or its successor in interest.
Issuer Request: A written order or request signed in the name of the
Issuer by any one of its Authorized Officers and delivered to the Trustee.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
however, that any assignment pursuant to Section [_____] of the Master Servicing
Agreement shall not be deemed to constitute a Lien.
Lifetime Rate Cap: With respect to each Mortgage Loan with respect to
which the related Mortgage Note provides for a lifetime rate cap, the maximum
Loan Rate permitted over the life of such Mortgage Loan under the terms of such
Mortgage Note, as set forth on the Mortgage Loan Schedule and initially as set
forth on Exhibit A to the Master Servicing Agreement.
Liquidated Mortgage Loan: With respect to any Payment Date, any
Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Master Servicing
Agreement, as of the end of the related Collection Period that substantially all
Liquidation Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
which are incurred by or on behalf of the Master Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any Insurance Policy,
such expenses including, without limitation, legal fees and expenses, any
unreimbursed amount expended (including, without limitation, amounts advanced to
correct defaults on any mortgage loan which is senior to such Mortgage Loan and
amounts advanced to keep current or pay off a mortgage loan that is senior to
such Mortgage Loan) respecting the related Mortgage Loan and any related and
unreimbursed expenditures for real estate property taxes or for property
restoration, preservation or insurance against casualty loss or damage.
Liquidation Loss Amounts: With respect to any Payment Date and any
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered portion of
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<PAGE> 10
the related Asset Balance thereof at the end of such Collection Period, after
giving effect to the Net Liquidation Proceeds applied in reduction of the Asset
Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds [but not
including amounts drawn under the Credit Enhancement Instrument]) received in
connection with the liquidation of any Mortgage Loan or related REO, whether
through trustee's sale, foreclosure sale or otherwise.
Loan Agreement: With respect to any Mortgage Loan, the credit line
account agreement executed by the related Mortgagor and any amendment or
modification thereof.
Loan Purchase Agreement: The Loan Purchase Agreement, dated as of the
Cut-off Date, between the Seller, as seller, and the Depositor, as purchaser,
with respect to the Mortgage Loans.
Loan Rate: With respect to any Mortgage Loan and any day, the sum of
the Index Rate and the Margin.
Loan-to-Value Ratio: With respect to any Mortgage Loan and as to any
date of determination, (i) the principal balance of such Mortgage Loan divided
by (ii) the Collateral Value of the related Mortgaged Property.
Margin: The [spread].
Master Servicer: _______________________, a ______________ corporation,
and its successors and assigns, in its capacity as master servicer hereunder.
Master Servicer Advance Date: As to any Distribution Date, 12:30 p.m.
Pacific time on the Business Day immediately preceding such Distribution Date.
Master Servicing Fee: As to each Mortgage Loan and any Distribution
Date, an amount payable out of each full payment of interest received on such
Mortgage Loan and equal to one-twelfth of the Master Servicing Fee Rate
multiplied by the Stated Principal Balance of such Mortgage Loan as of the Due
Date in the month of such Distribution Date (prior to giving effect to any
Scheduled Payments due on such Mortgage Loan on such Due Date), subject to
reduction as provided in Section 5.
Master Servicing Fee Rate: With respect to each Mortgage Loan, [ ]% per
annum.
Moody's: Moody's Investors Service, Inc., or any successor thereto. If
Moody's is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 8.03 the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
___________________________________, or such other address as Moody's may
hereafter furnish to the Depositor or the Master Servicer.
Mortgage: The mortgage, deed of trust or other instrument creating a
first lien on an estate in fee simple or leasehold interest in real property
securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01 hereof
pertaining to a particular Mortgage Loan and any additional documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.
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<PAGE> 11
Mortgage Loans: At any time, collectively, all Initial Loans [and
Additional Loans, in each case including Additional Balances, if any, that have
been sold to the Depositor under the Loan Purchase Agreement,] in each case
together with the Related Documents, and that remain subject to the terms
thereof. Such schedule shall also set forth the total of the amounts described
under (iv) and (v) above for all of the Mortgage Loans.
Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans included in the Trust Estate on such date. The initial schedule
of Mortgage Loans as of the Cut-Off Date is the schedule set forth in Exhibit A
of the Master Servicing Agreement, which schedule sets forth as to each Mortgage
Loan (i) the Cut-Off Date Trust Balance, (ii) the Credit Limit, (iii) the Gross
Margin, (iv) the name of the Mortgagor, (v) the Lifetime Rate Cap, if any, (vi)
the loan number, (vii) an indication as to the applicable Mortgage Loan Group,
and (viii) the lien position of the related Mortgage. The Mortgage Loan Schedule
will be amended from time to time by annex to reflect Additional Loans.
Mortgage Note: With respect to a Mortgage Loan, the Loan Agreement
pursuant to which the related mortgagor agrees to pay the indebtedness evidenced
thereby and secured by the related Mortgage as modified or amended.
Mortgaged Property: The underlying property, including real property
and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Loan Agreement.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and any day, the
related Loan Rate less the related Servicing Fee Rate.
Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Master Servicer that, in the good faith judgment of
the Master Servicer, will not be ultimately recoverable by the Master Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.
Notes: The Notes designated as the "Notes" in the Indenture.
Noteholder or Holder: The Person in whose name a Note is registered in
the Note Register (as defined in the Indenture).
Officer's Certificate: A certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Master Servicer, or (ii) if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the Depositor and the Trustee, as the case may be, as required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel
for the Depositor or the Master Servicer, including, in-house counsel,
reasonably acceptable to the Trustee; provided,
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however, that with respect to the interpretation or application of the REMIC
Provisions, such counsel must (i) in fact be independent of the Depositor and
the Master Servicer, (ii) not have any direct financial interest in the
Depositor or the Master Servicer or in any affiliate of either, and (iii) not be
connected with the-Depositor or the Master Servicer as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions.
Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or
delivered to the Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which
other Certificates have been executed and delivered by the
Trustee pursuant to this Agreement.
Owner Trust Estate: The corpus of the Issuer created by the Trust
Agreement which consists of the Mortgage Loans, such assets as shall from time
to time be deposited in the Collection Account and/or the Payment Account
allocable to the Mortgage Loans in accordance with the Trust Agreement, property
that secured a Mortgage Loan and that has become REO, certain hazard insurance
policies maintained by the Mortgagors or by or on behalf of the Master Servicer
in respect of the Mortgage Loans, [the Credit Enhancement Instrument,] an
assignment of the Depositor's rights under the Loan Purchase Agreement and the
obligation of the Depositor to purchase Additional Balances under the Loan
Purchase Agreement and all proceeds of each of the foregoing.
Owner Trustee: [______________], and its successors and assigns or any
successor owner trustee appointed pursuant to the terms of the Trust Agreement.
Paying Agent: Any paying agent or co-paying agent appointed pursuant to
Section 3.03 of the Indenture, which initially shall be [______________].
Payment Account: The account established by the Trustee pursuant to
Section 8.02 of the Indenture and Section [ ] of the Master Servicing Agreement.
The Payment Account shall be an Eligible Account.
Payment Account: The separate Eligible Account created and maintained
by the Trustee pursuant to Section 3.08 in the name of the Trustee for the
benefit of the Securityholders and designated "_________________________ in
trust for registered holders of Home Equity Loan Trust Asset Backed
Certificates, Series 199_-_." Funds in the Payment Account shall be held in
trust for the Securityholders for the uses and purposes set forth in this
Agreement.
Payment Account Deposit Date: As to any Distribution Date, 12:30 p.m.
Pacific time on the Business Day immediately preceding such Distribution Date.
Payment Date: The [___] day of each month, or if such day is not a
Business Day, then the next Business Day.
Percentage Interest: With respect to any Note, the percentage obtained
by dividing the Security Balance of such Note by the aggregate of the Security
Balances of all Notes of the same
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Class. With respect to any Certificate, the percentage obtained by dividing the
denomination specified on such Certificate by the Initial Principal Balance of
the Certificates.
Permitted Investments: At any time, any one or more of the following
obligations and securities: (i) obligations of the United States or any agency
thereof, provided such obligations are backed by the full faith and credit of
the United States; (ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving the highest
long-term debt rating of each Rating Agency rating the related Series of
Securities, or such lower rating as will not result in the downgrading or
withdrawal of the ratings then assigned to the Securities by each such Rating
Agency; (iii) commercial or finance company paper (including, without
limitation, commercial paper issued by _____________________ or any of its
affiliates) which is then receiving the highest commercial or finance company
paper rating of each such Rating Agency, or such lower rating as will not result
in the downgrading or withdrawal of the ratings then assigned to the Securities
by each such Rating Agency; (iv) certificates of deposit, demand or time
deposits, or bankers' 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 long term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's is not a Rating Agency) are then rated one of the two highest
long-term and the highest short-term ratings of each such Rating Agency for such
securities, or such lower ratings as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities by any such Rating
Agency; (iv) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings institution to the extent that such deposits
are fully insured by the FDIC; (v) guaranteed reinvestment agreements issued by
any bank, insurance company or other corporation containing, at the time of the
issuance of such agreements, such terms and conditions as will not result in the
downgrading or withdrawal of the rating then assigned to the Securities by any
such Rating Agency; (vi) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered into with a
depository institution or trust company (acting as principal) described in
clause (iv) above; (vii) securities (other than stripped bonds, stripped coupons
or instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
incorporated under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the highest
commercial paper rating of Moody's for any such securities), or such lower
rating as will not result in the downgrading or withdrawal of the rating then
assigned to the Securities by any such Rating Agency, as evidenced by a signed
writing delivered by each such Rating Agency; and (viii) such other investments
having a specified stated maturity and bearing interest or sold at a discount
acceptable to each Rating Agency as will not result in the downgrading or
withdrawal of the rating then assigned to the Securities of such Series by any
such Rating Agency, as evidenced by a signed writing delivered by each such
Rating Agency; provided that no such instrument shall be a Permitted Investment
if such instrument evidences the right to receive interest only payments with
respect to the obligations underlying such instrument.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
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[Policy: The irrevocable and unconditional limited financial guaranty
insurance policy number [__________], dated as of the Closing Date, issued by
the Credit Enhancer to the Trustee for the benefit of the Noteholders and to the
Certificate Paying Agent as agent for the Issuer for the benefit of the
Securityholders.]
Pool Balance: With respect to any date, the aggregate of the Asset
Balances of all Mortgage Loans as of such date.
Prepayment Interest Excess: _____________.
Prepayment Interest Shortfalls: ___________.
Prepayment Period: As to any Distribution Date, the period from the
__th day of the calendar month preceding the month of such Distribution Date
(or, in the case of the first Distribution Date, from the Cut-off Date) through
the __th of the month of such Distribution Date.
[Primary Insurance Policy: With respect to any Mortgage Loan, any
insurance policy that is maintained upon issuance of the Notes and Certificate.]
Principal Balance: With respect to any Payment Date, the Initial
Principal Balance thereof, reduced by all distributions of principal thereon
prior to such Payment Date.
Principal Prepayment: Any payment of principal by a Mortgagor on a
Mortgage Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a
Mortgagor of the entire principal balance of a Mortgage Loan.
Prospectus Supplement: The Prospectus Supplement dated _____, 199_
relating to the Notes.
Purchase Price: With respect to any Mortgage Loan required to be
purchased by the Seller pursuant to Section 2.01(b)(ii) or 2.04(d) hereof or
purchased at the option of the Master Servicer pursuant to Section 3.14, an
amount equal to the sum of (i) 100% of the unpaid principal balance of the
Mortgage Loan on the date of such purchase, and (ii) accrued interest thereon at
the applicable Mortgage Rate (or at the applicable Adjusted Mortgage Rate if (x)
the purchaser is the Master Servicer or (y) if the purchaser is the Seller and
the Seller is the Master Servicer) from the date through which interest was last
paid by the Mortgagor to the Due Date in the month in which the Purchase Price
is to be distributed to Securityholders.
Qualified Insurer: A mortgage guaranty insurance company duly qualified
as such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in such states and to write the
insurance provided by the insurance policy issued by it, approved as a
FNMA-approved mortgage insurer and having a claims paying ability rating of at
least "AA" or equivalent rating by a nationally recognized
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statistical rating organization. Any replacement insurer with respect to a
Mortgage Loan must have at least as high a claims paying ability rating as the
insurer it replaces had on the Closing Date.
Rating Agency: Any nationally recognized statistical rating
organization, or its successor, that rated the Securities at the request of the
Depositor at the time of the initial issuance of the Securities. Initially,
"[________]" or "[__________]. If such organization or a successor is no longer
in existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Depositor,
notice of which designation shall be given to the Trustee. References herein to
the highest short term unsecured rating category of a Rating Agency shall mean
"[___]" or better in the case of [__________]and "[___]" or better in the case
of [_____] and in the case of any other Rating Agency shall mean such equivalent
ratings. References herein to the highest long-term rating category of a Rating
Agency shall mean "[___]" in the case of [__________] and "[_____]" in the case
of [________] and in the case of any other Rating Agency, such equivalent
rating.
Realized Loss: With respect to each Liquidated Mortgage Loan, an amount
(not less than zero or more than the Stated Principal Balance of the Mortgage
Loan) as of the date of such liquidation, equal to (i) the Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such liquidation, plus
(ii) interest at the Adjusted Net Mortgage Rate from the Due Date as to which
interest was last paid or advanced (and not reimbursed) to Securityholders up to
the Due Date in the month in which Liquidation Proceeds are required to be
distributed on the Stated Principal Balance of such Liquidated Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any, received during
the month in which such liquidation occurred, to the extent applied as
recoveries of interest at the Adjusted Net Mortgage Rate and to principal of the
Liquidated Mortgage Loan. With respect to each Mortgage Loan which has become
the subject of a Deficient Valuation, if the principal amount due under the
related Mortgage Note has been reduced, the difference between the principal
balance of the Mortgage Loan outstanding immediately prior to such Deficient
Valuation and the principal balance of the Mortgage Loan as reduced by the
Deficient Valuation. With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction and any Distribution Date, the amount, if
any, by which the principal portion of the related Scheduled Payment has been
reduced.
Related Documents: The meaning set forth in Section 2.01.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Reductions: With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than (ii) interest accrued thereon for such month pursuant to the Mortgage
Note.
REO Property: A Mortgaged Property acquired by the Issuer through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.
Repurchase Price: With respect to any Mortgage Loan required to be
repurchased on any date pursuant to the Loan Purchase Agreement or purchased by
the Master Servicer pursuant to the Master Servicing Agreement, an amount equal
to the sum of (i) 100% of the Asset Balance thereof (without reduction for any
amounts charged off) and (ii) unpaid accrued interest at the Loan Rate on
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<PAGE> 16
the outstanding principal balance thereof from the Due Date to which interest
was last paid by the Mortgagor to the first day of the month following the month
of purchase. No portion of any Repurchase Price shall be included in the
Excluded Amount for any Payment Date.
Request for Release: The Request for Release submitted by the Master
Servicer to the Trustee, substantially in the form of Exhibits C and D, as
appropriate.
Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy that is required to be maintained from time to time under this
Agreement.
SAIF: The Savings Association Insurance Fund, or any successor thereto.
[S&P: Means Standard & Poor's Ratings Group, a division of McGraw-Hill
Inc. If S&P is designated as a Rating Agency in the Indenture, for purposes of
Section 8(c) the address for notices to S&P shall be Standard & Poor's Ratings
Group, 26 Broadway, 15th Floor, New York, New York 10004, Attention: Mortgage
Surveillance Monitoring, or such other address as S&P may hereafter furnish to
the Issuer and the Master Servicer.]
Scheduled Payment: With respect to any mortgage Loan, the amount of
principal and interest required to be paid on the Due Date.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Security: Any of the Certificates or Notes.
Securityholder or Holder: Any Noteholder or any Certificateholder.
Seller: __________________, and its successors and assigns.
Servicing Account: Means the separate Eligible Account or Accounts
created and maintained pursuant to Section 3(h)(ii).
Servicing Advances: All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3.14 and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3.12.
Servicing Default: Means a servicing default as described under Section
7(a) of this Agreement.
Servicing Fee: As to each Mortgage Loan and any Distribution Date, an
amount equal to one month's interest at the applicable Servicing Fee Rate on the
Stated Principal Balance of such Mortgage Loan.
Servicing Fee Rate: With respect to any Mortgage Loan, the per annum
rate set forth in the Mortgage Loan Schedule for such Mortgage Loan.
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Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished to
the Trustee by the Master Servicer on the Closing Date pursuant to this
Agreement, as such list may from time to time be amended.
Stated Principal Balance: with respect to any Mortgage Loan, the amount
of principal remaining unpaid on any applicable Distribution Date.
Subservicer: Any Person with whom the Master Servicer has entered into
a Subservicing Agreement as a Subservicer by the Master Servicer pursuant to
Section 3.02.
Subservicing Agreement: The written contract between the Master
Servicer and any Subservicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02 of the Master Servicing Agreement.
Subservicing Fee: With respect to any Mortgage Loan and any Collection
Period, the fee retained monthly by the Subservicer (or, in the case of a
nonsubserviced Mortgage Loan, by the Master Servicer) equal to the product of
(i) the Subservicing Fee Rate divided by 12 and (ii) the aggregate Asset Balance
of the Mortgage Loans as of the first day of such Collection Period.
Substitute Mortgage Loan: A Mortgage Loan substituted by the Seller for
a Deleted Mortgage Loan which must, on the date of such substitution as
confirmed in a Request for Release and substantially in the form of Exhibit C,
(i) have a Stated Principal Balance, after deduction of the principal portion of
the Scheduled Payment due in the month of substitution, not in excess of, and
not more than 10% less than the Stated Principal Balance of the Deleted Mortgage
Loan; (ii) be accruing interest at a rate no lower than and not more than 1% per
annum higher than, that of the Deleted Mortgage Loan; (iii) have a Loan-to-Value
Ratio no higher than that of the Deleted Mortgage Loan; (iv) have a remaining
term to maturity no greater than (and not more than one year less than that of)
the Deleted Mortgage Loan; and (v) comply with each representation and warranty
set forth in Section 2.04 hereof.
Substitution Adjustment Amount: The meaning ascribed to such term
pursuant to Section 2.04(e).
Trust Agreement: Means the Trust Agreement, dated as of ____, 199_
between the Depositor and the Owner Trustee, as such Trust Agreement may be
amended or supplemented from time to time.
Trustee: [______________], and its successors and assigns or any
successor trustee appointed pursuant to the terms of the Indenture.
Trustees: The Trustee and the Owner Trustee.
Trust Estate: The meaning ascribed to such term in the Indenture.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
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Withdrawal Date: The ____ day of each month, or if such day is not a
Business Day, the next preceding Business Day.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES.
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to
Fund Advances Under Credit Line Agreements.
The Depositor, concurrently with the execution and delivery of this
Agreement, does hereby transfer, assign, set over and otherwise convey to the
Trust without recourse (subject to Sections 2.02 and 2.04 all of its right,
title and interest in and to (i) each Mortgage Loan, including its Asset Balance
(including all Additional Balances) and all collections in respect thereof
received on or after the Cut-off Date (excluding payments in respect of accrued
interest due prior to the Cut-off Date or due in the month of ____________);
(ii) property that secured a Mortgage Loan that is acquired by foreclosure or
deed in lieu of foreclosure; (iii) the Depositor's rights under the Loan
Purchase Agreement; (iv) [the Depositor's rights under the hazard insurance
policies,] (v) the Collection Account (excluding net earnings thereon); (vi) the
Policy; (vii) the Payment Account; (viii) the [Letter of Credit] [Surety Bond];
and (ix) all other assets included or to be included in the Trust for the
benefit of Securityholders; provided, however, neither the Trustee nor the Trust
assumes the obligation under any Credit Line Agreement that provides for the
funding of future advances to the Mortgagor thereunder, and neither the Trust
nor the Trustee shall be obligated or permitted to fund any such future
advances. Additional Balances shall be part of the related Asset Balance and are
hereby transferred to the Trust on the Closing Date pursuant to this Section
2.01, and therefore part of the Trust property. In addition, on or prior to the
Closing Date, the Depositor shall cause the Credit Enhancer to deliver the
Policy to the Trustee for the benefit of the Securityholders. The foregoing
transfer, assignment, set-over and conveyance to the Trust shall be made to the
Trustee, on behalf of the Trust, and each reference in this Agreement to such
transfer, assignment, set-over and conveyance shall be construed accordingly.
The Depositor agrees to take or cause to be taken such actions and
execute such documents (including without limitation the filing of all necessary
continuation statements for the UCC-1 financing statements filed in the State of
__________ (which shall have been filed within 90 days of the Closing Date)
describing the Cut-off Date Asset Balances and Additional Balances and naming
the Depositor as debtor and the Trustee as secured party and any amendments to
UCC-1 financing statements required to reflect a change in the name or corporate
structure of the Depositor or the filing of any additional UCC-1 financing
statements due to the change in the principal office of the Depositor (within 90
days of any event necessitating such filing) as are necessary to perfect and
protect the Securityholders' and Credit Enhancer's interests in each Cut-off
Date Asset Balance and Additional Balances and the proceeds thereof (other than
maintaining possession by the Trustee of the Mortgage Loans and the Mortgage
Files, which possession will, subject to the terms hereof, be maintained by the
Master Servicer as custodian and bailee of the Trustee).
In connection with such transfer and assignment by the Depositor, the
Master Servicer acknowledges that it is holding as custodian and bailee for the
Trustee the following documents or instruments (the "Related Documents") with
respect to each Mortgage Loan:
(A) the original Mortgage Note endorsed in blank;
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(B) an original Assignment of Mortgage in blank in recordable
form;
(C) the original recorded Mortgage or, if, in connection with
any Mortgage Loan, the original recorded Mortgage with evidence of
recording thereon cannot be delivered on or prior to the Closing Date
because of a delay caused by the public recording office where such
original Mortgage has been delivered for recordation or because such
original Mortgage has been lost, the Seller, at the direction of the
Depositor, shall deliver or cause to be delivered to the Custodian, as
agent for the Trustee, a true and correct copy of such Mortgage,
together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Depositor stating that such
original Mortgage has been dispatched to the appropriate public
recording official or (ii) in the case of an original Mortgage that has
been lost, a certificate by the appropriate county recording office
where such Mortgage is recorded;
(D) if applicable, the original intervening assignments, if
any ("Intervening Assignments"), with evidence of recording thereon,
showing a complete chain of title to the Mortgage from the originator
to the Depositor or, if any such original Intervening Assignment has
not been returned from the applicable recording office or has been
lost, a true and correct copy thereof, together with (i) in the case of
a delay caused by the public recording office, an Officer's Certificate
of the Seller stating that such original Intervening Assignment has
been dispatched to the appropriate public recording official for
recordation or (ii) in the case of an original Intervening Assignment
that has been lost, a certificate by the appropriate county recording
office where such Mortgage is recorded;
(E) either (1) for each Mortgage Loan with a Credit Limit in
excess of $_________, a title policy or (2) for all other Mortgage
Loans, either a title policy, a title search or guaranty of title with
respect to the related Mortgaged Property;
(F) the original of any guaranty executed in connection with
the Mortgage Note;
(G) the original of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loan; and
(H) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage;
provided, however, that as to any Mortgage Loan, if (a) as evidenced by an
Opinion of Counsel delivered to and in form and substance satisfactory to the
Trustee and the Credit Enhancer, (x) an optical image or other representation of
the related documents specified in clauses (i) through (viii) above are
enforceable in the relevant jurisdictions to the same extent as the original of
such document and (y) such optical image or other representation does not impair
the ability of an owner of such Mortgage Loan to transfer its interest in such
Mortgage Loan, and (b) the retention of such documents in such format will not
result in a reduction in the then current rating of the Notes or Certificates,
without regard to the Policy, such optical image or other representation may be
held by the Master Servicer, as custodian for the Trustee or assignee in lieu of
the physical documents specified above.
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[The Depositor hereby confirms to the Trustee that it has caused the
portions of the electronic ledgers relating to the Mortgage Loans to be clearly
and unambiguously marked, and has made the appropriate entries in its general
accounting records, to indicate that such Mortgage Loans have been transferred
to the Trust at the direction of the Depositor. The Master Servicer hereby
confirms to the Trustee that it has clearly and unambiguously made appropriate
entries in its general accounting records indicating that such Mortgage Loans
constitute part of the Trust and are serviced by it on behalf of the Trust in
accordance with the terms hereof.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust of all the Depositor's right, title and
interest in and to the Mortgage Loans and other property described above. In the
event the transaction set forth herein is deemed not to be a sale, the Depositor
hereby grants to the Trust a security interest in all of the Depositor's right,
title and interest in, to and under the Mortgage Loans whether now existing or
hereafter created, all monies due or to become due on the Mortgage Loans and all
proceeds of any thereof, and this Agreement shall constitute a security
agreement under applicable law.
Except as hereinafter provided, the Master Servicer shall be entitled
to maintain possession of all of the foregoing documents and instruments and
shall not be required to deliver any of them to the Trustee or the Owner
Trustee. In the event, however, that possession of any of such documents or
instruments is required by any Person (including any such Trustee) acting as
successor servicer pursuant to Section 6.02 or 7.02 in order to carry out the
duties of Master Servicer hereunder, then such successor shall be entitled to
request delivery, at the expense of the Master Servicer, of such documents or
instruments by the Master Servicer and to retain such documents or instruments
for servicing purposes; provided that the Trustee or such servicers shall
maintain such documents at such offices as may be required by any regulatory
body having jurisdiction over such Mortgage Loans.
The Master Servicer's right to maintain possession of the documents
enumerated above shall continue so long as the long term unsecured debt of the
Master Servicer is assigned ratings of at least "____" by __________________ and
"____" by _______________. At such time as the condition specified in the
preceding sentence is not satisfied, as promptly as practicable but in no event
more than __ days in the case of clause (i) below and __ days in the case of
clause (ii) below following the occurrence of such event (a "Delivery Event"),
the Master Servicer shall, at its expense, (i) either (x) record an assignment
of Mortgage in favor of the Trustee (which may be a blanket assignment if
permitted by applicable law) in the appropriate real property or other records
or (y) deliver to the Trustee the assignment of such Mortgage in favor of the
Trustee in form for recordation, together with an Opinion of Counsel addressed
to the Trustee and the Credit Enhancer to the effect that recording is not
required to protect the Trustee's right, title and interest in and to the
related Mortgage Loan or, in case a court should recharacterize the sale of the
Mortgage Loans as a financing, to perfect a first priority security interest in
favor of the Trustee in the related Mortgage Loan, which Opinion of Counsel also
shall be reasonably acceptable to each of the Rating Agencies (as evidenced in
writing) and the Credit Enhancer, and (ii) unless an Opinion of Counsel,
reasonably acceptable to the Trustee, the Rating Agencies (as evidenced in
writing) and the Credit Enhancer, is delivered to the Trustee and the Credit
Enhancer to the effect that delivery of the Mortgage Files is not necessary to
protect the Trustee's right, title and interest in the related Mortgage Loans
(provided that the lack of delivery will not result in a reduction in the then
current rating of the Notes or Certificates), without regard to the Policy,
deliver the related Mortgage Files to the Trustee or to a custodian located in
the State of [__________] appointed by the Trustee and acceptable to the Rating
Agencies and the Credit Enhancer to be held by the Custodian on behalf of the
Trustees in trust, upon the terms herein set forth, for the use and benefit of
all present and future Securityholders and the
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Custodian on behalf of the Trustee shall retain possession thereof except to the
extent the Master Servicer requires any Mortgage Files for normal servicing as
contemplated by Section _____. The Trustee is hereby appointed as the
attorney-in-fact of the Master Servicer with the power to prepare, execute and
record Assignments of Mortgages in the event that the Master Servicer fails to
do so on a timely basis as provided in this paragraph.
Within 90 days following delivery, if any, of the Mortgage Files to the
Trustee pursuant to the preceding paragraph, the Trustee shall review each such
Mortgage File to ascertain that all required documents set forth in this Section
2.01 have been executed and received, and that such documents relate to the
Mortgage Loans identified on the Mortgage Loan Schedule and in so doing the
Trustee may rely on the purported due execution and genuineness of any signature
thereon. If within such 90-day period the Trustee finds any document
constituting a part of a Mortgage File not to have been executed or received or
to be unrelated to the Mortgage Loans identified in said Mortgage Loan Schedule
or, if in the course of its review, the Trustee determines that such Mortgage
File is otherwise defective in any material respect, the Trustee shall promptly
upon the conclusion of its review notify the Issuer and the Credit Enhancer, and
the Depositor shall have a period of 90 days after such notice within which to
correct or cure any such defect.
The Trustee shall have no responsibility for reviewing any Mortgage
File except as expressly provided in this Section 2.01. In reviewing any
Mortgage File pursuant to this Section , the Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except, if applicable, to determine if the Trustee is the assignee or
endorsee), whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be, and, where applicable, that it purports
to be recorded.
(b) Acceptance by Trustee; Retransfer of Mortgage Loans.
The Trustee hereby acknowledges its receipt of the Policy and the
Mortgage Loans, and declares that the Trustee holds and will hold such
instrument, and to the extent that any documents are delivered to it pursuant to
Section 2.01, will hold such documents, and all amounts received by it
thereunder and hereunder, in trust, upon the terms herein set forth, for the use
and benefit of all present and future Securityholders and the Credit Enhancer.
If the time to cure any defect in respect of any Mortgage Loan of which the
Trustee has notified the Issuer and the Depositor following the review pursuant
to Section 2.01 has expired or if at any time any loss is suffered by the
Trustee on behalf of the Securityholders or the Credit Enhancer, in respect of
any Mortgage Loan as a result of (i) a defect in any document constituting a
part of its Mortgage File or (ii) an Assignment of Mortgage to the Trustee not
having been recorded as required by Section 2.01,then on the next succeeding
Business Day upon satisfaction of the applicable conditions described herein,
all right, title and interest of the Trust in and to such Mortgage Loan shall be
deemed to be retransferred, reassigned and otherwise reconveyed, without
recourse, representation or warranty, to the Depositor on such Business Day and
the Asset Balance of such Mortgage Loan shall be deducted from the Pool Balance;
provided, however, that interest accrued on the Asset Balance of such Mortgage
Loan to the end of the related Collection Period shall be the property of the
Trust. Upon receipt of any Eligible Substitute Mortgage Loan or then as promptly
as practicable following such deemed transfer, the Trustee shall execute such
documents and instruments of transfer presented by the Seller, in each case
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without recourse, representation or warranty, and take such other actions as
shall reasonably be requested by the Seller to effect such transfer by the Trust
of such Defective Mortgage Loan pursuant to this Section .
The Master Servicer, promptly following the transfer of a Defective
Mortgage Loan from or to the Trust pursuant to this Section , shall amend the
Mortgage Loan Schedule and make appropriate entries in its general account
records to reflect such transfer. The Master Servicer shall, following such
retransfer, appropriately mark its records to indicate that it is no longer
servicing such Mortgage Loan on behalf of the Trust.
As to any Eligible Substitute Mortgage Loan or Loans [and as agreed to
by the Seller in the Loan Purchase Agreement], the Seller shall, if a Delivery
Event has occurred, deliver to the Trustee with respect to such Eligible
Substitute Mortgage Loan or Loans such documents and agreements as are required
to be held by the Trustee in accordance with Section 2.01. For any Collection
Period during which the Seller substitutes one or more Eligible Substitute
Mortgage Loans, the Master Servicer shall determine the Substitution Adjustment
Deposit Amount which amount be deposited by the Seller in the Collection Account
at the time of substitution. All amounts received in respect of the Eligible
Substitute Mortgage Loan or Loans during the Collection Period in which the
circumstances giving rise to such substitution occur shall not be a part of the
Issuer and shall not be deposited by the Master Servicer in the Collection
Account. All amounts received by the Master Servicer during the Collection
Period in which the circumstances giving rise to such substitution occur in
respect of any Defective Mortgage Loan so removed by the Issuer shall be
deposited by the Master Servicer in the Collection Account. Upon such
substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to
the terms of this Agreement in all respects, and the Seller shall be deemed to
have made with respect to such Eligible Substitute Mortgage Loan or Loans, as of
the date of substitution, the covenants, representations and warranties set
forth in Section 2.04. The procedures applied by the Seller in selecting each
Eligible Substitute Mortgage Loan shall not be materially adverse to the
interests of the Trustees, the Securityholders and the Credit Enhancer.
(c) Documents, Records and Funds in Possession of Master
Servicer to be Held for Trustee.
(i) Notwithstanding any other provisions of this Agreement,
the Master Servicer shall transmit to the Trustee as required by this Agreement
all documents and instruments in respect of a Mortgage Loan coming into the
possession of the Master Servicer from time to time and shall account fully to
the Trustees for any funds received by the Master Servicer or which otherwise
are collected by the Master Servicer as Liquidation Proceeds or Insurance
Proceeds in respect of any Mortgage Loan. All Mortgage Files and funds collected
or held by, or under the control of, the Master Servicer in respect of any
Mortgage Loans, whether from the collection of principal and interest payments
or from Liquidation Proceeds, including but not limited to, any funds on deposit
in the Collection Account, shall be held by the Master Servicer for and on
behalf of the Trustees and shall be and remain the sole and exclusive property
of the Trustees, subject to the applicable provisions of this Agreement. The
Master Servicer also agrees that it shall not create, incur or subject any
Mortgage File or any funds that are deposited in the Collection Account, Payment
Account or any Escrow Account, or any funds that otherwise are or may become due
or payable to the Trustee for the benefit of the Securityholders, to any claim,
lien, security interest, judgment, levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds collected on, or in connection with, a
Mortgage Loan,
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except, however, that the Master Servicer shall be entitled to set off against
and deduct from any such funds any amounts that are properly due and payable to
the Master Servicer under this Agreement.
(ii) The Master Servicer hereby acknowledges that concurrently
with the execution of this Agreement, the Trustee has acquired and holds a
security interest in the Trustee Mortgage Files and in all Mortgage Loans
represented by such Mortgage Files and in all funds now or hereafter held by, or
under the control of, the Master Servicer that are collected by the Master
Servicer in connection with the Mortgage Loans, whether as Scheduled Payments,
as Principal Prepayments, or as Liquidation Proceeds or Insurance Proceeds, and
in all proceeds of the foregoing and proceeds of proceeds (but excluding any
Master Servicing Fees, Servicing Fees, Trustee Fees and any other amounts or
reimbursements to which the Master Servicer is entitled under this Agreement).
The Master Servicer agrees that so long as the Mortgage Loans are assigned to
the Trustee, all Master Servicer Mortgage Files and Trustee Mortgage Files (and
any documents or instruments constituting a part of such files), and such funds
which come into the possession or custody of, or which are subject to the
control of, the Master Servicer shall be held by the Master Servicer for and on
behalf of the Trustee as the Trustee's agent and bailee for purposes of
perfecting the Trustee's security interest therein, as provided by Section 9-305
of the Uniform Commercial Code of the state in which such property is located,
or by other laws, as specified in Section _____ of the Indenture. The Master
Servicer hereby accepts such agency and acknowledges that the Trustee, as
secured party, will be deemed to have possession at all times of all Mortgage
Files and any other documents or instruments constituting a part of such files,
such funds and other items for purposes of Section 9-305 of the Uniform
Commercial Code of the state in which such property is held by the Master
Servicer.
(d) Representations, Warranties and Covenants of the
Seller and the Master Servicer.
(i) __________________, as Master Servicer, hereby makes the
representations and warranties set forth in Schedule II hereto, and by this
reference incorporated herein, to the Depositor and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.
(ii) The Seller, in its capacity as Seller, has made the
representations and warranties set forth in Schedule III hereto, and by this
reference incorporated herein, to the Depositor and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.
(iii) Upon discovery by any of the parties hereto of a breach of a
representation or warranty made pursuant to Section 2.04(b) that materially and
adversely affects the interests of the Securityholders in any Mortgage Loan, the
party discovering such breach shall give prompt notice thereof to the other
parties. The Seller hereby covenants that within 90 days of the earlier of its
discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.04(b) which materially and
adversely affects the interests of the Securityholders in any Mortgage Loan, it
shall cure such breach in all material respects, and if such breach is not so
cured, shall, (i) if such 90-day period expires prior to the second anniversary
of the Closing Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from
the Issuer and substitute in its place a Substitute Mortgage Loan, in the manner
and subject to the conditions set forth in this Section ; or (ii) repurchase the
affected Mortgage Loan or Mortgage Loans from the Trustee at the Purchase Price
in the manner set forth below; provided, however, that any such substitution
pursuant to (i) above shall not be effected prior to the delivery to the
Trustees of the Opinion of Counsel required by [Section ____ {delivery of
opinion}] hereof, if any, and any such substitution pursuant to (i) above shall
not be effected prior to the additional delivery to the Trustee of
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a Request for Release substantially in the form of Exhibit D and the Mortgage
File for any such Substitute Mortgage Loan. The Seller shall promptly reimburse
the Master Servicer and the Trustee for any expenses reasonably incurred by the
Master Servicer or any Trustee in respect of enforcing the remedies for such
breach. With respect to the representations and warranties described in this
Section which are made to the best of the Seller's knowledge, if it is
discovered by either the Depositor, the Seller or any Trustee that the substance
of such representation and warranty is inaccurate and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan or the interests of
the Securityholders therein, notwithstanding the Seller's lack of knowledge with
respect to the substance of such representation or warranty, such inaccuracy
shall be deemed a breach of the applicable representation or warranty.
With respect to any Substitute Mortgage Loan or Loans, the Seller shall
deliver to the Trustee for the benefit of the Securityholders the Mortgage Note,
the Mortgage, the related assignment of the Mortgage, and such other documents
and agreements as are required by Section 2.01, with the Mortgage Note endorsed
and the Mortgage assigned as required by Section 2.01. No substitution is
permitted to be made in any calendar month after the Determination Date for such
month. Scheduled Payments due with respect to Substitute Mortgage Loans in the
month of substitution shall not be part of the Issuer and will be retained by
the Seller on the next succeeding Distribution Date. For the month of
substitution, distributions to Securityholders will include the monthly payment
due on any Deleted Mortgage Loan for such month and thereafter the Seller shall
be entitled to retain all amounts received in respect of such Deleted Mortgage
Loan. The Master Servicer shall amend the Mortgage Loan Schedule for the benefit
of the Securityholders to reflect the removal of such Deleted Mortgage Loan and
the substitution of the Substitute Mortgage Loan or Loans and the Master
Servicer shall deliver the amended Mortgage Loan Schedule to the Trustees. Upon
such substitution, the Substitute Mortgage Loan or Loans shall be subject to the
terms of this Agreement in all respects, and the Seller shall be deemed to have
made with respect to such Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties made pursuant to Section
2.04(b) with respect to such Mortgage Loan. Upon any such substitution and the
deposit to the Collection Account of the amount required to be deposited therein
in connection with such substitution as described in the following paragraph,
the Trustee shall release the Mortgage File held for the benefit of the
Securityholders relating to such Deleted Mortgage Loan to the Seller and shall
execute and deliver at the Seller's direction such instruments of transfer or
assignment prepared by the Seller, in each case without recourse, as shall be
necessary to vest title in the Seller, or its designee, the Trustee's interest
in any Deleted Mortgage Loan substituted for pursuant to this Section 2.04.
For any month in which the Seller substitutes one or more Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will
determine the amount (if any) by which the aggregate principal balance of all
such Substitute Mortgage Loans as of the date of substitution is less than the
aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after
application of the scheduled principal portion of the monthly payments due in
the month of substitution). The amount of such shortage (the "Substitution
Adjustment Amount") plus an amount equal to the aggregate of any unreimbursed
Advances with respect to such Deleted Mortgage Loans shall be deposited in the
Collection Account by the Seller on or before the Payment Account Deposit Date
for the Distribution Date in the month succeeding the calendar month during
which the related Mortgage Loan became required to be purchased or replaced
hereunder.
In the event that the Seller shall have repurchased a Mortgage Loan,
the Purchase Price therefor shall be deposited in the Collection Account
pursuant to Section 3.08 on or before the Payment Account Deposit Date for the
Distribution Date in the month following the month during
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which the Seller became obligated hereunder to repurchase or replace such
Mortgage Loan and upon such deposit of the Purchase Price, the delivery of the
Opinion of Counsel required by this Section 2.04(c) and receipt of a Request for
Release in the form of Exhibit D hereto, the Trustee shall release the related
Mortgage File held for the benefit of the Securityholders to such Person, and
the Trustee shall execute and deliver at such Person's direction such
instruments of transfer or assignment prepared by such Person, in each case
without recourse, as shall be necessary to transfer title from the Trustee. It
is understood and agreed that the obligation under this Agreement of any Person
to cure, repurchase or replace any Mortgage Loan as to which a breach has
occurred and is continuing shall constitute the sole remedy against such Persons
respecting such breach available to Securityholders, the Depositor or the
Trustees on their behalf.]
The representations and warranties made pursuant to this Section 2.04
shall survive delivery of the respective Mortgage Files to the Trustee for the
benefit of the Securityholders.
(e) Covenants of the Master Servicer.
The Master Servicer hereby covenants to the Depositor and the Trustees
as follows:
(i) the Master Servicer shall comply in the
performance of its obligations under this Agreement with all reasonable
rules and requirements of the insurer under each Required Insurance
Policy; and
(ii) no written information, certificate of an
officer, statement furnished in writing or written report delivered to
the Depositor, any affiliate of the Depositor or any Trustee and
prepared by the Master Servicer pursuant to this Agreement will contain
any untrue statement of a material fact or omit to state a material
fact necessary to make such information, certificate, statement or
report not misleading.
(f) Covenants of the Depositor.
The Depositor hereby covenants that, except for the transfer
under the Indenture, the Depositor will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer
to exist any Lien on any Mortgage Loan, whether now existing or
hereafter created, or any interest therein; the Depositor will notify
the Trustee of the existence of any Lien on any Mortgage Loan
immediately upon discovery thereof; and the Depositor will defend the
right, title and interest of the Trust in, to and under the Mortgage
Loans, whether now existing or hereafter created, against all claims of
third parties claiming through or under the Depositor; provided,
however, that nothing in this Section 2.06 shall prevent or be deemed
to prohibit the Depositor from suffering to exist upon any of the
Mortgage Loans any Liens for municipal or other local taxes and other
governmental charges if such taxes or governmental charges shall not at
the time be due and payable or if the Depositor shall currently be
contesting the validity thereof in good faith by appropriate
proceedings and shall have set aside on its books adequate reserves
with respect thereto.
Section 3.01. Administration and Servicing of Mortgage Loans.
The parties agree that, subject to the provisions of Article VII
hereof, the Master Servicer shall service the Mortgage Loans in the manner and
on the terms and conditions set forth below:
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(a) Master Servicer to Service Mortgage Loans.
(i) The Master Servicer shall service and administer the
Mortgage Loans in a manner consistent with the terms of this Agreement
and with general industry practice and shall have full power and
authority, acting alone or through a subservicer, to do any and all
things in connection with such servicing and administration which it
may deem necessary or desirable, it being understood, however, that the
Master Servicer shall at all times remain responsible to the Trustees,
the Securityholders and the Credit Enhancer for the performance of its
duties and obligations hereunder in accordance with the terms hereof.
Any amounts received by any subservicer in respect of a Mortgage Loan
shall be deemed to have been received by the Master Servicer whether or
not actually received by it. Without limiting the generality of the
foregoing, the Master Servicer shall continue, and is hereby authorized
and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Securityholders and the Trustee, or any of them, any and
all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect
to the Mortgage Loans and with respect to the Mortgaged Properties. The
Trustee shall, upon the written request of a Servicing Officer, furnish
the Master Servicer with any powers of attorney and other documents
necessary or appropriate to enable the Master Servicer to carry out its
servicing and administrative duties hereunder. The Master Servicer in
such capacity may also consent to the placing of a lien senior to that
of any Mortgage on the related Mortgaged Property, provided that
(x) such Mortgage succeeded to a first lien position
after the related Mortgage Loan was conveyed to the Trust and,
immediately following the placement of such senior lien, such
Mortgage is in a second lien position and the outstanding
principal amount of the mortgage loan secured by such
subsequent senior lien is no greater than the outstanding
principal amount of the senior mortgage loan secured by the
Mortgaged Property as of the date the related Mortgage Loan
was originated; or
(y) the Mortgage relating to such Mortgage Loan was
in a second lien position as of the Cut-off Date and the new
senior lien secures a mortgage loan that refinances an
existing first mortgage loan and the outstanding principal
amount of the replacement first mortgage loan immediately
following such refinancing is not greater than the outstanding
principal amount of such existing first mortgage loan at the
date of origination of such Mortgage Loan;
provided, further, that such senior lien does not secure a note that provides
for negative amortization. Notwithstanding the foregoing, the Master Servicer
can consent to the placing of liens senior to that of a Mortgage on the related
Mortgaged Property which have a principal balance in excess of the principal
balance of the senior lien it replaces on Mortgage Loans having in the aggregate
Asset Balances not in excess of ___% of the Cut-off Date Pool Balance; provided,
however, that, with respect to Mortgage Loans which as of the Cut-off Date had
Combined Loan-to-Value Ratios in excess of ___%, the aggregate Asset Balance of
such Mortgage Loans with respect to which the senior lien may be so modified
shall not exceed _____% of the Cut-off Date Pool Balance (such ___% and _____%
herein referred to as the "Increased Senior Lien Limitation"). Any such increase
to the principal balance of the senior lien shall not exceed the greater of
$_______ and _____% of the principal balance of the senior lien prior to such
increase.
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The Master Servicer may also, without prior approval from the Rating
Agencies or the Credit Enhancer, increase the Credit Limits on Mortgage Loans
(provided that (i) new appraisals are obtained and the Combined Loan-to-Value
Ratios of the Mortgage Loans after giving effect to such increase are less than
or equal to the Combined Loan-to-Value Ratios or the Mortgage Loans as of the
Cut-off Date and (ii) such increases are consistent with the Master Servicer's
underwriting policies. In addition, the Master Servicer may increase the Credit
Limits on Mortgage Loans having aggregate balances of up to ____% of the
aggregate Cut-off Date Pool Balance, without obtaining new appraisals provided
that (i) the increase in the Credit Limit does not cause the Combined
Loan-to-Value Ratios of the Mortgage Loans to exceed _____% and (ii) the
increase is consistent with the Master Servicer's underwriting policies.
Furthermore, the Master Servicer may, without prior approval from the
Rating Agencies and the Credit Enhancer solicit Mortgagors for a reduction in
Loan Rates; provided that the Master Servicer can only reduce such Loan Rates on
up to ____% of the Mortgage Loans by Cut-off Date Pool Balance. Any such
solicitations shall not result in a reduction in the weighted average Gross
Margin of the Mortgage Loans in the pool by more than ____ basis points taking
into account any such prior reductions.
In addition, the Master Servicer may agree to changes in the terms of a
Mortgage Loan at the request of the Mortgagor provided that such changes (i) do
not materially and adversely affect the interests of Securityholders or the
Credit Enhancer and (ii) are consistent with prudent and customary business
practice as evidenced by a certificate signed by a Servicing Officer delivered
to the Trustee and the Credit Enhancer.
In addition to the foregoing, the Master Servicer may solicit
Mortgagors to change any other terms of the related Mortgage Loans, provided
that such changes (i) do not materially and adversely affect the interest of
Securityholders or the Credit Enhancer and (ii) are consistent with prudent and
customary business practice as evidenced by a certificate signed by a Servicing
Officer delivered to the Trustee and the Credit Enhancer. Nothing herein shall
limit the right of the Master Servicer to solicit Mortgagors with respect to new
loans (including mortgage loans) that are not Mortgage Loans.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Agreement) to the Trustee under this
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(ii) In the event that the rights, duties and obligations of
the Master Servicer are terminated hereunder, any successor to the
Master Servicer in its sole discretion may, to the extent permitted by
applicable law, terminate the existing subservicer arrangements with
any subservicer or assume the terminated Master Servicer's rights under
such subservicing arrangements which termination or assumption will not
violate the terms of such arrangements.
(b) Subservicing; Enforcement of the Obligations of Servicers.
(i) The Master Servicer may arrange for the subservicing of
any Mortgage Loan by a Subservicer pursuant to a subservicing agreement;
provided, however, that such subservicing arrangement and the terms of the
related subservicing agreement must provide for the servicing of such Mortgage
Loans in a manner consistent with the servicing arrangements contemplated
hereunder. Unless the context otherwise requires, references in this Agreement
to actions taken or to be taken by
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the Master Servicer in servicing the Mortgage Loans include actions taken or to
be taken by a Subservicer on behalf of the Master Servicer. Notwithstanding the
provisions of any subservicing agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer and
a Subservicer or reference to actions taken through a Subservicer or otherwise,
the Master Servicer shall remain obligated and liable to the Depositor, the
Trustees and the Securityholders for the servicing and administration of the
Mortgage Loans in accordance with the provisions of this Agreement without
diminution of such obligation or liability by virtue of such subservicing
agreements or arrangements or by virtue of indemnification from the Subservicer
and to the same extent and under the same terms and conditions as if the Master
Servicer alone were servicing and administering the Mortgage Loans. All actions
of each Subservicer performed pursuant to the related subservicing agreement
shall be performed as an agent of the Master Servicer with the same force and
effect as if performed directly by the Master Servicer.
(ii) For purposes of this Agreement, the Master Servicer shall
be deemed to have received any collections, recoveries or payments with respect
to the Mortgage Loans that are received by a Subservicer regardless of whether
such payments are remitted by the Subservicer to the Master Servicer.
(iii) As part of its servicing activities hereunder, the
Master Servicer, for the benefit of the Trustees and the Securityholders, shall
use its best reasonable efforts to enforce the obligations of each Subservicer
under the related Subservicing Agreement, to the extent that the non-performance
of any such obligation would have material and adverse effect on a Mortgage
Loan. Such enforcement, including, without limitation, the legal prosecution of
claims, termination of Subservicing Agreements and the pursuit of other
appropriate remedies, shall be in such form and carried out to such an extent
and at such time as the Master Servicer, in its good faith business judgment,
would require were it the owner of the related Mortgage Loans. The Master
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
(c) Successor Servicers.
The Master Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement;
provided, however, that in the event of termination of any Subservicing
Agreement by the Master Servicer or the Subservicer, the Master Servicer shall
either act as servicer of the related Mortgage Loan or enter into a Subservicing
Agreement with a successor Subservicer which will be bound by the terms of the
related Subservicing Agreement. If the Master Subservicer or any affiliate of
the Master Servicer acts as Subservicer, it will not assume liability for the
representations and warranties of the Subservicer which it replaces. If the
Master Subservicer enters into a Subservicing Agreement with a successor
Subservicer, the Master Servicer shall use reasonable efforts to have the
successor Subservicer assume liability for the representations and warranties
made by the terminated Subservicer in respect of the related Mortgage Loans and,
in the event of any such assumption by the successor Subservicer, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability for such representations and warranties.
(d) Liability of the Master Servicer.
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Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer or a Subservicer or references to actions taken through a Subservicer
or otherwise, the Master Servicer shall remain obligated and liable to the
Trustees and Securityholders for the servicing and administering of the Pledged
Mortgages in accordance with the provisions of Section 3.01 without diminution
of such obligation or liability by virtue of such Subservicing Agreements or
arrangements or by virtue of indemnification from the Subservicer and to the
same extent and under the same terms and conditions as if the Master Servicer
alone were servicing and administering the Pledged Mortgages. The Master
Servicer shall be entitled to enter into any agreement with a Subservicer for
indemnification of the Master Servicer and nothing contained in this Agreement
shall be deemed to limit or modify such indemnification.
(e) No Contractual Relationship Between Subservicers and the
Trustees.
Any Servicing Agreement that may be entered into and any other
transactions or services relating to the Mortgage Loans involving a Servicer in
its capacity as such and not as an originator shall be deemed to be between the
Subservicer and the Master Servicer alone and the Trustees and Securityholders
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Subservicer in its
capacity as such except as set forth in Section 3.07.
(f) Rights of the Depositor and the Trustees in Respect of the
Master Servicer.
The Depositor may, but is not obligated to, enforce the obligations of
the Master Servicer hereunder and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of the Master Servicer
hereunder and in connection with any such defaulted obligation to exercise the
related rights of the Master Servicer hereunder; provided that the Master
Servicer shall not be relieved of any of its obligations hereunder by virtue of
such performance by the Depositor or its designee. Neither the Trustees nor the
Depositor shall have any responsibility or liability for any action or failure
to act by the Master Servicer nor shall the Trustees or the Depositor be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.
(g) Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no longer be
the Master Servicer hereunder (including by reason of an Event of Default), the
Trustee or its successor shall thereupon assume all of the rights and
obligations of the Master Servicer hereunder arising thereafter (except that the
Trustee shall not be (i) liable for losses of the Master Servicer pursuant to
Section 3.12 hereof or any acts or omissions of the predecessor Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate repurchases or substitutions of
Mortgage Loans hereunder including, but not limited to, repurchases or
substitutions of Mortgage Loans pursuant to Section 2.02 or 2.04 hereof, (iv)
responsible for expenses of the Master Servicer pursuant to Section 2.04 or (v)
deemed to have made any representations and warranties of the Master Servicer
hereunder). Any such assumption shall be subject to Section 7.02 hereof. If the
Master Servicer shall for any reason no longer be the Master Servicer (including
by reason of any Event of Default), the Trustee or its successor shall succeed
to any rights and obligations of the Master Servicer under each subservicing
agreement.
The Master Servicer shall, upon request of the Trustee, but at the
expense of the Master Servicer, deliver to the assuming party all documents and
records relating to each subservicing
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agreement or substitute subservicing agreement and the Mortgage Loans then being
serviced thereunder and an accounting of amounts collected or held by it and
otherwise use its best efforts to effect the orderly and efficient transfer of
the substitute subservicing agreement to the assuming party.
(h) Collection of Mortgage Loan Payments; Collection
Accounts; Payment Account.
(i) The Master Servicer shall make reasonable efforts in
accordance with the customary and usual standards of practice of prudent
mortgage servicers to collect all payments called for under the terms and
provisions of the Mortgage Loans to the extent such procedures shall be
consistent with this Agreement and the terms and provisions of any related
Required Insurance Policy. Consistent with the foregoing, the Master Servicer
may in its discretion (i) waive any late payment charge or any prepayment charge
or penalty interest in connection with the prepayment of a Mortgage Loan and
(ii) extend the due dates for payments due on a Mortgage Note for a period not
greater than 180 days; provided, however, that the Master Servicer cannot extend
the maturity of any such Mortgage Loan past the date on which the final payment
is due on the latest maturing Mortgage Loan as of the Cut-off Date. In the event
of any such arrangement, the Master Servicer shall make Advances on the related
Mortgage Loan in accordance with the provisions of Article IV during the
scheduled period in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangements. The Master
Servicer shall not be required to institute or join in litigation with respect
to collection of any payment (whether under a Mortgage, Mortgage Note or
otherwise or against any public or governmental authority with respect to a
taking or condemnation) if it reasonably believes that enforcing the provision
of the Mortgage or other instrument pursuant to which such payment is required
is prohibited by applicable law.
(ii) The Master Servicer shall establish and maintain a
Collection Account into which the Master Servicer shall deposit or cause to be
deposited on a daily basis within one Business Day of receipt, except as
otherwise specifically provided herein, the following payments and collections
remitted by Subservicers or received by it in respect of Mortgage Loans
subsequent to the Cut-off Date (other than in respect of principal and interest
due on the Mortgage Loans on or before the Cut-off Date) and the following
amounts required to be deposited hereunder:
(A) all collections on account of principal on the Mortgage
Loans;
(B) all collections on account of interest on the Mortgage
Loans, net of the related Master Servicing Fee;
(C) all Insurance Proceeds and Liquidation Proceeds, other
than proceeds to be applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures;
(D) any amount required to be deposited by the Master Servicer
pursuant to Section 3.08(d) in connection with any losses on Permitted
Investments;
(E) any amounts required to be deposited by the Master
Servicer pursuant to Section 3.12(b), 3.12(d), and in respect of net
monthly rental income from REO Property pursuant to Section 3.14
hereof;
(F) all Substitution Adjustment Amounts;
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(G) all Advances made by the Master Servicer pursuant to
Article IV; and
(H) any other amounts required to be deposited hereunder.
The foregoing requirements for remittance by the Master Servicer shall
be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of prepayment penalties,
late payment charges or assumption fees, if collected, need not be remitted by
the Master Servicer. In the event that the Master Servicer shall remit any
amount not required to be remitted, it may at any time withdraw or direct the
institution maintaining the Collection Account to withdraw such amount from the
Collection Account, any provision herein to the contrary notwithstanding. Such
withdrawal or direction may be accomplished by delivering written notice thereof
to the Trustee or such other institution maintaining the Collection Account
which describes the amounts deposited in error in the Collection Account. The
Master Servicer shall maintain adequate records with respect to all withdrawals
made pursuant to this Section . All funds deposited in the Collection Account
shall be held in trust for the Securityholders until withdrawn in accordance
with Section 3.11.
(iii) The Trustee shall establish and maintain, on behalf of
the Securityholders, the Payment Account. The Trustee shall, promptly upon
receipt, deposit in the Payment Account and retain therein the following:
(A) the aggregate amount remitted by the Master Servicer to
the Trustee pursuant to Section 3.11(a)(ix);
(B) any amount deposited by the Master Servicer pursuant to
Section 3.08(d) in connection with any losses on Permitted Investments;
and
(C) any other amounts deposited hereunder which are required
to be deposited in the Payment Account.
In the event that the Master Servicer shall remit any amount not
required to be remitted, it may at any time direct the Trustee to withdraw such
amount from the Payment Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Payment Account. All funds deposited in the Payment Account shall be held by the
Trustee in trust for the Securityholders until disbursed in accordance with this
Agreement or withdrawn in accordance with Section 3.11. In no event shall the
Trustee incur liability for withdrawals from the Payment Account at the
direction of the Master Servicer.
(iv) Each institution at which the Collection Account or the
Payment Account is maintained shall invest the funds therein as directed in
writing by the Master Servicer in Permitted Investments, which shall mature not
later than (i) in the case of the Collection Account, the second Business Day
next preceding the related Payment Account Deposit Date (except that if such
Permitted Investment is an obligation of the institution that maintains such
account, then such Permitted Investment shall mature not later than the Business
Day next preceding such Payment Account Deposit Date) and (ii) in the case of
the Payment Account, the Business Day next preceding the Distribution Date
(except that if such Permitted Investment is an obligation of the institution
that maintains such fund or account, then such Permitted Investment shall mature
not later than such Distribution Date) and, in each case, shall not be sold or
disposed of prior to its maturity. All such
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Permitted Investments shall be made in the name of the Trustee, for the benefit
of the Securityholders. All income and gain net of any losses realized from any
such investment of funds on deposit in the Collection Account or the Payment
Account shall be for the benefit of the Master Servicer as servicing
compensation and shall be remitted to it monthly as provided herein. The amount
of any realized losses in the Collection Account or the Payment Account incurred
in any such account in respect of any such investments shall promptly be
deposited by the Master Servicer in the Collection Account or paid to the
Trustee for deposit into the Payment Account, as applicable. The Trustee in its
fiduciary capacity shall not be liable for the amount of any loss incurred in
respect of any investment or lack of investment of funds held in the Collection
Account or the Payment Account and made in accordance with this Section 3.08.
(v) The Master Servicer shall give notice to the Trustee, each
Rating Agency and the Depositor of any proposed change of the location of the
Collection Account prior to any change thereof. The Trustee shall give notice to
the Master Servicer, each Rating Agency and the Depositor of any proposed change
of the location of the Payment Account prior to any change thereof.
(i) Collection of Taxes, Assessments and Similar Items;
Escrow Accounts.
(i) To the extent required by the related Mortgage Note and
not violative of current law, the Master Servicer shall establish and maintain
one or more accounts (each, an "Escrow Account") and deposit and retain therein
all collections from the Mortgagors (or advances by the Master Servicer) for the
payment of taxes, assessments, hazard insurance premiums or comparable items for
the account of the Mortgagors. Nothing herein shall require the Master Servicer
to compel a Mortgagor to establish an Escrow Account in violation of applicable
law.
(ii) Withdrawals of amounts so collected from the Escrow
Accounts may be made only to effect timely payment of taxes, assessments, hazard
insurance premiums, condominium or PUD association dues, or comparable items, to
reimburse the Master Servicer out of related collections for any payments made
pursuant to Sections [3.01] hereof (with respect to taxes and assessments and
insurance premiums) and 3.12 hereof (with respect to hazard insurance), to
refund to any Mortgagors any sums determined to be overages, to pay interest, if
required by law or the terms of the related Mortgage or Mortgage Note, to
Mortgagors on balances in the Escrow Account or to clear and terminate the
Escrow Account at the termination of this Agreement in accordance with Section
8.01 hereof. The Escrow Accounts shall not be a part of the Issuer.
(iii) The Master Servicer shall advance any payments referred
to in Section 3.09(a) that are not timely paid by the Mortgagors on the date
when the tax, premium or other cost for which such payment is intended is due,
but the Master Servicer shall be required so to advance only to the extent that
such advances, in the good faith judgment of the Master Servicer, will be
recoverable by the Master Servicer out of Insurance Proceeds, Liquidation
Proceeds or otherwise.
(j) Access to Certain Documentation and Information
Regarding the Mortgage Loans.
The Master Servicer shall afford the Depositor and the Trustee
reasonable access to all records and documentation regarding the Mortgage Loans
and all accounts, insurance information and other matters relating to this
Agreement, such access being afforded without charge, but only upon reasonable
request and during normal business hours at the office designated by the Master
Servicer.
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Upon reasonable advance notice in writing, the Master Servicer will
provide to each Securityholder which is a savings and loan association, bank or
insurance company certain reports and reasonable access to information and
documentation regarding the Mortgage Loans sufficient to permit such
Securityholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates; provided
that the Master Servicer shall be entitled to be reimbursed by each such
Securityholder for actual expenses incurred by the Master Servicer in providing
such reports and access.
(k) Permitted Withdrawals from the Note Account.
(i) The Master Servicer may from time to time make withdrawals
from the Collection Account for the following purposes:
(A) to pay to the Master Servicer (to the extent not
previously retained by the Master Servicer) the servicing compensation
to which it is entitled pursuant to Article V, and to pay to the Master
Servicer, as additional servicing compensation, earnings on or
investment income with respect to funds in or credited to the
Collection Account;
(B) to reimburse the Master Servicer for unreimbursed Advances
made by it, such right of reimbursement pursuant to this subclause (ii)
being limited to amounts received on the Mortgage Loan(s) in respect of
which any such Advance was made;
(C) to reimburse the Master Servicer for any Nonrecoverable
Advance previously made;
(D) to reimburse the Master Servicer for Insured Expenses from
the related Insurance Proceeds;
(E) to reimburse the Master Servicer for (a) unreimbursed
Servicing Advances, the Master Servicer's right to reimbursement
pursuant to this clause (a) with respect to any Mortgage Loan being
limited to amounts received on such Mortgage Loan(s) which represent
late recoveries of the payments for which such advances were made
pursuant to Section 3.01 or Section 3.09 and (b) for unpaid Master
Servicing Fees as provided in Section 3.14 hereof;
(F) to pay to the purchaser, with respect to each Mortgage
Loan or property acquired in respect thereof that has been purchased
pursuant to Section 2.02, 2.04, or 3.14, all amounts received thereon
after the date of such purchase;
(G) to reimburse the Master Servicer or the Depositor for
expenses incurred by of them and reimbursable pursuant to Section 6.03
hereof;
(H) to withdraw any amount deposited in the Collection Account
and not required to be deposited therein;
(I) on or prior to the Payment Account Deposit Date, to
withdraw an amount equal to the related Available Funds and the
Trustees Fees for such Distribution Date and remit such amount to the
Trustee for deposit in the Payment Account; and
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(J) to clear and terminate the Collection Account upon
termination of this Agreement pursuant to Section 8.01 hereof.
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Collection Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee an
Officer's Certificate of a Servicing Officer indicating the amount of any
previous Advance determined by the Master Servicer to be a Nonrecoverable
Advance and identifying the related Mortgage Loans(s), and their respective
portions of such Nonrecoverable Advance.
(ii) The Trustee shall withdraw funds from the Payment Account
for distributions to Securityholders in the manner specified in this Agreement
(and to withhold from the amounts so withdrawn, the amount of any taxes that it
is authorized to withhold pursuant to the last paragraph of [Section
8.11/trustee]). In addition, the Trustee may from time to time make withdrawals
from the Payment Account for the following purposes:
(A) to pay to itself the Trustee Fee for the related
Distribution Date;
(B) to pay to the Master Servicer as additional servicing
compensation earnings on or investment income with respect to funds in
the Payment Account;
(C) to withdraw and return to the Master Servicer any amount
deposited in the Payment Account and not required to be deposited
therein; and
(D) to clear and terminate the Payment Account upon
termination of the Agreement pursuant to 8.01 hereof.
(l) Maintenance of Hazard Insurance; Maintenance of Primary
Insurance Policies.
(i) The Master Servicer shall cause to be maintained, for each
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. Any amounts collected by the Master Servicer under any such policies
(other than the amounts to be applied to the restoration or repair of the
related Mortgaged Property or amounts released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures) shall be deposited in
the Collection Account. Any cost incurred by the Master Servicer in maintaining
any such insurance shall not, for the purpose of calculating monthly
distributions to the Securityholders or remittances to the Trustee for their
benefit, be added to the principal balance of the Mortgage Loan, notwithstanding
that the terms of the Mortgage Loan so permit. Such costs shall be recoverable
by the Master Servicer out of late payments by the related Mortgagor or out of
Liquidation Proceeds to the extent permitted by Section 3.11 hereof. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired in respect of a
Mortgage other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located at the time of origination of the
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Mortgage Loan in a federally designated special flood hazard area and such area
is participating in the national flood insurance program, the Master Servicer
shall cause flood insurance to be maintained with respect to such Mortgage Loan.
Such flood insurance shall be in an amount equal to the least of (i) the
original principal balance of the related Mortgage Loan, (ii) the replacement
value of the improvements which are part of such Mortgaged Property, and (iii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program.
(ii) In the event that the Master Servicer shall obtain and
maintain a blanket policy insuring against hazard losses on all of the Mortgage
Loans, it shall conclusively be deemed to have satisfied its obligations as set
forth in the first sentence of this Section , it being understood and agreed
that such policy may contain a deductible clause on terms substantially
equivalent to those commercially available and maintained by comparable
servicers. If such policy contains a deductible clause, the Master Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property a policy complying with the first sentence of this Section ,
and there shall have been a loss that would have been covered by such policy,
deposit in the Collection Account the amount not otherwise payable under the
blanket policy because of such deductible clause. In connection with its
activities as Master Servicer of the Mortgage Loans, the Master Servicer agrees
to present, on behalf of itself, the Depositor, and the Trustee for the benefit
of the Securityholders, claims under any such blanket policy.
(iii) The Master Servicer shall not take any action which
would result in non-coverage under any applicable Primary Insurance Policy of
any loss which, but for the actions of the Master Servicer, would have been
covered thereunder. The Master Servicer shall not cancel or refuse to renew any
such Primary Insurance Policy that is in effect at the date of the initial
issuance of the Notes and the Certificates and is required to be kept in force
hereunder unless the replacement Primary Insurance Policy for such canceled or
non-renewed policy is maintained with a Qualified Insurer. The Master Servicer
shall not be required to maintain any Primary Insurance Policy with respect to
any Mortgage Loan with a Loan-to-Value Ratio less than or equal to 80% as of any
date of determination or, based on a new appraisal, the principal balance of
such Mortgage Loan represents 80% or less of the new appraised value. The Master
Servicer agrees to effect the timely payment of the premiums on each Primary
Insurance Policy, and such costs not otherwise recoverable shall be recoverable
by the Master Servicer from the related liquidation proceeds.
(iv) In connection with its activities as Master Servicer of
the Mortgage Loans, the Master Servicer agrees to present on behalf of itself,
the Trustee and Securityholders, claims to the insurer under any Primary
Insurance Policies and, in this regard, to take such reasonable action as shall
be necessary to permit recovery under any Primary Insurance Policies respecting
defaulted Mortgage Loans. Any amounts collected by the Master Servicer under any
Primary Insurance Policies shall be deposited in the Collection Account.
(m) Enforcement of Due-On-Sale Clauses; Assumption Agreements.
(i) Except as otherwise provided in this Section , when any
property subject to a Mortgage has been conveyed by the Mortgagor, the Master
Servicer shall to the extent that it has knowledge of such conveyance, enforce
any due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. Notwithstanding the foregoing, the Master
Servicer is not required to exercise such rights with respect to a Mortgage Loan
if the Person to whom the related Mortgaged Property has
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been conveyed or is proposed to be conveyed satisfies the terms and conditions
contained in the Mortgage Note and Mortgage related thereto and the consent of
the mortgagee under such Mortgage Note or Mortgage is not otherwise so required
under such Mortgage Note or Mortgage as a condition to such transfer. In the
event that the Master Servicer is prohibited by law from enforcing any such
due-on-sale clause, or if coverage under any Required Insurance Policy would be
adversely affected, or if nonenforcement is otherwise permitted hereunder, the
Master Servicer is authorized, subject to Section 3.13(b), to take or enter into
an assumption and modification agreement from or with the person to whom such
property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note and, unless prohibited by applicable
state law, the Mortgagor remains liable thereon, provided that the Mortgage Loan
shall continue to be covered (if-so covered before the Master Servicer enters
such agreement) by the applicable Required Insurance Policies. The Master
Servicer, subject to Section 3.13(h), is also authorized with the prior approval
of the insurers under any Required Insurance Policies 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. Notwithstanding the
foregoing, the Master Servicer shall not be deemed to be in default under this
Section by reason of any transfer or assumption which the Master Servicer
reasonably believes it is restricted by law from preventing, for any reason
whatsoever.
(ii) Subject to the Master Servicer's duty to enforce any
due-on-sale clause to the extent set forth in Section 3.13(a) hereof, in any
case in which a Mortgaged Property has been conveyed to a Person by a Mortgagor,
and such Person is to enter into an assumption agreement or modification
agreement or supplement to the Mortgage Note or Mortgage that requires the
signature of the Trustee, or if an instrument of release signed by the Trustee
is required releasing the Mortgagor from liability on the Mortgage Loan, the
Master Servicer shall prepare and deliver or cause to be prepared and delivered
to the Trustee for signature and shall direct, in writing, the Trustee to
execute the assumption agreement with the Person to whom the Mortgaged Property
is to be conveyed and such modification agreement or supplement to the Mortgage
Note or Mortgage or other instruments as are reasonable or necessary to carry
out the terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term of the
Mortgage Note may be changed. In addition, the substitute Mortgagor and the
Mortgaged Property must be acceptable to the Master Servicer in accordance with
its underwriting standards as then in effect. Together with each such
substitution, assumption or other agreement or instrument delivered to the
Trustee for execution by it, the Master Servicer shall deliver an Officer's
Certificate signed by a Servicing Officer stating that the requirements of this
subsection have been met in connection therewith. The Master Servicer shall
notify the Trustee that any such substitution or assumption agreement has been
completed by forwarding to the Trustee the original of such substitution or
assumption agreement, which in the case of the original shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Master Servicer for
entering into an assumption or substitution of liability agreement will be
retained by the Master Servicer as additional servicing compensation.
(n) Realization Upon Defaulted Mortgage Loans; Repurchase
of Certain Mortgage Loans.
The Master Servicer shall use reasonable efforts to foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
Mortgage Loans as come into and continue
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in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments. In connection with such foreclosure or other
conversion, the Master Servicer shall follow such practices and procedures as it
shall deem necessary or advisable and as shall be normal and usual in its
general mortgage servicing activities and meet the requirements of the insurer
under any Required Insurance Policy; provided, however, that the Master Servicer
shall not be required to expend its own funds in connection with any foreclosure
or towards the restoration of any property unless it shall determine (i) that
such restoration and/or foreclosure will increase the proceeds of liquidation of
the Mortgage Loan after reimbursement to itself of such expenses and (ii) that
such expenses will be recoverable to it through Liquidation Proceeds (respecting
which it shall have priority for purposes of withdrawals from the Collection
Account). The Master Servicer shall be responsible for all other costs and
expenses incurred by it in any such proceedings; provided, however, that it
shall be entitled to reimbursement thereof from the liquidation proceeds with
respect to the related Mortgaged Property, as provided in the definition of
Liquidation Proceeds. If the Master Servicer has knowledge that a Mortgaged
Property which the Master Servicer is contemplating acquiring in foreclosure or
by deed in lieu of foreclosure is located within a one mile radius of any site
listed in the Expenditure Plan for the Hazardous Substance Clean Up Bond Act of
1984 or other site with environmental or hazardous waste risks known to the
Master Servicer, the Master Servicer will, prior to acquiring the Mortgaged
Property, consider such risks and only take action in accordance with its
established environmental review procedures.
With respect to any REO Property, the deed or certificate of sale shall
be taken in the name of the Trustee for the benefit of the Securityholders, or
its nominee, on behalf of the Securityholders. The Trustee's name shall be
placed on the title to such REO Property solely as the Trustee under the
Indenture and not in its individual capacity. The Master Servicer shall ensure
that the title to such REO Property references the Indenture and the Trustee's
capacity thereunder. Pursuant to its efforts to sell such REO Property, the
Master Servicer shall either itself or through an agent selected by the Master
Servicer protect and conserve such REO Property in the same manner and to such
extent as is customary in the locality where such REO Property is located and
may, incident to its conservation and protection of the interests of the
Securityholders, rent the same, or any part thereof, as the Master Servicer
deems to be in the best interest of the Securityholders for the period prior to
the sale of such REO Property. The Master Servicer shall prepare for and deliver
to the Trustee a statement with respect to each REO Property that has been
rented showing the aggregate rental income received and all expenses incurred in
connection with the management and maintenance of such REO Property at such
times as is necessary to enable the Trustee to comply with the reporting
requirements of the REMIC Provisions. The net monthly rental income, if any,
from such REO Property shall be deposited in the Collection Account no later
than the close of business on each Determination Date. [The Master Servicer
shall perform the tax reporting and withholding required by Sections 1445 and
6050J of the Code with respect to foreclosures and abandonments, the tax
reporting required by Section 6050H of the Code with respect to the receipt of
mortgage interest from individuals and any tax reporting required by Section
6050P of the Code with respect to the cancellation of indebtedness by certain
financial entities, by preparing such tax and information returns as may be
required, in the form required, and delivering the same to the Trustee for
filing.]
In the event that the Issuer acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Master Servicer shall dispose of such Mortgaged Property
prior to two years after its acquisition by the Issuer unless the Trustee shall
have been supplied with an Opinion of Counsel to the effect that the holding by
the Issuer of such Mortgaged Property subsequent to such two-year period will
not result in the imposition of taxes on "prohibited transactions" of the REMIC
defined in Section 860F of the Code or cause the REMIC
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to fail to qualify as a REMIC at any time that any Notes or Certificates are
outstanding, in which case the Issuer may continue to hold such Mortgaged
Property (subject to any conditions contained in such Opinion of Counsel).
Notwithstanding any other provision of this Agreement, no Mortgaged Property
acquired by the Issuer shall be rented (or allowed to continue to be rented) or
otherwise used for the production of income by or on behalf of the Issuer in
such a manner or pursuant to any terms that would (i) cause such Mortgaged
Property to fail to qualify as "foreclosure property" within the meaning of
Section 860G(a)(8) of the Code or (ii) subject the REMIC to the imposition of
any federal, state or local income taxes on the income earned from such
Mortgaged Property under Section 860G(c) of the Code or otherwise, unless the
Master Servicer has agreed to indemnify and hold harmless the Issuer with
respect to the imposition of any such taxes.
The decision of the Master Servicer to foreclose on a defaulted
Mortgage Loan shall be subject to a determination by the Master Servicer that
the proceeds of such foreclosure would exceed the costs and expenses of bringing
such a proceeding. The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property or other taxes) in connection with such management and net of
unreimbursed Master Servicing Fees, Advances and Servicing Advances, shall be
applied to the payment of principal of and interest on the related defaulted
Mortgage Loans (with interest accruing as though such Mortgage Loans were still
current) and all such income shall be deemed, for all purposes in this
Agreement, to be payments on account of principal and interest on the related
Mortgage Notes and shall be deposited into the Collection Account. To the extent
the net income received during any calendar month is in excess of the amount
attributable to amortizing principal and accrued interest at the related
Mortgage Rate on the related Mortgage Loan for such calendar month, such excess
shall be considered to be a partial prepayment of principal of the related
Mortgage Loan.
The proceeds from any liquidation of a Mortgage Loan, as well as any
income from an REO Property, will be applied in the following order of priority:
first, to reimburse the Master Servicer for any related unreimbursed Servicing
Advances and Master Servicing Fees; second, to reimburse the Master Servicer for
any unreimbursed Advances; third, to reimburse the Collection Account for any
Nonrecoverable Advances (or portions thereof) that were previously withdrawn by
the Master Servicer pursuant to Section 3.11(a)(iii) that related to such
Mortgage Loan; fourth, to accrued and unpaid interest (to the extent no Advance
has been made for such amount or any such Advance has been reimbursed) on the
Mortgage Loan or related REO Property, at the Adjusted Net Mortgage Rate to the
Due Date occurring in the month in which such amounts are required to be
distributed; and fifth, as a recovery of principal of the Mortgage Loan. Excess
Proceeds, if any, from the liquidation of a Liquidated Mortgage Loan will be
retained by the Master Servicer as additional servicing compensation pursuant to
Article V.
The Master Servicer, in its sole discretion, shall have the right to
purchase for its own account from the Issuer any Mortgage Loan which is 91 days
or more delinquent at a price equal to the Purchase Price. The Purchase Price
for any Mortgage Loan purchased hereunder shall be deposited in the Collection
Account and the Trustee, upon receipt of a certificate from the Master Servicer
in the form of Exhibit D hereto, shall release or cause to be released to the
purchaser of such Mortgage Loan the related Mortgage File and shall execute and
deliver such instruments of transfer or assignment prepared by the purchaser of
such Mortgage Loan, in each case without recourse, as shall be necessary to vest
in the purchaser of such Mortgage Loan any Mortgage Loan released pursuant
hereto and the purchaser of such Mortgage Loan shall succeed to all the
Trustee's right, title and interest in and to such Mortgage Loan and all
security and documents related thereto. Such assignment shall be an assignment
outright and not for security. The purchaser of such Mortgage
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Loan shall thereupon own such Mortgage Loan, and all security and documents,
free of any further obligation to the Trustee or the Securityholders with
respect thereto.
(o) Access to Certain Documentation.
The Master Servicer shall provide to the OTS and the FDIC and to
comparable regulatory authorities supervising Holders of subordinated Notes or
Certificates and the examiners and supervisory agents of the OTS, the FDIC and
such other authorities, access to the documentation regarding the Mortgage Loans
required by applicable regulations of the OTS and the FDIC. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices designated by the Master Servicer.
Nothing in this Section shall limit the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Master Servicer to provide access as provided
in this Section as a result of such obligation shall not constitute a breach of
this Section .
(p) Annual Statement as to Compliance.
The Master Servicer shall deliver to the Depositor and the Trustees on
or before 120 days after the end of the Master Servicer's fiscal year,
commencing with its 199_ fiscal year, an Officer's Certificate stating, as to
the signer thereof, that (i) a review of the activities of the Master Servicer
during the preceding calendar year and of the performance of the Master Servicer
under this Agreement has been made under such officer's supervision and (ii) to
the best of such officer's knowledge, based on such review, the Master Servicer
has fulfilled all its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The Trustee shall forward a copy of each such statement to each Rating
Agency.
(q) Annual Independent Public Accountants' Servicing
Statement; Financial Statements.
On or before 120 days after the end of the Master Servicer's fiscal
year, commencing with its 199_ fiscal year, the Master Servicer at its expense
shall cause a nationally or regionally recognized firm of independent public
accountants (who may also render other services to the Master Servicer, the
Seller or any affiliate thereof) which is a member of the American Institute of
Certified Public Accountants to furnish a statement to the Trustees and the
Depositor to the effect that-such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements substantially similar
to this Agreement (such statement to have attached thereto a schedule setting
forth the pooling and servicing agreements covered thereby) and that, on the
basis of such examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FNMA and FHLMC, such servicing has been conducted in
compliance with such pooling and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FNMA and FHLMC requires it to report. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FNMA and FHLMC
(rendered within one year of such statement) of
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independent public accountants with respect to the related Subservicer. Copies
of such statement shall be provided by the Trustee to any Securityholder upon
request at the Master Servicer's expense, provided such statement is delivered
by the Master Servicer to the Trustee.
(r) Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall for so long as it acts as master servicer
under this Agreement, obtain and maintain in force (a) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Master Servicer hereunder and (b) a fidelity bond in respect of its officers,
employees and agents. Each such policy or policies and bond shall, together,
comply with the requirements from time to time of FNMA or FHLMC for persons
performing servicing for mortgage loans purchased by FNMA or FHLMC. In the event
that any such policy or bond ceases to be in effect, the Master Servicer shall
obtain a comparable replacement policy or bond from an insurer or issuer,
meeting the requirements set forth above as of the date of such replacement.
(s) Master Servicer Monthly Data.
On or before noon New York time on the Determination Date, the Master
Servicer shall provide by modem to the Trustee with respect to the Mortgage
Loans, an electronic data file (accompanied by a hardcopy report) in a format
which is mutually agreed upon by the Master Servicer and the Trustee. The
Trustee shall be under no duty to recalculate, verify or recompute the
information provided to it by the Master Servicer hereunder.
Section 4.01. Advances.
The Master Servicer shall determine on or before each Master Servicer
Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make an
Advance, it shall, on or before the Master Servicer Advance Date, deposit into
the Collection Account an amount equal to the Advance. The Master Servicer shall
be entitled to be reimbursed from the Collection Account for all Advances of its
own funds made pursuant to this Section as provided in Section 3.11. The
obligation to make Advances with respect to any Mortgage Loan shall continue if
such Mortgage Loan has been foreclosed or otherwise terminated and the related
Mortgaged Property has not been liquidated.
Section 5.01. Servicing Compensation.
As compensation for its activities hereunder, the Master Servicer shall
be entitled to retain or withdraw from the Collection Account an amount equal to
the Master Servicing Fee for each Mortgage Loan, provided that the aggregate
Master Servicing Fee with respect to any Distribution Date shall be reduced (i)
by an amount equal to the aggregate of the Prepayment Interest Shortfalls, if
any, with respect to such Distribution Date, but not below an amount equal to
one-half of the aggregate Master Servicing Fee for such Distribution Date before
reduction thereof in respect of such Prepayment Interest Shortfalls, and (ii)
with respect to the first Distribution Date, an amount equal to any amount to be
deposited into the Payment Account by the Depositor pursuant to Section [____]
and not so deposited.
Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, late payment
charges and all income and gain net of any losses realized from Permitted
Investments shall be retained by the Master Servicer to the extent
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not required to be deposited in the Collection Account pursuant to Section 3.08
hereof. The Master Servicer shall be required to pay all expenses incurred by it
in connection with its master servicing activities hereunder (including payment
of any premiums for hazard insurance and any Primary Insurance Policy and
maintenance of the other forms of insurance coverage required by this Agreement)
and shall not be entitled to reimbursement therefor except as specifically
provided in this Agreement.
Section 6.01. The Master Servicer.
(a) Respective Liabilities of the Depositor and the Master
Servicer.
The Master Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically imposed upon and undertaken by it herein.
(b) Merger or Consolidation of the Depositor or the Master
Servicer.
The Depositor and the Master Servicer will each keep in full effect its
existence, rights and franchises as a corporation under the laws of the United
States or under the laws of one of the states thereof and will each obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement, or any of the Mortgage Loans and
to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Master Servicer may be
merged or consolidated, or any Person resulting from any merger or consolidation
to which the Depositor or the Master Servicer shall be a party, or any person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.
(c) Limitation on Liability of the Depositor, Master Servicer
and Others.
None of the Depositor, the Master Servicer or any of the directors,
officers, employees or agents of the Depositor, or the Master Servicer shall be
under any liability to the Securityholders for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor, the Master Servicer or any such Person against
any breach of representations or warranties made by it herein or protect the
Depositor, the Master Servicer or any such Person from any liability which would
otherwise be imposed by reasons of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Depositor, the Master Servicer and any
director, officer, employee or agent of the Depositor, or the Master Servicer
may rely in good faith on any document of any kind prima facie properly executed
and submitted by any Person respecting any matters arising hereunder. The
Depositor, the Master Servicer and any director, officer, employee or agent of
the Depositor, or the Master Servicer shall be indemnified by the Issuer and
held harmless against any loss, liability or expense incurred in connection with
any audit, controversy or judicial proceeding relating to a governmental taxing
authority or any legal action relating to this Agreement, the Notes or the
Certificates, other than any
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loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor, nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
that is not incidental to its respective duties hereunder and which in its
opinion may involve it in any expense or liability; provided, however, that any
of the Depositor, or the Master Servicer may in its discretion undertake any
such action that it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties hereto and interests of the Trustees
and the Securityholders hereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom shall be expenses, costs
and liabilities of the Issuer, and the Depositor, the Seller and the Master
Servicer shall be entitled to be reimbursed therefor out of the Collection
Account.
(d) Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates, or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination under clause
(b) permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a successor master servicer shall
have assumed the Master Servicer's responsibilities, duties, liabilities and
obligations hereunder.
Section 7.01. Default.
(a) Events of Default.
"Event of Default," wherever used herein, means any one of the
following events:
(i) any failure by the Master Servicer to deposit in
the Collection Account or remit to the Trustee any payment (other than
a payment required to be made under Article IV hereof) required to be
made with respect to any Class of Certificates under the terms of this
Agreement, which failure shall continue unremedied for five days after
the date upon which written notice of such failure shall have been
given to the Master Servicer by the Trustee or the Depositor or to the
Master Servicer, the Depositor and the Trustee by the Holders of Notes
or Certificates of such Class evidencing not less than 25% of the total
distributions allocated to such Class; or
(ii) any failure by the Master Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of the Master Servicer contained in this
Agreement, which failure shall continue unremedied for a period of
thirty days after the date on which written notice of such failure
shall have been given to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by
the Holders of Notes or Certificates of any Class evidencing not less
than 25% of the total distributions allocated to such Class; or
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(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceeding,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer and such decree or order shall have
remained in force undischarged or unstayed for a period of 60
consecutive days; or
(iv) the Master Servicer shall consent to the
appointment of a receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or all or substantially all of
the property of the Master Servicer; or
(v) the Master Servicer shall admit in writing its
inability to pay its debts generally as they become due, file a
petition to take advantage of, or commence a voluntary case under, any
applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors, or voluntarily suspend payment of its
obligations; or
(vi) any failure of the Master Servicer to make any
Advance in the manner and at the time required to be made pursuant to
Article IV which continues unremedied for a period of one Business Day
after the date of such failure.
If an Event of Default described in clauses (i) to (v) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee may, or at the direction of
the Holders of Notes or Certificates of any Class evidencing not less than 25%
of the total distributions allocated to such Class, the Trustee shall by notice
in writing to the Master Servicer (with a copy to each Rating Agency), terminate
all of the rights and obligations of the Master Servicer under this Agreement
and in and to the Mortgage Loans and the proceeds thereof, other than its rights
as a Securityholder. If an Event of Default described in clause (vi) hereof
shall occur, the Trustee shall, by notice in writing to the Master Servicer and
the Depositor, terminate all of the rights and obligations of the Master
Servicer under this Agreement and in and to the Mortgage Loans and the proceeds
thereof, other than its rights as a Securityholder. On and after the receipt by
the Master Servicer of such written notice, all authority and power of the
Master Servicer hereunder, whether with respect to the Mortgage Loans or
otherwise, shall pass to and be vested in the Trustee. [The Trustee shall
thereupon make any Advance described in clause (vi) hereof subject to Section
3.07 hereof.] The Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise. Unless expressly
provided in such written notice, no such termination shall affect any obligation
of the Master Servicer to pay amounts owed pursuant to Article VIII. The Master
Servicer agrees to cooperate with the Trustee in effecting the termination of
the Master Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to the Trustee of all cash amounts which shall at the
time be credited to the Collection Account, or thereafter be received with
respect to the Mortgage Loans.
Notwithstanding any termination of the activities of the Master
Servicer hereunder, the Master Servicer shall be entitled to receive, out of any
late collection of a Scheduled Payment on a Mortgage Loan which was due prior to
the notice terminating such Master Servicer's rights and obligations as Master
Servicer hereunder and received after such notice, that portion thereof to which
such Master
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Servicer would have been entitled pursuant to Sections 3.11(a)(i) through
(iii),and any other amounts payable to such Master Servicer hereunder the
entitlement to which arose prior to the termination of its activities hereunder.
(b) Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01 hereof, the Trustee shall, subject to and
to the extent provided in Section 3.07, be the successor to the Master Servicer
in its capacity as master servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all the responsibilities,
duties and liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof and applicable law including the obligation to make
Advances pursuant to Article IV. As compensation therefor, the Trustee shall be
entitled to all funds relating to the Mortgage Loans that the Master Servicer
would have been entitled to charge to the Collection Account or Payment Account
if the Master Servicer had continued to act hereunder. Notwithstanding the
foregoing, if the Trustee has become the successor to the Master Servicer in
accordance with Section 7.01 hereof, the Trustee may, if it shall be unwilling
to so act, or shall, if it is prohibited by applicable law from making Advances
pursuant to Article IV hereof or if it is otherwise unable to so act, appoint,
or petition a court of competent jurisdiction to appoint, any established
mortgage loan servicing institution the appointment of which does not adversely
affect the then current rating of the Securities by each Rating Agency as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder.
Any successor to the Master Servicer shall be an institution which is a FNMA and
FHLMC approved seller/servicer in good standing, which has a net worth of at
least $10,000,000, and which is willing to service the Mortgage Loans and
executes and delivers to the Depositor and the Trustees an agreement accepting
such delegation and assignment, which contains an assumption by such Person of
the rights, powers, duties, responsibilities, obligations and liabilities of the
Master Servicer (other than liabilities of the Master Servicer under Section
6.03 hereof incurred prior to termination of the Master Servicer under Section
7.01), with like effect as if originally named as a party to this Agreement; and
provided further that each Rating Agency acknowledges that its rating of the
Securities in effect immediately prior to such assignment and delegation will
not be qualified or reduced as a result of such assignment and delegation.
Pending appointment of a successor to the Master Servicer hereunder, the
Trustee, unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.07 hereof, act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree; provided, however, that no such
compensation shall be in excess of the Master Servicing Fee permitted the Master
Servicer hereunder. The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. Neither the Trustee nor any other successor master servicer shall be
deemed to be in default hereunder by reason of any failure to make, or any delay
in making, any distribution hereunder or any portion thereof or any failure to
perform, or any delay in performing, any duties or responsibilities hereunder,
in either case caused by the failure of the Master Servicer to deliver or
provide, or any delay in delivering or providing, any cash, information,
documents or records to it.
Any successor to the Master Servicer as master servicer shall give
notice to the Mortgagors of such change of servicer and shall, during the term
of its service as master servicer maintain in force the policy or policies that
the Master Servicer is required to maintain pursuant to 3.18.
(c) Notification to Securityholders.
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(i) Upon any termination of or appointment of a successor to
the Master Servicer, the Trustee shall give prompt written notice thereof to
Securityholders and to each Rating Agency.
(ii) Within 60 days after the occurrence of any Event of
Default, the Trustee shall transmit by mail to all Securityholders notice of
each such Event of Default hereunder known to the Trustee, unless such Event of
Default shall have been cured or waived.
Section 8.01. Miscellaneous.
(a) Term of Master Servicing Agreement.
The obligations to be performed by the Master Servicer under this
Agreement shall commence on and as of the date on which the Issuer issues the
Securities and shall terminate as to each Mortgage Loan upon (i) the payment in
full of all principal and interest due under such Mortgage Loan or other
liquidation of such Mortgage Loan as contemplated by this Agreement, (ii) the
termination of the Master Servicer's rights and powers under this Agreement by
the Trustee as provided in Section 7.01 of this Agreement, or (iii) the release
by the Trustee of its security interest in any Mortgage Loan.
(b) Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee and Depositor.
(c) Notices.
(i) The Trustee shall use its best efforts to promptly provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not been
cured;
3. The resignation or termination of the Master Servicer or
the Trustee and the appointment of any successor;
4. The repurchase or substitution of Mortgage Loans pursuant
to Section 2.04; and
5. The final payment to Securityholders.
In addition, the Trustee shall promptly furnish to each Rating Agency
copies of the following:
1. Each report to Securityholders described in the Indenture;
2. Each annual statement as to compliance described in Section
3.16;
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3. Each annual independent public accountants' servicing
report described in Section 3.17; and
4. Any notice of a purchase of a Mortgage Loan pursuant to
Section 2.02, 2.04 or 3.14.
(ii) All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when delivered to (a) in the
case of the Depositor, Morgan Stanley ABS Capital I Inc., 1585 Broadway, New
York, New York 10036, Attention: _______________, (b) in the case of the Master
Servicer, _____________________________________________, Attention:
_________________ or such other address as may be hereafter furnished to the
Depositor and the Trustees by the Master Servicer in writing, (c) in the case of
the Trustees, _______________________________________________________,
Attention: __________________________________________________, or such other
address as the Trustee may hereafter furnish to the Depositor or Master Servicer
and (d) in the case of the Rating Agencies, the address specified therefor in
the definition corresponding to the name of such Rating Agency. Notices to
Securityholders shall be deemed given when mailed, first class postage prepaid,
to their respective addresses appearing in the Certificate Register.
(d) Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it will
permit and will cause each Subservicer to permit any representative of the
Depositor or the Trustee during the Master Servicer's normal business hours, to
examine all the books of account, records, reports and other papers of the
Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by the Depositor or the Trustee and to discuss its affairs,
finances and accounts relating to the Mortgage Loans with its officers,
employees and independent public accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such representative
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested. Any out-of-pocket expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 8.04
shall be borne by the party requesting such inspection; all other such expenses
shall be borne by the Master Servicer or the related Subservicer.
(e) Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HERETO AND THE SECURITYHOLDERS SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
(f) Amendment.
This Agreement may be amended from time to time by the Issuer, the
Master Servicer and the Trustee without the consent of any of the
Securityholders to cure any ambiguity, or to correct or supplement any
provisions herein, or to make such other provisions with respect to matters or
questions arising under this Agreement as shall not be inconsistent with any
other provisions herein; provided that such action shall not, as evidenced by an
Opinion of Counsel (which Opinion of
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<PAGE> 47
Counsel shall not be an expense of the Trustee or the Issuer), adversely affect
in any material respect the interests of any Securityholder; provided, however,
that the amendment shall not be deemed to adversely affect in any material
respect the interests of the Securityholders if the Person requesting the
amendment obtains a letter from each Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Securities; it being understood and agreed that any such letter
in and of itself will not represent a determination as to the materiality of any
such amendment and will represent a determination only as to the credit issues
affecting any such rating. The Trustee, the Depositor and the Master Servicer
also may at any time and from time to time amend this Agreement without the
consent of the Securityholders to modify, eliminate or add to any of its
provisions to such extent as shall be necessary or helpful to maintain the
qualification of the Issuer as a REMIC under the Code or to avoid or minimize
the risk of the imposition of any tax on the REMIC pursuant to the Code that
would be a claim at any time prior to the final redemption of the Securities,
provided that the Trustee has been provided an Opinion of Counsel, which opinion
shall be an expense of the party requesting such opinion but in any case shall
not be an expense of the Trustee or the Issuer, to the effect that such action
is necessary or helpful to maintain such qualification or to avoid or minimize
the risk of the imposition of such a tax.
This Agreement may also be amended from time to time by the Depositor,
the Master Servicer and the Trustee with the consent of the Holders of a
Majority in Interest of each Class of Notes or Certificates affected thereby for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Holders of Notes or Certificates; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments required to be distributed on any Certificate without the consent of
the Holder of such Note or Certificate, (ii) adversely affect in any material
respect the interests of the Holders of any Class of Notes or Certificates in a
manner other than as described in (i), without the consent of the Holders of
Notes or Certificates of such Class evidencing, as to such Class, Percentage
Interests aggregating 66%, or (iii) reduce the aforesaid percentages of Notes or
Certificates the Holders of which are required to consent to any such amendment,
without the consent of the Holders of all such Notes or Certificates then
outstanding.
[Notwithstanding any contrary provision of this Agreement, the Trustee
shall not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel, which opinion shall not be an expense of the
Trustee or the Issuer, to the effect that such amendment will not cause the
imposition of any tax on the REMIC or the Securityholders or cause the Issuer to
fail to qualify as a REMIC at any time that any Certificates are outstanding.]
Promptly after the execution of any amendment to this Agreement
requiring the consent of Securityholders, the Trustee shall furnish written
notification of the substance or a copy of such amendment to each Securityholder
and each Rating Agency.
It shall not be necessary for the consent of Securityholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents and of evidencing the authorization of the execution
thereof by Securityholders shall be subject to such reasonable regulations as
the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Issuer, satisfactory to the Trustee that (i) such
amendment is permitted and is not prohibited by this
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<PAGE> 48
Agreement and that all requirements for amending this Agreement have been
complied with; and (ii) either (A) the amendment does not adversely affect in
any material respect the interests of any Securityholder or (B) the conclusion
set forth in the immediately preceding clause (A) is not required to be reached
pursuant to this Section 8.06.
(g) Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement.
(h) No Joint Venture.
The Master Servicer and the Issuer are not partners or joint venturers
with each other and nothing herein shall be construed to make them such partners
or joint venturers or impose any liability as such of either of them.
(i) Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at its expense, but only
upon direction by the Trustee accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Securityholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
(j) Limitation of Liability of [owner trustee].
It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by [owner trustee], not individually or
personally but solely as owner trustee of [__________] Home Equity Loan Trust
199_ under the Trust Agreement, in the exercise of the powers and authority
conferred and vested in it, (b) each of the representations, undertakings and
agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by [owner trustee] but is
made and intended for the purpose for binding only the Issuer, (c) nothing
herein contained shall be construed as creating any liability on [owner
trustee], other than any liability arising out of its gross negligence, bad
faith or willful misconduct, and (d) under no circumstances shall [owner
trustee] be personally liable for the payment of any indebtedness or expenses of
the Issuer or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Issuer under this
Agreement or the other [Basil Documents].
(k) Nonpetition Covenants.
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<PAGE> 49
Notwithstanding any prior termination of this Agreement, the Master
Servicer shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Issuer or the Depositor,
acquiesce, petition or otherwise invoke or cause the Issuer or the Depositor (or
any assignee) to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer or the Depositor
under any federal or state bankruptcy, insolvency or similar law, or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or the Depositor or any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the Issuer
or the Depositor.
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<PAGE> 50
IN WITNESS WHEREOF, each party has caused this Master
Servicing Agreement to be executed by its duly authorized officer or officers as
of the day and year first above written.
[________________] Home Equity Loan Trust
199_,
as Issuer
By: [owner trustee]
not in its
individual capacity
but solely as
Owner Trustee
By:
Its:
[_______________________]
as Master Servicer
By:
___________________________
Its:
___________________________
[ ],
as Trustee
By:
___________________________
Its:
___________________________
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<PAGE> 51
SCHEDULE I
Mortgage Loan Schedule
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<PAGE> 52
SCHEDULE II
[________________] Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Representations and Warranties of the Master Servicer
____________________________ ("Master Servicer") hereby makes the
representations and warranties set forth in this Schedule II to the Issuer, the
Depositor and the Trustees, as of the Closing Date, or if so specified herein,
as of the Cut-off Date. Capitalized terms used but not otherwise defined in this
Schedule II shall have the meanings ascribed thereto in the Indenture (the
"Indenture") relating to the above-referenced Series, among Master Servicer, as
and master servicer, Morgan Stanley ABS Capital I Inc., as depositor, and
_____________________, as trustee.
(i) The Master Servicer is a [________] corporation,
validly existing and in good standing under the laws of the State of
[________], and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The Master
Servicer is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the character of the
business transacted by it or any properties owned or leased by it
requires such qualification and in which the failure so to qualify
would have a material adverse effect on the business, properties,
assets, or condition (financial or other) of the Master Servicer;
(ii) The Master Servicer has the power and authority
to make, execute, deliver and perform this Agreement and all of the
transactions contemplated under the Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of this Agreement. When executed and delivered, this
Agreement will constitute the legal, valid and binding obligation of
the Master Servicer enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies;
(iii) The Master Servicer is not required to obtain
the consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement, except for such consent, license, approval or authorization,
or registration or declaration, as shall have been obtained or filed,
as the case may be, prior to the Closing Date;
(iv) The execution, delivery and performance of this
Agreement by the Master Servicer will not violate any provision of any
existing law or regulation or any order or decree of any court
applicable to the Master Servicer or any provision of the Certificate
of Incorporation or Bylaws of the Master Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement
to which the Master Servicer is a party or by which the Master Servicer
may be bound; and
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(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Master Servicer threatened, against the
Master Servicer or any of its properties or with respect to this
Agreement or the Certificates which in the opinion of the Master
Servicer has a reasonable likelihood of resulting in a material adverse
effect on the transactions contemplated by this Agreement.
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<PAGE> 54
SCHEDULE III
[_________________] Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Representations and Warranties as to the Mortgage Loans
____________________________ ("Seller") hereby makes the
representations and warranties set forth in this Schedule III to the Depositor
and the Trustee, as of the Closing Date, or if so specified herein, as of the
Cut-off Date. Capitalized terms used but not otherwise defined in this Schedule
III shall have the meanings ascribed thereto in the Indenture (the "Indenture")
relating to the above-referenced Series, among Seller, as seller and master
servicer, Morgan Stanley ABS Capital I Inc., as depositor, and
________________________, as trustee.
(i) As of the Closing Date, this Agreement constitutes a
legal, valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect affecting
the enforcement of creditors' rights generally and by the availability
of equitable remedies;
(ii) As of the Closing Date with respect to the Mortgage Loans
and as of the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, either (A) the Purchase Agreement constitutes
a valid transfer and assignment to the Depositor of all right, title
and interest of the Seller in and to the Cut-off Date Asset Balances
with respect to the applicable Mortgage Loans, all monies due or to
become due with respect thereto (excluding payments in respect of
accrued interest due prior to the Cut-off Date or due in the month of
_________), and all proceeds of such Cut-off Date Asset Balances with
respect to the Mortgage Loans and such funds as are from time to time
deposited in the Collection Account (excluding any investment earnings
thereon) and all other property specified in the definition of "Asset"
as being part of the corpus of the Trust conveyed to the Trust by the
Seller, and upon payment for the Additional Balances, will constitute a
valid transfer and assignment to the Trustee of all right, title and
interest of the Seller in and to the Additional Balances, all monies
due or to become due with respect thereto, and all proceeds of such
Additional Balances and all other property specified in the definition
of "Asset" relating to the Additional Balances or (B) the Purchase
Agreement or this Agreement, as appropriate, constitutes a grant of a
security interest (as defined in the UCC as in effect in California) in
such property to the Trustee on behalf of the Trust. If this Agreement
constitutes the grant of a security interest to the Trust in such
property, and if the Trustee obtains and maintains possession of the
Mortgage File for each Mortgage Loan, the Trust shall have a first
priority perfected security interest in such property, subject to the
effect of Section 9-306 of the UCC with respect to collections on the
Mortgage Loans that are deposited in the Collection Account in
accordance with the next to last paragraph of Section _______;
provided, however, that nothing in this clause (ii) shall be construed
to obligate the Master Servicer to deliver any Mortgage Files other
than as set forth in Section 2.01 of the Master Servicing Agreement;
(iii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan and as of the date any
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Additional Balance is created, the information set forth in the
Mortgage Loan Schedule for such Mortgage Loans is true and correct in
all material respects;
(iv) The applicable Cut-off Date Asset Balance has not been
assigned or pledged, and the Seller is the sole owner and holder of
such Cut-off Date Asset Balance free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of the applicable Mortgage Loan, to
sell, assign or transfer the same pursuant to the Purchase Agreement;
(v) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, the related Mortgage Note and the Mortgage
with respect to each Mortgage Loan have not been assigned or pledged,
and the Seller is the sole owner and holder of the Mortgage Loan free
and clear of any and all liens, claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any
nature, and has full right and authority, under all governmental and
regulatory bodies having jurisdiction over the ownership of the
applicable Mortgage Loans, to sell and assign the same pursuant to the
Purchase Agreement;
(vi) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, the related Mortgage is a valid and
subsisting first or second lien, as set forth on the Mortgage Loan
Schedule with respect to each related Mortgage Loan, on the property
therein described, and as of the applicable Cut-off Date the related
Mortgaged Property is free and clear of all encumbrances and liens
having priority over the first or second lien, as applicable, of such
Mortgage except for liens for (i) real estate taxes and special
assessments not yet delinquent; (ii) any first mortgage loan secured by
such Mortgaged Property and specified on the Mortgage Loan Schedule;
(iii) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording that are
acceptable to mortgage lending institutions generally; and (iv) other
matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage;
(vii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, there is no valid offset, defense or
counterclaim of any obligor under any Credit Line Agreement or
Mortgage;
(viii) To the best knowledge of the Seller, as of the Closing
Date with respect to the Mortgage Loans and the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loan, there is no
delinquent recording or other tax or fee or assessment lien against any
related Mortgaged Property;
(ix) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, there is no proceeding pending or, to the
best knowledge of the Seller, threatened for the total or partial
condemnation of the related Mortgaged Property, and such property is
free of material damage;
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<PAGE> 56
(x) To the best knowledge of the Seller, as of the Closing
Date with respect to the Mortgage Loans and the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loan, there are
no mechanics' or similar liens or claims which have been filed for
work, labor or material affecting the related Mortgaged Property which
are, or may be, liens prior or equal to the lien of the related
Mortgage, except liens which are fully insured against by the title
insurance policy referred to in clause (xiv);
(xi) No Minimum Monthly Payment is more than 89 days
delinquent (measured on a contractual basis); and with respect to the
Mortgage Loans no more than _____% (by Cut-off Date Pool Balance) were
30-59 days delinquent (measured on a contractual basis) and no more
than _____% (by Cut-off Date Pool Balance) were 60-89 days delinquent
(measured on a contractual basis);
(xii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, for each Mortgage Loan, the related Mortgage
File contains each of the documents and instruments specified to be
included therein;
(xiii) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan;
(xiv) Either a lender's title insurance policy or binder was
issued on the date of origination of the Mortgage Loan and each such
policy is valid and remains in full force and effect, or a title search
or guaranty of title customary in the relevant jurisdiction was
obtained with respect to a Mortgage Loan as to which no title insurance
policy or binder was issued;
(xv) As of the Closing Date with respect to the Mortgage Loans
and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, none of the Mortgaged Properties is a mobile
home or a manufactured housing unit that is not considered or
classified as part of the real estate under the laws of the
jurisdiction in which it is located;
(xvi) As of the Cut-off Date for the Mortgage Loans no more
than _____% of such Mortgage Loans, by aggregate principal balance, are
secured by Mortgaged Properties located in one United States postal zip
code;
(xvii) The Combined Loan-to-Value Ratio for each Mortgage Loan
was not in excess of 100%;
(xviii) No selection procedure reasonably believed by the
Seller to be adverse to the interests of the Securityholders or the
Credit Enhancer was utilized in selecting the Mortgage Loans;
(xix) The Seller has not transferred the Mortgage Loans to the
Trust with any intent to hinder, delay or defraud any of its creditors;
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<PAGE> 57
(xx) The Minimum Monthly Payment with respect to any Mortgage
Loan is not less than the interest accrued at the applicable Loan Rate
on the average daily Asset Balance during the interest period relating
to the date on which such Minimum Monthly Payment is due;
(xxi) Within 90 days of the Closing Date with respect to the
Mortgage Loans and, to the extent not already included in such filing
with respect to the Mortgage Loans, the applicable Transfer Date with
respect to any Eligible Substitute Mortgage Loan, the Seller will file
UCC-1 financing statements with respect to the Mortgage Loans;
(xxii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, each Credit Line Agreement and each Mortgage
Loan is an enforceable obligation of the related Mortgagor, except as
the enforceability thereof may be limited by the bankruptcy, insolvency
or similar laws affecting creditors' rights generally;
(xxiii) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, the Seller has not received a notice of
default of any senior mortgage loan related to a Mortgaged Property
that has not been cured by a party other than the Master Servicer;
(xxiv) The definition of Prime Rate in each Credit Line
Agreement relating to a Mortgage Loan does not differ materially from
the definition in the form of Credit Line Agreement in ____________;
(xxv) The weighted average remaining term to maturity of the
Mortgage Loans on a contractual basis as of the Cutoff Date for the
Mortgage Loans is approximately ___ months. On each date that the Loan
Rates have been adjusted, interest rate adjustments on the Mortgage
Loans were made in compliance with the related Mortgage and Mortgage
Note and applicable law. Over the term of each Mortgage Loan, the Loan
Rate may not exceed the related Loan Rate Cap, if any. The Loan Rate
Caps range between ____% and ____%. The Margins range between ____% and
____% and the weighted average Margin is approximately ____% as of the
Cut-off Date for the Mortgage Loans. The Loan Rates on such Mortgage
Loans range between ____% and _____% and the weighted average Loan Rate
is approximately _____%.
(xxvi) As of the Closing Date with respect to the Mortgage
Loans and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loan, each Mortgaged Property consists of a single
parcel of real property with a one-to-four unit single family residence
erected thereon, or an individual condominium unit, planned unit
development unit or townhouse;
(xxvii) No more than _____% (by Cut-off Date Pool Balance) of
the Mortgage Loans are secured by real property improved by individual
condominium units, planned development units, townhouses or two-to-four
family residences erected thereon, and at least _____% (by Cut-off Date
Pool Balance) of the Mortgage Loans are secured by real property with a
detached one-family residence erected thereon;
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<PAGE> 58
(xxviii) The Credit Limits on the Mortgage Loans range between
$________ and $__________ with an average of $_________. As of the
Cut-off Date for the Mortgage Loans, no Mortgage Loan had a principal
balance in excess of approximately $__________ and the average
principal balance of the Mortgage Loans is equal to approximately
$_________; and
(xxix) Approximately ____% and _____% of the Mortgage Loans,
by aggregate principal balance as of the Cut-off Date for the Mortgage
Loans, are first and second liens, respectively.]
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SCHEDULE IV
[______________________] Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Representations and Warranties of the Issuer.
[______________________] Home Equity Loan Trust 199_ (the "Issuer")
hereby makes the representations and warranties set forth in this Schedule IV to
the Master Servicer and the Trustee, as of the Closing Date. Capitalized terms
used but not otherwise defined in this Schedule IV shall have the meanings
ascribed thereto in the Master Servicing Agreement (the "Master Servicing
Agreement") relating to the above-referenced Series, among
[______________________], as Master Servicer, [_____________] Home Equity Loan
Trust 199_, as Issuer, and [ ], as Trustee.
(1) The Issuer is a statutory business trust duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and possesses all requisite authority, power, licenses,
permits and franchises to conduct any and all business contemplated by
the Master Servicing Agreement and to comply with its obligations under
the terms of this Agreement, the performance of which have been duly
authorized by all necessary action.
(2) Neither the execution and delivery of the Master Servicing
Agreement by the Issuer, nor the performance and compliance with the
terms thereof by the Issuer will (A) result in a material breach of any
term or provision of the instruments creating the Issuer or governing
its operations, or (B) materially conflict with, result in a material
breach, violation or acceleration of, or result in a material default
under, the terms of any other material agreement or instrument to which
the Issuer is a party or by which it may be bound, or (C) constitute a
material violation of any statute, order or regulation applicable to
the Issuer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Issuer; and the Issuer
is not in breach or violation of any material indenture or other
material agreement or instrument, or in violation of any statute, order
or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation
may materially impair the Issuer's ability to perform or meet any of
its obligations under the Master Servicing Agreement.
(3) This Agreement, and all documents and instruments
contemplated hereby, which are executed and delivered by the Issuer,
will, assuming due authorization, execution by and delivery to the
other parties hereto and thereto, constitute valid, legal and binding
obligations of the Issuer, enforceable in accordance with their
respective terms, except that (a) the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (b) the remedy
of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(4) No litigation is pending or, to the best of the Issuer's
knowledge, threatened against the Issuer that would materially and
adversely affect the execution, delivery or
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<PAGE> 60
enforceability of the Master Servicing Agreement or the ability of the
Issuer to perform its obligations thereunder.
(5) Immediately prior to the transfer and assignment of the
Mortgage Loans to the Trustee, the Issuer had good title to, and was
the sole owner of, each Mortgage Loan free and clear of any liens,
charges or encumbrances or any ownership or participation interests in
favor of any other Person.
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EXHIBIT A
FORM OF INITIAL CERTIFICATION OF TRUSTEE
[date]
[Master Servicer]
[Issuer]
____________________
____________________
Re: Master Servicing Agreement among
[_________________] Home Equity Loan Trust 199_, as
Issuer, [_________________], as
Master Servicer, and [_____________], as Trustee,
Asset Backed Notes and Asset Backed
Certificates, Series 199_
Gentlemen:
In accordance with Section 2.02 of the above-captioned Master Servicing
Agreement (the "Master Servicing Agreement"), the undersigned, as Trustee,
hereby certifies that, as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan listed in the attached schedule), it has
received:
(i) the original Mortgage Note, endorsed as provided in the following
form: "Pay to the order of ________, without recourse"; and
(ii) a duly executed assignment of the Mortgage (which may be included
in a blanket assignment or assignments).
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to such
Mortgage Loan.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Master Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan or (iii) the correctness
of any information set forth in the Mortgage Loan Schedule, other than the
information specified in items (i) through (iv) and (vi) thereof.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Master Servicing Agreement.
[ ]
1
<PAGE> 62
as Trustee
By:
--------------------
Name:
--------------------
Title:
--------------------
2
<PAGE> 63
EXHIBIT B
FORM OF FINAL CERTIFICATION OF TRUSTEE
[date]
[Master Servicer]
[Issuer]
_____________________
_____________________
Re: Master Servicing Agreement among [__________________]
Home Equity Loan Trust 199_, as Issuer,
[__________________], as Master
Servicer, and [___________], as Trustee, Asset Backed
Notes and Asset Backed Certificates,
Series 199_
Gentlemen:
In accordance with Section 2.02 of the above-captioned Master Servicing
Agreement (the "Master Servicing Agreement"), the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full or listed on the attached
Document Exception Report) it has received:
(i) The original Mortgage Note, endorsed in the form provided in
Section 2.01 of the Master Servicing Agreement, with all intervening
endorsements showing a complete chain of endorsement from the originator to the
Issuer.
(ii) The original recorded Mortgage.
(iii) A duly executed assignment of the Mortgage in the form provided
in Section 2(a) of the Master Servicing Agreement, or, if the Master Servicer
has certified or the Trustee otherwise knows that the related Mortgage has not
been returned from the applicable recording office, a copy of the assignment of
the Mortgage (excluding information to be provided by the recording office).
(iv) The original or duplicate original recorded assignment or
assignments of the Mortgage showing a complete chain of assignment from the
originator to the Issuer.
(v) The original or duplicate original lender's title policy and all
riders thereto or, any one of an original title binder, an original preliminary
title report or an original title commitment, or a copy thereof certified by the
title company.
Based on its review and examination and only as to the foregoing
documents, (a) such documents appear regular on their face and related to such
Mortgage Loan, and (b) the information set forth in items (i), (ii), (iii),
(iv), (vi) and (xi) of the definition of the "Mortgage Loan Schedule" in
1
<PAGE> 64
Article I of the Master Servicing Agreement accurately reflects information set
forth in the Trustee Mortgage File.
The Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Master Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
Notwithstanding anything herein to the contrary, the Trustee has made no
determination and makes no representations as to whether (i) any endorsement is
sufficient to transfer all right, title and interest of the party so endorsing,
as noteholder or assignee thereof, in and to that Mortgage Note or (ii) any
assignment is in recordable form or sufficient to effect the assignment of and
transfer to the assignee thereof, under the Mortgage to which the assignment
relates.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Master Servicing Agreement.
[ ],
as Trustee
By:
---------------------
Name:
---------------------
Title:
---------------------
2
<PAGE> 65
EXHIBIT C
REQUEST FOR RELEASE
(for Trustee)
[________________] Home Equity Loan Trust 199_
Asset Backed Notes and Asset Backed Certificates
Series 199_
Loan Information
Name of Mortgagor:
________________________________________
Servicer
Loan No.:
________________________________________
Trustee
Name:
________________________________________
Address:
________________________________________
________________________________________
Trustee
Mortgage File No.:
________________________________________
The undersigned Master Servicer hereby acknowledges that it has
received from [_________________], as Trustee for the Holders of Notes of the
above-referenced Series, the documents referred to below (the "Documents"). All
capitalized terms not otherwise defined in this Request for Release shall have
the meanings given them in the Master Servicing Agreement (the "Master Servicing
Agreement") relating to the above-referenced Series among the Trustee,
[__________________], as Master Servicer, and [____________] Home Equity Loan
Trust 199_, as Issuer.
( ) Mortgage Note dated ____________, 19__, in the original principal sum
of $__________, made by __________________. payable to, or endorsed to
the order of, the Trustee.
( ) Mortgage recorded on _________________ as instrument no.
________________ in the County Recorder's Office of the County of
___________________, State of _______________ in book/reel/docket
________________ of official records at page/image ________________.
( ) Deed of Trust recorded on __________________ as instrument no.
_________________ in the County Recorder's Office of the County of
________________, State of _______________ in book/reel/docket
_______________ of official records at page/image ________________.
1
<PAGE> 66
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on
_________________ as instrument no. _________ in the County Recorder's
Office of the County of __________, State of ________________ in
book/reel/docket of official records at page/image _______________.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( )
____________________________________________________________________
( )
____________________________________________________________________
( )
____________________________________________________________________
( )
____________________________________________________________________
The undersigned Master Servicer hereby acknowledges and agrees as
follows:
(1) The Master Servicer shall hold and retain possession of
the Documents in trust for the benefit of the Trustee, solely for the
purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit
the Documents to become subject to, or encumbered by, any claim, liens,
security interest, charges, writs of attachment or other impositions
nor shall the Master Servicer assert or seek to assert any claims or
rights of setoff to or against the Documents or any proceeds thereof.
(3) The Master Servicer shall return each and every Document
previously requested from the Mortgage File to the Trustee when the
need therefor no longer exists, unless the Mortgage Loan relating to
the Documents has been liquidated and the proceeds thereof have been
remitted to the Note Account and except as expressly provided in the
Master Servicing Agreement.
(4) The Documents and any proceeds thereof, including any
proceeds of proceeds, coming into the possession or control of the
Master Servicer shall at all times be earmarked for the account of the
Trustee, and the Master Servicer shall keep the Documents and any
proceeds separate and distinct from all other property in the Master
Servicer's possession, custody or control.
[____________________________]
By
________________________
Its
________________________
Date:_____________________, 19__
2
<PAGE> 67
EXHIBIT D
REQUEST FOR RELEASE OF DOCUMENTS
To: [Trustee] Attn: Mortgage Custody Services
Re: The Master Servicing Agreement dated [ ] among [_________________]
("[_____]"), as Master Servicer, [____________________] Home Equity Loan Trust
199_, as Issuer, and [ ], as Trustee
Ladies and Gentlemen:
In connection with the administration of the Mortgage Loans held by you as
Trustee for [Countrywide] Home Equity Loan Trust 199_, as Issuer, we request the
release of the Mortgage File for the Mortgage Loan(s) described below, for the
reason indicated.
FT Account#: Pool #:
Mortgagor's Name, Address and Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)
_______1. Mortgage Loan paid in full ([_____] hereby certifies that all
amounts have been received.)
_______2. Mortgage Loan Liquidated ([______] hereby certifies that all
proceeds of foreclosure, insurance, or other liquidation have
been finally received.)
_______3. Mortgage Loan in Foreclosure.
_______4. Other (explain): ____________________________________
If item 1 or 2 above is checked, and if all or part of the Trustee Mortgage File
was previously released to us, please release to us our previous receipt on file
with you, as well as an additional documents in your possession relating to the
above-specified Mortgage Loan. If item 3 or 4 is checked, upon return of all of
the above documents to you as Trustee, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
[______________________] [address]
By:________________________
Name:______________________
Title:_____________________
Date:______________________
1
<PAGE> 68
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By:________________________
Name:______________________
Title:_____________________
Date:______________________
2
<PAGE> 1
Exhibit 5.1
[LATHAM & WATKINS LETTERHEAD]
April 29, 1997
Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, NY 10036
Re: Morgan Stanley ABS Capital I Inc.
Registration Statement on Form S-3
Registration No. 333-19779
Ladies and Gentlemen:
We have acted as counsel for Morgan Stanley ABS Capital I Inc., a
Delaware corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") which has been
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act") for the registration under the
Act of Asset-Backed Notes (the "Asset Backed Notes") and Asset-Backed
Certificates (the "Asset Backed Certificates" and together with the Asset Backed
Notes, the "Securities"), issuable in series (the "Series"). As set forth in the
Registration Statement, each Series of Securities will be issued under and
pursuant to the conditions of a separate pooling and servicing agreement, trust
agreement or indenture (each, an "Agreement") among the Company, a trustee (the
"Trustee") and, where appropriate, a master servicer (the "Master Servicer"),
each to be identified (together with any other relevant parties) in the
prospectus supplement for such Series of Securities.
We are familiar with the proceedings taken and proposed to be taken
by the Company in connection with the authorization and issuance of the
Securities, and for the purposes of this opinion, have assumed such proceedings
will be completed in the manner presently proposed by the Registration
Statement. In addition, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to our satisfaction of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
<PAGE> 2
Morgan Stanley ABS Capital I Inc.
April 29, 1997
Page 2
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We are opining only as to the effect of the Federal laws of the
United States, the internal laws of the State of New York and the General
Corporation Law of the State of Delaware, and we express no opinion with respect
to the applicability or the effect of the laws of any other jurisdiction or, in
the case of Delaware, any other laws, or as to any matters of municipal law or
the laws of any other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, we
are of the opinion that:
1. When any Agreement relating to a Series of Securities has been
duly and validly authorized, executed and delivered by the Company, the Master
Servicer, if any, the Trustee and any other party thereto, such Agreement will
constitute a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms.
2. When a Series of Securities has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof being
otherwise in compliance with applicable law at such time) and has been duly
executed by the Company or the Trustee, as the case may be, and, authenticated
and delivered by the Trustee against payment in accordance with the terms of the
related underwriting agreement, such Series of Securities will be validly
issued, fully paid and nonassessable, and, with respect to the Asset Back
Certificates, the holders thereof will be entitled to the benefits of the
related Agreement and, with respect to the Asset Backed Notes, the Asset Backed
Notes will be a valid and binding obligation of the issuer thereof.
The opinions rendered above are subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws relating
to or affecting the rights and remedies of creditors, (ii) the effect of general
principles of equity, whether enforcement is considered in a proceeding in
equity or law, and the discretion of the court before which any proceeding
therefor may be brought, (iii) the unenforceability under certain circumstances
under law or court decisions of provisions providing for the indemnification of
or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy, and (iv) possible
limitations arising from applicable laws other than those referred to in the
preceding clause (i) upon the remedial provisions contained in any Agreement,
but such limitations do not in our opinion of themselves make the remedies
afforded inadequate for the practical realization of the benefits purported to
be provided thereby.
We hereby consent to the filing of this letter as Exhibit 5-1 to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the Act or the
Rules and
<PAGE> 3
Morgan Stanley ABS Capital I Inc.
April 29, 1997
Page 3
Regulations of the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
/s/ Latham & Watkins
<PAGE> 1
Exhibit 8.1
April 29, 1997
Morgan Stanley ABS Capital I Inc.
1585 Broadway
New York, New York 10036
Re: Morgan Stanley ABS Capital I Inc.
Registration Statement on Form S-3
Registration No. 333-19779
Ladies and Gentlemen:
We have acted as special counsel to Morgan Stanley ABS Capital
I Inc. (the "Company") in connection with the preparation of a registration
statement on Form S-3 (Registration No. 333-19779) (the "Registration
Statement"), which has been filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"), for the registration
under the Act of Asset Backed Notes (the "Asset Backed Notes") and Asset Backed
Certificates (the "Asset Backed Certificates" and together with the Asset Backed
Notes, the "Securities"), issuable in series (the "Series"). As described in the
Registration Statement, each Series of Securities will be issued under and
pursuant to the terms and conditions of a separate pooling and servicing
agreement, trust agreement or indenture (each, an "Agreement") among the
Company, a trustee (the "Trustee") and, where appropriate, a master servicer
(the "Master Servicer"), each to be identified (together with any other relevant
parties) in the prospectus supplement for such Series of Securities.
In rendering our opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of the Registration Statement and prospectus (the "Prospectus") and the forms of
prospectus supplements (the "Prospectus Supplements") included therein, and such
other documents as we have deemed necessary or appropriate as a basis for the
opinion set forth below.
In rendering our opinion, we have also considered and relied
upon the Internal Revenue Code of 1986, as amended, as of the date hereof, the
Treasury Regulations promulgated thereunder, judicial decisions, and such other
authorities as we have deemed appropriate. The statutory provisions,
regulations, interpretations, and other authorities upon which our opinion is
based are subject to change, and such changes could apply retroactively.
<PAGE> 2
Morgan Stanley ABS Capital I Inc.
April 29, 1997
Page 2
We are admitted to the Bar of the State of New York and
express no opinion as to any laws other than the federal laws of the United
States of America as of the date hereof.
Based upon and subject to the foregoing, we are of the opinion
that the information in the Prospectus under the caption "Federal Income Tax
Consequences," to the extent it constitutes matters of law or legal conclusions,
is correct in all material respects, based on existing law and the assumptions
stated therein.
The foregoing opinion and the discussion contained in the
Prospectus under the caption "Federal Income Tax Consequences" represent our
conclusions as to the application of existing law. No assurance can be given
that the Internal Revenue Service will not assert contrary positions or that the
law (including the interpretation thereof) will not change. We also note that
the Prospectus and Prospectus Supplements filed with the Registration Statement
do not relate to any specific transaction. Accordingly, the above-referenced
description of federal income tax consequences may require modifications in the
context of an actual transaction. We express no opinion either as to any matter
not specifically covered by the foregoing opinion or as to the effect on the
matters covered by this opinion of the laws of any other jurisdiction.
Any change in applicable law, which may change at any time and
which is subject to differing interpretation, or in the facts or documents on
which our opinion is based, or any inaccuracy in the representations or
warranties on which we have relied, may affect the validity of the foregoing
opinion. This firm undertakes no obligation to update this opinion in the event
that there is either a change in the legal authorities, facts or documents on
which this opinion is based, or an inaccuracy in any of the representations or
warranties upon which we have relied in rendering this opinion.
We hereby consent to the filing of this opinion as Exhibit 8.1
to the Registration Statement. We also consent to the references to Latham &
Watkins under the caption "Federal Income Tax Consequences" in the Prospectus.
Very truly yours,
/s/ Latham & Watkins
<PAGE> 1
EXHIBIT 10.1
Subject to Completion
FORM OF LOAN PURCHASE AGREEMENT
This Loan Purchase Agreement (the "Agreement") is made as of
_________, 199_, between Morgan Stanley ABS Capital I Inc., a Delaware
corporation (the "Depositor") and ____________ Home Equity Loan Trust 199_-__
(the "Issuer"), a Delaware statutory business trust.
Section 1. Representations and Warranties.
1. Representations and Warranties of the Parties. The Depositor and
the Issuer, each as to itself and not the other, hereby represents, warrants and
agrees that:
(a) Authorization. The execution, delivery and performance of this
Agreement by it are within its respective powers and have been duly authorized
by all necessary action on its part.
(b) No Conflict. The execution, delivery and performance of this
Agreement will not violate or conflict with (i) its charter, bylaws or trust
agreement, (ii) any resolution or other corporate action by it, (iii) any
decisions, statutes, ordinances, rulings, directions, rules, regulations,
orders, writs, decrees, injunctions, permits, certificates or other requirements
of any court or other governmental or public authority in any way applicable to
or binding upon it, and (iv) will not result in or require the creation, except
as provided in or contemplated by this Agreement, of any lien, mortgage, pledge,
security interest, charge or encumbrance of any kind upon the Original Mortgage
Loans.
(c) Binding Obligation. This Agreement has been duly executed by it
and is its valid and binding obligation, enforceable against it in accordance
with this Agreement's terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and by general principles of equity.
Section 2. Additional Representations, Warranties and Agreements of the
Depositor.
The Depositor represents and warrants to, and agrees with, the
Issuer that the Depositor has good and valid title to the home equity loans
identified in Schedule ___ of the Indenture [Pooling and Servicing Agreement]
(the "Mortgage Loans") free and clear of all liens, mortgages, deeds of trust,
pledges, security interests, charges, encumbrances or other claims, and, upon
transfer to the Issuer, the Issuer will receive good, valid and marketable title
to all of the Mortgage Loans, free and clear of any liens, mortgages, deeds of
trust, pledges, security interests, charges, encumbrances or other claims.
Section 3. Conveyance of Mortgage Loans.
The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the Issuer
Fund, without recourse, all of the Depositor's right, title and interest in and
to (a) the Mortgage Loans, including the Related Documents and all interest and
principal received or receivable by the Depositor on or with respect to the
Mortgage Loans after the Cut-Off Date and all interest and principal payments on
the Mortgage Loans received prior to the Cut-off Date in respect of installments
of interest and principal due thereafter, but not including payments of interest
and principal due and payable on the Mortgage Loans on or before the Cut-off
Date, and all other proceeds received in respect of such Mortgage Loans, (b) the
Depositor's rights under the Master Servicing Agreement, (c) the Insurance
Policies, if any, (d) all cash, instruments or other property held or required
to be deposited in the Collection Account or the Payment Account, (e) all
Additional Balances and (f) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or other liquid assets,
including, without limitation, any and all Insurance Proceeds,
<PAGE> 2
Liquidation Proceeds and condemnation awards. On or prior to the Closing Date,
the Depositor shall deliver, or cause to be delivered, to the Indenture Trustee
the Trustee Loan File for each Mortgage Loan. Such delivery of the Trustee Loan
Files shall be made against delivery by (i) the Indenture Trustee of the Notes
and (ii) the Issuer of the Trust Certificate(s), in each case to or upon the
order of the Depositor.
Section 4. Intention of Parties.
It is the express intent of the parties hereto that the conveyance
of the Mortgage Loans by the Depositor to the Issuer each be, and be construed
as, an absolute sale thereof. It is, further, not the intention of the parties
that such conveyances be deemed a pledge thereof. However, in the event that,
notwithstanding the intent of the parties, such assets are held to be the
property of the granting party, or if for any other reason this Agreement is
held or deemed to create a security interest in the Mortgage Loans, then (i)
this Agreement shall be deemed to be a security agreement within the meaning of
the Uniform Commercial Code of the State of __________ and (ii) the conveyances
provided for in this Agreement shall be deemed to be an assignment and a grant
by the Depositor to the Issuer of a security interest in all of the assets
transferred, whether now owned or hereafter acquired.
The Depositor and the Issuer shall, to the extent consistent with
this Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Mortgage Loans, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of this Agreement. The Depositor shall arrange for filing any Uniform Commercial
Code continuation statements in connection with any security interest granted or
assigned hereunder.
Section 5. Miscellaneous.
(a) Amendments, Etc. No rescission, modification, amendment,
supplement or change of this Agreement shall be valid or effective unless in
writing and signed by the parties to this Agreement.
(b) Binding Upon Successors, Etc. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties to this Agreement
and their respective legal representatives, heirs, successors or assigns.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(e) Headings. The headings of the several parts of this Agreement
are inserted for convenience of reference and are not intended to be a part of
or affect the meaning or interpretation of this Agreement.
(f) Authorization. The Depositor, pursuant to Section [6.03] of the
Trust Agreement, dated as of _______ __, 199_, between the Owner Trustee and the
Depositor, as Depositor, hereby authorizes and directs the Owner Trustee to
enter into this Agreement.
(g) Definitions. Capitalized terms not otherwise defined herein have
the meanings ascribed to such terms in the Indenture dated as of _________, 199_
between the Issuer and ___________________________ _______, as owner trustee.
2
<PAGE> 3
IN WITNESS WHEREOF, each party has caused this Loan Purchase
Agreement to be executed by its duly authorized officer or officers as of the
day and year first above written.
MORGAN STANLEY ABS CAPITAL I INC.
By:___________________________________
Name:
Title:
_______________________________
TRUST 199_-_
By:___________________________________
not in its individual capacity but solely
as Owner Trustee
By:___________________________________
Name:
Title:
3
