As Filed with the Securities and Exchange Commission on May 28, 1997
Registration No. 333-24599
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EQUITY ONE ABS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2029487
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
(302) 478-6160
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Dennis Kildea
Equity One ABS, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
(302) 478-6160
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
With a copy to:
Brian S. Vargo
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
---------------
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of the registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.|_|____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to Be Registered Registered Per Unit(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Asset Backed Notes and
Asset Certificates........ $325,000,000 100% $325,000,000 $98,484.85
=======================================================================================
</TABLE>
(1) Estimated for the purpose of calculating the registration fee.
(2) $303.03 of the registration fee has already been remitted to the
Commission in connection with the initial filing of this Registration
Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes a basic prospectus and two
illustrative forms of prospectus supplement for use in an offering of
asset-backed securities--one for an offering of senior and subordinated
certificate classes and one for an offering of certificates and notes. The
description of credit enhancement mechanisms or other features in the forms of
prospectus supplement is intended merely as an illustration of the principal
features of a possible series of asset-backed securities; the features
applicable to any actual series of asset-backed securities may include some, all
or none of the features so illustrated and may include any features specified in
the prospectus.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED [______], 199___
PROSPECTUS SUPPLEMENT
(To Prospectus dated __________, 199___)
$
(Approximate)
Mortgage Pass-Through Certificates, Series 19__-__
Distributions payable on the ____ day of each month, commencing in _____ 19__
Equity One ABS, Inc.
Depositor
Equity One, Inc.
Servicer
-----------------
The Mortgage Pass-Through Certificates, Series 199__-__ (the
"Certificates") will represent the entire beneficial interest in a Trust Fund
consisting of a pool (the "Mortgage Pool") of the following types of loans
(collectively, the "Loans"): fixed rate and variable rate mortgage loans secured
by first and/or subordinate liens on (A) one- to four-family residential
properties, (each, a "Residential Loan") and (B) mixed commercial/residential
use properties (each, a "Mixed Use Loan"). Only the classes of Certificates
identified in the table below (collectively, the "Offered Certificates") are
offered hereby. See "Index of Defined Terms" on Page [ ] of this Prospectus
Supplement and on Page [ ] 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 [ ] HEREIN AND ON PAGE [ ] IN THE ACCOMPANYING PROSPECTUS.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE SELLERS, THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE LOANS ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL ENTITY, THE DEPOSITOR, THE SELLERS, THE 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.
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Initial Class
Certificate
Balance (1) Pass-Through Rate
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Class A- $ %
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Class $ %
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Class PO $ (2)
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Class X (3) (4)
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Class A-R $ %
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Class B- $ %
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Class $ %
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Class $ %
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(1) Subject to the permitted variance described under "Summary of
Terms--Offered Certificates."
(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 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 Offered Certificates will be purchased by _______________ (the
"Underwriter") from the Depositor and will be offered by the Underwriter 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
Offered 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 _________, 19__ as partial consideration for the sale of the Loans to the
Trust Fund.
<PAGE>
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to its right to reject orders in whole or in part. It is expected that delivery
of the Offered Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company on or about _______________, 19__.
[Underwriter]
-2-
<PAGE>
The Loans will be sold to the Depositor by Equity One, Inc., ______,
______, and ____________ (individually, a "Seller" and collectively, the
"Sellers").
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, 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."
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 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 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 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 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 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.
The Underwriter intends to make a secondary market in the classes of
Offered Certificates but has no 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.
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.
-------------------
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.
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:__________ (the "Corporate Trust Office").
S-3
<PAGE>
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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 [ ] of this Prospectus Supplement and on
Page [ ] of the Prospectus for the location of the definitions of certain
capitalized terms.
Title of Certificates............. Mortgage Pass-Through Certificates, Series
199 - (the "Certificates").
Offered Certificates.............. Class A- , Class , Class PO, Class X, Class
A-R, Class B- and Class Certificates
(collectively, the "Offered 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 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 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:
Initial Class
Certificate Pass-Through
Balance Rate
---------- ------------
Class (1)..... $ %
Class (1)..... $ %
Class (1)..... $ %
-------------------
(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."
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S-4
<PAGE>
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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.
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 interest in a Trust Fund
consisting of a pool of Loans (the "Mortgage
Pool").
Pooling and Servicing
Agreement....................... The Certificates will be issued pursuant to
a Pooling and Servicing Agreement dated as
of ______________, 19__ (the "Agreement"),
among the Depositor, the Sellers, the
Servicer and the Trustee.
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S-5
<PAGE>
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Depositor......................... Equity One ABS, Inc. (the "Depositor"), a
Delaware corporation and a limited purpose
finance subsidiary of Equity One, Inc., a
Delaware Corporation ("Equity One"). See
"The Depositor" in the Prospectus.
Servicer.......................... Equity One (in its capacity as servicer of
the Loans, the "Servicer"). See "Servicing
of Loans--The Servicer." The Loans were
originated or acquired in the normal course
of business by the Sellers and will be
acquired by the Depositor in a privately
negotiated transaction. The Servicer will be
responsible for the servicing of the Loans
and will receive the Servicing Fee from
interest collected on the Loans. See
"Servicing of Loans--Servicing Compensation
and Payment of Expenses."
Sellers........................... The Loans will be sold to the Depositor by
______, ______, ______, _____ and _____
(collectively, the "Sellers").
Trustee........................... __________________, a _____________________
organized under the laws of
__________________ (the "Trustee").
Cut-off Date...................... ________, 19__.
Closing Date...................... On or about __________, 19__.
Determination Date................ The day of each month or, if such day is
not a business day, the preceding business
day (each, a "Determination Date"); provided
that the Determination Date in each month
will be at least two business days prior to
the related Distribution Date.
Loans............................. The Mortgage Pool will consist of the
following types of loans (collectively, the
"Loans"): fixed rate and variable rate
mortgage loans secured by first and/or
subordinate liens on (A) one- to four-family
residential properties, (each, a
"Residential Loan") and (B) mixed
commercial/residential use properties (each,
a "Mixed Use Loan"). Distributions of
principal and interest on the Certificates
will be based solely on payments received on
the Loans, as described under "Description
of the Certificates." See "The Mortgage
Pool."
Mortgaged Properties.............. [The real properties which secure repayment
of the Loans and on which Sellers have a
first or subordinate lien.]
Distribution Date................. The _________ day of each month or, if such
day is not a business day, on the first
business day thereafter, commencing in
___________ 19 (each, a "Distribution
Date"). Distributions on
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S-6
<PAGE>
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each Distribution Date will be 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 otherwise 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, 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."
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.
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S-7
<PAGE>
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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 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 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 Loans. See "Description of the
Certificates--Principal."
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 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."
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S-8
<PAGE>
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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
Loans to the extent described under
"Description of Certificates--Allocation of
Losses." 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 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."
In addition, Realized Losses on the 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"), 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."
Advances.......................... The Servicer is obligated to make cash
advances (each, an "Advance") with respect
to delinquent payments of principal of and
interest on any Loan to the extent described
under "Servicing of Loans--Advances." The
Trustee will be obligated to make any such
Advance if the Servicer fails in its
obligation to do so, to the extent provided
in the Agreement. See "Servicing of
Loans--Advances."
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S-9
<PAGE>
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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
Loans.
Since the rate of payment of principal on
the 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 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
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 Loans could result in the
failure of such investors to recover their
initial investments.
Because the 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."
Optional Termination.............. On any Distribution Date on which the Pool
Principal Balance is less than 5% of the
Cut-off Date Pool Principal Balance, the
Servicer will have the option to purchase,
in whole, the Loans and the REO Property, if
any, remaining in the Trust Fund. See
"Description of the Certificates--Optional
Termination."
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S-10
<PAGE>
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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. 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 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."
ERISA Considerations.............. The acquisition of an Offered Certificate by
a pension or other employee benefit plan (a
"Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), could, in some instances, result
in a prohibited transaction or other
violation of the fiduciary responsibility
provisions of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended
(the "Code").
Subject to the considerations and conditions
described under "ERISA Considerations," it
is expected that the Senior Certificates
(other than the Class PO, Class X and Class
A-R Certificates) may be purchased by a
Plan.
Any Plan fiduciary considering whether to
purchase any Offered Certificates on behalf
of a Plan should consult with its counsel
regarding the applicability of the
provisions of ERISA and the Code. See "ERISA
Considerations."
Legal Investment.................. The Senior Certificates and the Class
______________ Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA") so long as
they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization
and, as such, are legal investments for
certain entities to the extent provided for
in SMMEA.
- --------------------------------------------------------------------------------
S-11
<PAGE>
- --------------------------------------------------------------------------------
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." 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."
Risk Factors...................... For a discussion of risks associated with an
investment in the Certificates, see "Risk
Factors" on Page [ ] herein and on Page [ ]
in the Prospectus.
- --------------------------------------------------------------------------------
S-12
<PAGE>
RISK FACTORS
Investors should consider the following risks in connection with the
purchase of the Certificates. For a discussion of additional risks pertaining to
the Certificates, see "Risk Factors" in the Prospectus.
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" in the Prospectus.
Since transactions in the Certificates can be effected only through DTC,
participating organizations, indirect participants and certain banks, the
ability of a Beneficial Owner to pledge a Certificate to persons or entities
that do not participate in the DTC 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" in the Prospectus.
Beneficial 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 DTC Participants which will thereafter credit
them to the accounts of Beneficial Owners either directly or indirectly through
indirect participants. Beneficial Owners will not be recognized as
"Certificateholders" as such term is used in the Agreement, and Beneficial
Owners will be permitted to exercise the rights of Certificateholders only
indirectly through DTC and DTC Participants. See "Description of the
Certificates--Book-Entry Certificates" herein and "Risk Factors--Book-Entry
Registration" in the Prospectus.
Cash Flow Considerations and Risks
Minimum monthly payments on the Loans will at least equal and may exceed
accrued interest. Even assuming that the Mortgaged Properties provide adequate
security for the Loans, substantial delays could be encountered in connection
with the liquidation of 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 Loans. In the event any of the Mortgaged Properties
fail to provide adequate security for the related Loans, Certificateholders
could experience a loss.
Prepayment Considerations and Risks
All of the Loans may be prepaid in whole or in part at any time, most
without penalty. [Approximately ___% provide for the payment by the borrower of
a prepayment charge in limited circumstances.] See "The Mortgage Pool--General"
herein and "Yield and Prepayment Considerations" in the Prospectus. 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 Loans contain due-on-sale provisions and the Servicer intends to enforce
such provisions unless (i) such enforcement is not permitted by applicable law
or (ii) the Servicer, in a manner consistent with reasonable commercial
practice, permits the purchaser of the related Mortgaged Property to assume the
Loan. To the extent permitted by applicable law, such assumption will not
release the original borrower from its obligation under any such Loan. See
"Yield, Prepayment and Maturity Considerations--
S-13
<PAGE>
Prepayment Considerations and Risks" herein and "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses" in the Prospectus for a description of certain
provisions of the 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 prepayment on the Loans. Any reinvestment
risks resulting from a faster or slower incidence of prepayment of Loans will be
borne entirely by the Certificateholders. See "Yield, Prepayment and Maturity
Considerations" herein and "Yield and Prepayment Considerations" in the
Prospectus.
Defaults and Delinquent Payments
The yields to maturity of the Offered Certificates will be sensitive to
defaults and delinquent payments on the Loans. If a purchaser of an Offered
Certificate calculates its anticipated yield based on an assumed rate of default
and amount of losses that is lower than the default rate and amount of losses
actually incurred and, its actual yield to maturity will be lower than that so
calculated and could, in the event of substantial losses, be negative. The
timing of Realized Losses will also affect an investor's actual yield to
maturity even if the rate of defaults and severity of such losses are consistent
with an investor's expectations. In general, the earlier a loss occurs, the
greater is the effect on an investor's yield to maturity. There can be no
assurance as to the delinquency, foreclosure or loss experience with respect to
the Loans.
Payment Delay
Under the Agreement, payments of principal and interest on the Loans
received in any calendar month generally will not be passed through to the
holders of the Offered Certificates until the Distribution Date in the following
calendar month. As a result, the monthly distributions to the holders of the
Offered Certificates generally will reflect mortgagor payments during the prior
calendar month. Each Distribution Date will be on the _______ day of each month
(or the next succeeding business day), commencing in ________ 199_. Thus, the
effective yield to the holders of all Offered Certificates will be below that
otherwise produced by the related Pass-Through Rate and the price paid for the
Offered Certificates by such holders because distributions on the Offered
Certificates in respect of any given month will not be made until on or about
the ___ day of the following month.
Balloon Loans
About ___% of the Loans in the Mortgage Pool are balloon loans,
which generally have an original term of 15 years and provide for monthly
payments based on a 30 year amortization schedule and a final monthly payment
substantially greater than the preceding monthly payments. The existence of a
Balloon Payment generally will require the related mortgagor to refinance the
Loan or to sell the Mortgaged Property on or prior to the stated maturity date.
The ability of a mortgagor 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 mortgagor's equity in the related Mortgaged
Property, the financial condition of the mortgagor, tax laws and prevailing
general economic conditions. None of the Sellers, the Servicer, the Depositor or
the Trustee is obligated to refinance any Loan.
Mixed Use Loans
Mixed Use Loans represent approximately ___% of the Loans in the Mortgage
Pool. The Properties securing Mixed Use Loans consist of multi-family properties
and structures which include residential dwelling units and space used for
retail, professional or other commercial uses (the "Mixed Use Properties"). The
maximum Loan-to-Value Ratio on Mixed Use Properties will not exceed 70%. Due to
the limited market
S-14
<PAGE>
for such Mixed Use Properties, in the event of a foreclosure, it is expected
that the time it takes to recover Liquidation Proceeds will be longer than with
Single Family Properties.
Subordinate Liens
Loans representing approximately ___% of the Mortgage Pool are secured by
first liens, with the remaining Loans (representing approximately ___% of the
Mortgage Pool) being secured by subordinate liens.
Information is provided under "The Mortgage Pool--General" with respect to
the Combined Loan-toValue Ratios of the Loans. The value of the Mortgaged
Properties could be adversely affected by a number of factors. See "Risk
Factors--Nature of Mortgages" in the Prospectus. As a result, despite the
amortization of the Loans on such Mortgaged Properties, there can be no
assurance that the Combined Loan-to-Value Ratios of such Loans, determined as of
a date subsequent to the origination date, will be the same or lower than the
Combined Loan-to-Value Ratios for such Loans, determined as of the origination
date.
Loans secured by investor-owned Mortgaged Properties represent (based
solely upon statements made by the borrowers at the time of origination of the
related Loan) approximately ___% of the Mortgage Pool. It is possible that the
rate of delinquencies, foreclosures and losses on subordinate liens secured by
nonowner occupied Mortgaged Properties could be higher than for Loans secured by
the primary residence of the borrower.
Certificate Rating
The rating of the Certificates will depend primarily on an assessment by
the Rating Agencies of the 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-United States persons.
Legal Considerations--Lien Priority
Each Loan is secured by first or subordinate deeds of trust or mortgages
on the related Mortgaged Property. Loans secured by second 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 proceeds from realization on the Mortgaged
Properties are insufficient to satisfy such loans and prior liens in the
aggregate, 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.
Bankruptcy and Insolvency Risks
The Servicer, the Sellers and the Depositor each intend that each
conveyance of Loans by the Sellers to the Depositor constitutes a sale, rather
than a pledge of the Loans to secure indebtedness of the Sellers. The Depositor
intends that each conveyance of Loans from the Depositor to the Trust Fund
constitutes a sale, rather than a pledge of the Loans to secure indebtedness of
the Depositor. As a sale of the Loans by the
S-15
<PAGE>
Sellers to the Depositor, the Loans would not be part of a Seller's bankruptcy
estate and would not be available to a Seller's creditors. However, in the event
of the bankruptcy or insolvency of a Seller, it is possible that the bankruptcy
trustee, a conservator or receiver of the Seller or another person may attempt
to recharacterize the sale of the Loans as a borrowing by the Seller, secured by
a pledge of the Loans. Similarly, as a sale of the Loans by the Depositor to the
Trust Fund, the Loans would not be part of the Depositor's bankruptcy estate and
would not be available to the Depositor's creditors. However, in the event of
the bankruptcy or insolvency of the Depositor, it is possible that the
bankruptcy trustee, a conservator or receiver of the Depositor or another person
may attempt to recharacterize the sale of the Loans as a borrowing by the
Depositor, secured by a pledge of the Loans. In either case, this position, if
argued before or accepted by a court, could prevent timely payments of amounts
due on the Certificates and result in a reduction of payments due on the
Certificates.
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
__________, approximately _____% (by Cut-off Date Pool Principal Balance) of the
Mortgaged Properties are located in the State of __________, approximately
_____% (by Cut-off Date Pool Principal Balance) of the Mortgaged Properties are
located in the State of __________ and 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 markets of
_____________, ________________, _______________ and _______________ could
adversely affect the values of the Mortgaged Properties securing such Loans such
that the Principal Balances of the related Loans could equal or exceed the value
of such Mortgaged Properties. As residential real estate markets are influenced
by many factors, including the general condition of the economy and interest
rates, no assurances may be given that the __________, __________, ___________
and ___________ residential real estate markets will not weaken. If the
__________, ____________, ____________ and ___________ residential real estate
markets should experience an overall decline in property values after the dates
of origination of the Loans, the rates of losses on the Loans would be expected
to increase, and could increase substantially.
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 Loans to the extent described 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 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 Loans. If the
actual rate and severity of losses on the 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 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.
Realized Losses on the Loans will reduce the Class Certificate Balances of the
applicable class
S-16
<PAGE>
of Subordinated Certificates to the extent of any losses allocated thereto (as
described under "Description of the Certificates--Allocation of Losses,"),
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."
THE MORTGAGE POOL
General
The Mortgage Pool will consist of the following types of loans
(collectively, the "Loans"): mortgage loans secured by first and/or subordinate
liens on (A) one- to four-family residential properties, (each, a "Residential
Loan") and (B) mixed commercial/residential use properties (each, a "Mixed Use
Loan").
The Depositor will purchase the Loans from Sellers pursuant to the Pooling
and Servicing Agreement dated as of the Cut-off Date among Sellers, the
Servicer, the Depositor and the Trustee (the "Agreement") and will cause the
Loans to be conveyed, without recourse, to the Trustee for the benefit of the
holders of the Certificates (the "Certificateholders").
Under the Agreement, the Sellers 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 Loans and, subject to the limitations described below under "--Sale of the
Loans," will be obligated to repurchase or substitute a similar mortgage loan
for any Loan as to which there exists deficient documentation or an uncured
material breach of any such representation, warranty or covenant. The Sellers
will represent and warrant to the Depositor in the Agreement that the Loans were
selected from among the outstanding loans in the Sellers' portfolios 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 "Loan Program--Representations by
Sellers; Repurchases" in the Prospectus. Under the Agreement, the Depositor will
convey all its right, title and interest in and to such representations,
warranties and covenants (including the Sellers' repurchase obligation) to the
Trustee for the benefit of Certificateholders. The Depositor will make no
representations or warranties with respect to the Loans and will have no
obligation to repurchase or substitute Loans with deficient documentation or
which are otherwise defective. The Sellers are selling the Loans without
recourse and will have no obligation with respect to the Certificates in their
capacity as Sellers other than the repurchase obligation described above. The
obligations of Equity One, as Servicer, with respect to the Certificates are
limited to the Servicer's contractual servicing obligations under the Agreement.
Certain information with respect to the Loans expected to be included in
the Mortgage Pool is set forth below in the following categories: Residential
Loans and Mixed Use Loans. Prior to the Closing Date, Loans may be removed from
the Mortgage Pool and other 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 Loans in the Mortgage Pool may
vary. Unless otherwise indicated, information presented herein under "The
Mortgage Pool" expressed as a percentage
S-17
<PAGE>
(other than rates of interest) are approximate percentages based on the Stated
Principal Balances of the Loans as of the Cut-off Date.
As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Loans is expected to be approximately $______ (the "Cut-off Date Pool
Principal Balance"). The Loans provide for payment based on the amortization of
the amount financed over a series of substantially equal monthly payments, with
Balloon Payments due at the stated maturities of (i) 15 years, in the case of
Residential Loans and (ii) seven to ten years, in the case of Mixed Use Loans.
Loans with Balloon Payments may involve a greater degree of risk than loans
which are fully amortizing because the ability of a borrower to make a Balloon
Payment typically will depend upon the ability of the borrower to either timely
refinance the Loan or sell the related Mortgaged Property. All the Loans provide
for payments due on a set day, but not necessarily the first day, of each month
(the "Due Date"). The Loans to be included in the Mortgage Pool were originated
or purchased by the Sellers and were originated substantially in accordance with
the Sellers' underwriting criteria for mortgage loans, described under "The
Mortgage Pool--Underwriting Standards."
Scheduled monthly payments made by the mortgagors on the 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 Loan may be prepaid in full or in
part at any time; however, approximately ____% of the 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. 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 Loan.]
Each Loan was originated after ________________________________.
The latest stated maturity date of any Loan is ____________________. The
earliest stated maturity date of any Loan is __________________________.
As of the Cut-off Date, no Loan was delinquent more than ___ days.
No Loan had a Loan-to-Value Ratio at origination of more than ___%.
Approximately ___% of the Residential Loans had a Loan-to-Value Ratio at
origination of 90%. In general, the Mixed Use Loans had a Loan-to-Value Ratio at
origination of not more than 70%.
The "Loan-to-Value Ratio" of a Loan at any given time is equal to (i) the
principal balance of such Loan at the date of origination, divided by (ii) the
Collateral Value of the related Mortgaged Property. The "Combined Loan-to-Value
Ratio" of a Loan secured by a subordinate lien at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal balance
of such Loan and (b) the outstanding principal balance, at the date of
origination of such 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 senior 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 Mortgaged Property.
The "Collateral Value" of a Mortgaged 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 based
on an appraisal made for the related Seller by an independent fee appraiser at
the time of the origination of the related Loan, and (b) if applicable: (i) if
the Loan was for the purpose of acquiring the Mortgaged Property, the sales
price of such Mortgaged Property at such time of origination
S-18
<PAGE>
or (ii) if the Loan is secured by a lien on a Mortgaged Property purchased by
the borrower within one year of the origination of such Loan, the purchase price
of such Mortgaged Property. In the case of Refinance Loans, 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 Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Loans become equal to or greater than the value of
the Mortgaged Properties, actual losses on the 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 Pool. Other than with
respect to rates of interest, percentages (approximate) are stated by Stated
Principal Balance of the Loans as of the Cut-off Date and have been rounded in
order to total 100%.
S-19
<PAGE>
Mortgage Pool Tables
<TABLE>
<CAPTION>
Mortgage Rates(1)
-----------------
Number of Loans Aggregate Principal Balance
Mortgage Rates (%) Outstanding Percent of Mortgage Pool
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
6.250....................... $ %
6.750.......................
6.875.......................
7.000.......................
7.125.......................
7.250.......................
7.375.......................
7.500.......................
7.625.......................
7.750.......................
7.875.......................
8.000.......................
8.125.......................
8.250.......................
8.375.......................
8.500.......................
8.625.......................
8.750.......................
8.875.......................
9.000.......................
9.125.......................
9.250.......................
9.375.......................
9.500.......................
9.875.......................
10.000.......................
-- ----------- -------
Totals....................... $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
-------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Loans
(as so adjusted) is expected to be approximately ___%. Without such
adjustment, the weighted average Mortgage Rate of the Loans is expected to
be approximately ___% per annum.
S-20
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios(1)
--------------------------------
Original Loan-to-Value Number of Loans Aggregate Principal Balance
Ratios (%) Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
50.00 and below.................. $ %
50.01 to 55.00...................
55.01 to 60.00...................
60.01 to 65.00...................
65.01 to 70.00...................
70.01 to 75.00...................
75.01 to 80.00...................
80.01 to 85.00...................
85.01 to 90.00...................
90.01 to 95.00...................
-- ----------- -------
Totals........................... $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
- ----------
(1) The weighted average original Loan-to-Value Ratio of the Loans is expected
to be approximately ______%.
<TABLE>
<CAPTION>
Current Loan Principal Balances(1)
----------------------------------
Current Loan Amounts Number of Loans Aggregate Principal Balance
Outstanding Percent of Mortgage Pool
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 0 - $ 50,000........... $ %
$ 50,001 - $ 100,000..........
$100,001 - $ 150,000..........
$150,001 - $ 200,000..........
$200,001 - $ 250,000..........
$250,001 - $ 300,000..........
$300,001 - $ 350,000..........
$350,001 - $ 400,000..........
$400,001 - $ 450,000..........
$450,001 - $ 500,000..........
$500,001 - $ 550,000..........
$550,001 - $ 600,000..........
$600,001 - $ 650,000..........
$650,001 - $ 750,000..........
$750,001 - $1,000,000.........
-- ----------- -------
Totals........................ $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
- ----------
(1) As of the Cut-off Date, the average current Loan principal balance is
expected to be approximately $________.
S-21
<PAGE>
<TABLE>
<CAPTION>
Documentation Program for Loans
-------------------------------
Type of Program (1) Number of Loans Aggregate Principal Balance
Outstanding Percent of Mortgage Pool
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Full Doc.................... $ %
NIV.........................
-- ----------- -------
Totals...................... $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
- ----------
(1) See "The Mortgage Pool--Underwriting Standards" herein and "Loan
Program--Specific Underwriting Criteria; Underwriting Programs" in the
Prospectus.
<TABLE>
<CAPTION>
Type of Mortgaged Properties
----------------------------
Property Type Number of Loans Aggregate Principal Balance
Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Single Family.................. $ %
Condominium....................
Mixed Use......................
Two- to Four- Family...........
Planned Unit Development.......
-- ----------- -------
Totals......................... $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
<TABLE>
<CAPTION>
Occupancy Types(1)
------------------
Occupancy Type Number of Loans Aggregate Principal Balance
Outstanding Percent of Mortgage Pool
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Primary Residence.............. $ %
Investor Property..............
Second Residence...............
-- ----------- -------
Totals......................... $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
- ----------
(1) Based upon representations of the related mortgagors at the time of
origination.
S-22
<PAGE>
<TABLE>
<CAPTION>
State Distribution of Mortgaged Properties(1)
---------------------------------------------
State Number of Loans Aggregate Principal Balance
Outstanding Percent of Mortgage Pool
- -----------------------------------------------------------------------------------------------------------------------
<S> <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 Loans will be secured by Mortgaged
Properties located in any one postal zip code area.
<TABLE>
<CAPTION>
Purpose of Loans
----------------
Loan Purpose Number of Loans Aggregate Principal Balance
Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchase.......................... $ %
Refinance (rate/term).............
Refinance (cash out)..............
-- ----------- -------
Totals............................ $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
Remaining Terms to Maturity(1)
------------------------------
Remaining Term to Maturity Number of Loans Aggregate Principal Balance
(Months) Outstanding Percent of Mortgage Pool
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
180...............................
179...............................
178...............................
177...............................
176...............................
175...............................
174...............................
173...............................
172...............................
171...............................
170...............................
169...............................
168...............................
167...............................
166...............................
165...............................
164...............................
163...............................
162...............................
161...............................
160...............................
159...............................
158...............................
157...............................
156...............................
155...............................
154...............................
153...............................
152...............................
151...............................
150...............................
149...............................
148...............................
147...............................
146...............................
145...............................
144...............................
-- ----------- -------
Totals............................ $ 100.00%
-- ----------- -------
-- ----------- -------
</TABLE>
- ----------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Loans is expected to be approximately ___ months.
S-24
<PAGE>
Sale of the Loans
Pursuant to the Agreement, the Depositor on the Closing Date will 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
Loan and all right, title and interest in and to all other assets included in
the Trust Fund described under "Credit Enhancement," including all principal and
interest received on or with respect to the Loans, exclusive of principal and
interest due on or prior to the Cut-off Date.
In connection with such conveyance, 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").
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 related 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), such Seller will be obligated to repurchase the
related Loan from the Trust Fund. Rather than repurchase the Loan as provided
above, a Seller may remove such Loan (a "Deleted Loan") from the Trust Fund and
substitute in its place another mortgage loan (a "Replacement Loan"); however,
such substitution is permitted only within two years of the 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 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 Loan (the amount of
any shortfall to be deposited by the related 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 Loan,
(iii) have a Loan-to-Value Ratio not higher than that of the Deleted Loan, (iv)
have a remaining term to maturity not greater than (and not more than one year
less than) that of the Deleted 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 Loan document.
Underwriting Standards
The following is a description of the underwriting procedures customarily
employed by Sellers with respect to Loans.
Each Seller produces its Loans through its retail origination network of
loan officers and managers. Each Seller also produces Loans through a wholesale
network of mortgage brokers and other entities located throughout the United
States. Prior to the funding of any Loan, each Seller underwrites the related
Loan
S-25
<PAGE>
in accordance with the underwriting standards that have been established by
Equity One and are consistent with those utilized by mortgage lenders generally
during the period of origination for similar types of loans (the "Equity One
Standards").
The Equity One Standards are primarily intended to evaluate the value and
adequacy of the Mortgaged Property as collateral for the proposed Loan, but also
take into consideration the borrower's credit standing and repayment ability.
The Equity One Standards allow for the origination and purchase of Loans
generally under the following underwriting programs: (i) Grade A Credits, (ii)
Grade B Credits and (iii) Grade C Credits. See "Specific Underwriting Criteria;
Underwriting Programs" and "Summary of Underwriting Requirements by Program" in
the Prospectus. It is expected that Grade A Credits Loans will represent ___%,
Grade B Credits Loans will represent ___% and Grade C Credits Loans will
represent ___% of the Loans in the Mortgage Pool.
On a case by case basis, a Seller may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
specific criteria of Grade A Credits, Grade B Credits or Grade C Credits
warrants an underwriting exception. See "Specific Underwriting Criteria;
Underwriting Programs" in the Prospectus. Compensating factors may include
Loan-to-Value Ratio, Debt-to-Income Ratio, stable employment and time in the
same residence, but the Equity One Standards do not include any specific formula
or assign any specific weights to compensating factors for purposes of such
determinations. It is expected that some of the Loans to be included in the
Mortgage Pool will have been originated based on such underwriting exceptions.
Under the Equity One Standards, Sellers must use either the Full Doc or
the NIV loan documentation program to verify a borrower's income. See "Specific
Underwriting Criteria; Underwriting Programs" in the Prospectus. It is expected
that ___% of the Loans in the Mortgage Pool will be underwritten pursuant to the
Full Doc program and that ___% of such Loans will be underwritten pursuant to
the NIV program.
The Equity One Standards require an independent appraisal of each
Mortgaged Property securing a Loan in excess of $15,000, which conforms to
Federal National Mortgage Corporation ("FNMA") standards. Each appraisal
includes a market data analysis based on recent sales of comparable homes in the
area and, where deemed appropriate, replacement cost analysis based on the
current cost of constructing a similar home and generally is required to have
been made not earlier than ___ days prior to the date of origination of the
mortgage loan. Every independent appraisal is reviewed by a representative of
the related Seller before the loan is funded. The maximum loan amount varies
depending upon a borrower's credit grade but does not generally exceed $500,000.
Variations in maximum loan amount limits are permitted based on compensating
factors. Maximum loan amounts for Loans underwritten pursuant to the NIV program
generally do not exceed $300,000.
The Equity One Standards permit loans with Loan-to-Value Ratios at
origination of up to 90% depending on the program, type and use of the property,
creditworthiness of the borrower and Debt-to-Income Ratio. The maximum Combined
Loan-to-Value Ratio for purchase money mortgage loans, including any subordinate
mortgages or deeds of trust is 90%.
Title insurance is required on all Loans in excess of $15,000. Each Seller
also requires that fire and extended coverage casualty insurance be maintained
on the Mortgaged Property in an amount at least equal to the principal balance
or the replacement cost of the Mortgaged Property, whichever is less.
S-26
<PAGE>
SERVICING OF LOANS
General
The Servicer will service the Loans in accordance with the terms set forth
in the Pooling and Servicing Agreement. The Servicer may perform any of its
obligations under the Pooling and Servicing Agreement through one or more
sub-servicers. Notwithstanding any such sub-servicing arrangement, the Servicer
will remain liable for its servicing duties and obligations under the Pooling
and Servicing Agreement as if the Servicer alone were servicing the Loans. [As
of the Closing Date, the Servicer will service the Loans without sub-servicing
arrangements.]
The information set forth in the following section through and including
the section captioned "Foreclosure, Delinquency and Loss Experience" has been
provided by Sellers.
The Servicer
Equity One, Inc. ("Equity One"), a Delaware corporation and a subsidiary
of [Describe], will act as the Servicer of the Loans pursuant to the Pooling and
Servicing Agreement. Equity One is engaged primarily in the mortgage banking
business, and as such, originates, purchases, sells and services mortgage loans.
Equity One originates Loans through a retail branch system and through mortgage
loan brokers and correspondents nationwide. Equity One's Loans are principally
first-lien, fixed or adjustable rate mortgage loans secured by Single-Family
Properties or Mixed Use Properties.
As of __________, 199_, Equity One provided servicing for approximately
$__________ million in Loans.
The principal executive offices of Equity One are located at 523
Fellowship Road, Suite 230, Mt. Laurel, New Jersey, 08054. Its telephone number
is (609) 273-1119. Equity One conducts operations from its headquarters in Mt.
Laurel and through affiliates, from offices throughout the nation.
Loan Servicing
Equity One services substantially all of the Loans originated or acquired
by the Sellers. Equity One has established standard policies for the servicing
and collection of Loans. Servicing includes, but is not limited to, collecting
and remitting Loan payments, accounting for principal and interest, making
inspections as required of the Mortgaged Properties, preparation of tax related
information in connection with the Loans, supervision of delinquent Loans, loss
mitigation efforts, foreclosure proceedings and, if applicable, the disposition
of Mortgaged Properties, and generally administering the Loans, for which it
receives servicing fees.
Coupon booklets are delivered to borrowers for making monthly payments.
Notice of changes in the applicable loan rate, if applicable, are provided by
Equity One to the mortgagor when appropriate.
S-27
<PAGE>
Collection Procedures
When a mortgagor fails to make a payment on a Loan, each Seller attempts
to cause the deficiency to be cured by corresponding with the mortgagor. In most
cases, deficiencies are cured promptly. Pursuant to each Seller's servicing
procedures, each Seller 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. 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, 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 Seller determines the amount of the foreclosure bid
and whether to liquidate the Loan.
After foreclosure, the Seller 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 Seller.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the business judgment of each
Seller, changes in the servicing portfolio and applicable laws and regulations.
Foreclosure, Delinquency and Loss Experience
The following table summarizes the delinquency and loss experience of the
Sellers' Loans at or for the years specified therein. A Loan is characterized as
delinquent if the borrower has not paid the minimum payment due by the due date.
The table below discloses delinquency percentages of Loans 60 days or more past
due on a contractual basis and excludes Loans where the Loan is in foreclosure
or the borrower has filed for bankruptcy. This information should not be
considered as a basis for assessing the likelihood, amount, or severity of
delinquency or losses on the 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 Loans.
Loss and Delinquency Tables
<TABLE>
<CAPTION>
At or for the At or for the
Three Months Three Months
Ended Ended
At or for the Year Ended November 30, March 31, 1996 March 31, 1997
------------------------------------------- -------------- --------------
1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Portfolio Unpaid
Principal Balance (1) $ $ $ $ $
Average Portfolio
Unpaid $ $ $ $ $
Principal Balance..........
Period of
Delinquency (2)
60+ Days................... % % % % % %
Total Delinquencies............ % % % % % %
Total Credit Losses (3) % % % % %(4) %(4)
</TABLE>
(1) Portfolio Unpaid Principal Balance is the net amount of principal to be
paid on each Loan, excluding unearned finance charges and other charges,
and excludes the principal balance of each Loan as to which the related
Mortgaged Property has been previously acquired through foreclosure.
(2) Delinquency percentages are calculated as the dollar amount of Loan
principal delinquent as a percent of the Portfolio Unpaid Principal
Balance. Delinquency percentages include the principal balance of all Loans
in foreclosure proceedings. Generally, all Loans in foreclosure proceedings
are 90 days or more delinquent. Delinquency percentages do not include the
principal balance of Loans which are real estate owned.
(3) Total Credit Losses includes (a) charge-offs of principal, net of
subsequent recoveries, relating to Loans written off as uncollectible or
charge-offs relating to properties securing any Loans which have been
foreclosed upon and for which, in the opinion of management, liquidation
proceeds would not exceed estimated expenses of liquidation plus the unpaid
principal balance, (b) expenses associated with maintaining, repairing, and
selling foreclosed properties and real estate owned, and (c) losses (gains)
on the disposition of foreclosed properties and real estate owned.
(4) Annualized.
S-28
<PAGE>
[These tables do not include ________ 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 Loans has been transferred.]
As of _____________, 199_, __________ Loans with an aggregate principal
balance of $______________ were in foreclosure and, there were ___________ Loans
in bankruptcy with a combined loan balance of $______________.
Historically, a variety of factors, including the appreciation of real
estate values, have limited the loss and delinquency experience on Loans. There
can be no assurance that factors beyond each Seller's control, such as national
or local economic conditions or downturn in the real estate markets of its
lending areas, will not result in increased rates of delinquencies and
foreclosure losses in the future.
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 Seller may experience an increase in delinquencies on
the Loans serviced and higher net losses on liquidated Loans.
Servicing Compensation and Payment of Expenses
The Servicer will be paid a monthly fee from interest collected with
respect to each Loan (as well as from any Liquidation Proceeds from a Liquidated
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 Rate"). The Servicing Fee Rate for each Loan will
equal .5% per annum. The amount of the monthly Servicing Fee is subject to
adjustment with respect to prepaid Loans, as described herein under
"--Adjustment to Servicing Fee in Connection with Certain Prepaid Loans." The
Servicer is also entitled to receive, as additional servicing compensation,
amounts in respect of interest paid on Principal Prepayments received from the
first day through the fifteenth 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 Servicer is obligated to pay
certain ongoing expenses associated with the Loans and incurred by the Trustee
in connection with its responsibilities under the Pooling and Servicing
Agreement.
S-29
<PAGE>
Adjustment to Servicing Fee in Connection with Certain Prepaid Loans
When a borrower prepays a 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 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 Loan will result. Conversely,
principal prepayments by borrowers received by the 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 Loans would
result. Pursuant to the Agreement, the Servicing Fee for any month will be
reduced, up to the full amount of such Servicing Fee, in order to pass through
to Certificateholders the interest to which they would be entitled in respect of
each such prepaid Loan on the related Distribution Date. If shortfalls in
interest as a result of prepayments exceed an amount equal to the amount of the
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."
Advances
Subject to the following limitations, the 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 Loans (net of the Servicing Fee with respect to the related 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 Loan
as to which the related Mortgaged Property has 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 Servicer is obligated to make Advances with respect to
delinquent payments of principal of or interest on each 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
Loan. If the 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 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 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.
S-30
<PAGE>
The Mortgage 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 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 Loans with respect to such Distribution Date. A "Non-Discount Loan"
is any 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 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- ,
Class B- , Class B- , Class B- , 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.
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 $25,000 and integral multiples of
$1,000 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 ("DTC"). Beneficial interests in the Book-Entry Certificates will
be held indirectly by investors through the book-entry facilities of DTC, as
described herein. Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing an original principal amount
of $25,000 and integral multiples of $1,000 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.
S-31
<PAGE>
The Depositor has been informed by DTC 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 Certificates--Book-Entry Certificates," 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 DTC. 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 DTC and DTC Participants. Monthly and annual reports on the Trust Fund
provided 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 DTC, and to the DTC Participants to whose 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 Loans; Accounts
On or prior to the Closing Date, the 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 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 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
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; (v) 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; (vi) 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; (vii) repurchase obligations with
S-32
<PAGE>
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; (viii) 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 (ix) 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 __th
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 under "Description of the Certificates--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
herein 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 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."
"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
Servicing Fees, trustee fees and credit enhancement 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 Loans, to the extent
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such proceeds are not applied to the restoration of the related Mortgaged
Property or released to the mortgagor in accordance with the Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts received and retained in connection with the liquidation of defaulted
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 period from the sixteenth day of the month preceding the
month of such Distribution Date (or, in the case of the first Distribution Date,
from the Cut-off Date) through the fifteenth day of the month of such
Distribution Date (the "Prepayment Period"); and (iv) amounts received with
respect to such Distribution Date as the Substitution Adjustment Amount or
purchase price in respect of a Deleted Loan or a Loan repurchased by a Seller or
the Servicer as of such Distribution Date, reduced by amounts in reimbursement
for Advances previously made and other amounts as to which the 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 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 Loan is the interest rate
thereon (the "Mortgage Rate") less the sum of the rates for the Servicing Fees,
trustee fees and credit enhancement fees for such 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 Loan that was the subject of
(a) a Relief Act Reduction or (b) 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 (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 Loan pursuant to the Soldiers' and Sailors' Civil
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<PAGE>
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 Servicer as described under "Servicing of
Loans--Adjustment to Servicing Fee in Connection with Certain Prepaid Loans." A
"Prepayment Interest Shortfall" is the amount by which interest paid by a
borrower in connection with a prepayment of principal on a Loan is less than one
month's interest at the related Mortgage Rate on the Stated Principal Balance of
such 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 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 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 Loan with a Net Mortgage Rate
("NMR") less than ____% (each such Loan, a "Discount Loan") will be equal to NMR
/ ____%. The "Non-PO Percentage" with respect to any Non-Discount Loan will be
100%. The "PO Percentage" with respect to any Discount Loan will be equal to
(____% - NMR) / ____%. The "PO Percentage" with respect to any Non-Discount 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 Loan on the related Due Date, (b) the principal portion of
the purchase price of each Loan that was repurchased by a Seller or another
person pursuant to the Agreement as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Loan received with
respect to such Distribution Date, (d) any Insurance
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<PAGE>
Proceeds or Liquidation Proceeds allocable to recoveries of principal of Loans
that are not yet Liquidated Loans received during the calendar month preceding
the month of such Distribution Date, (e) with respect to each Loan that became a
Liquidated Loan during the calendar month preceding the month of such
Distribution Date, the amount of the Liquidation Proceeds allocable to principal
received with respect to such 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
Loan that became a Liquidated 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 Loan and
(y) either (A) the Senior Prepayment Percentage or (B) if an Excess Loss was
sustained with respect to such Liquidated 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
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 Loan
that is not a Liquidated 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.
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<PAGE>
"Stated Principal Balance" means as to any Loan and Due Date, the unpaid
principal balance of such 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 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 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 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 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.
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<PAGE>
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.
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:
Class .......................................... %
Class .......................................... %
Class .......................................... %
Class .......................................... %
Class .......................................... %
Class .......................................... %
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 Loan that became a Liquidated Loan during the calendar
month preceding the month of such Distribution Date, the applicable Non-PO
Percentage of the Liquidation Proceeds allocable to principal
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<PAGE>
received with respect to such 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 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 (a)
the PO Formula Principal Amount for such Distribution Date or (b) 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 (b) above, principal distributions to holders
of the Senior Certificates (other than the Class PO 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 Loan on the related Due Date, (b) the principal portion of the purchase
price of each Loan that was repurchased by a Seller or another person pursuant
to the Agreement as of such Distribution Date, (c) the Substitution Adjustment
Amount in connection with any Deleted Loan received with respect to such
Distribution Date, (d) any Insurance Proceeds or Liquidation Proceeds allocable
to recoveries of principal of Loans that are not yet Liquidated Loans received
during the calendar month preceding the month of such Distribution Date, (e)
with respect to each Loan that became a Liquidated 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 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 Loan that is not a
Liquidated 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 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
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<PAGE>
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
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.
In general, a "Realized Loss" means, with respect to a Liquidated Loan,
the amount by which the remaining unpaid principal balance of the Loan exceeds
the amount of Liquidation Proceeds applied to the principal balance of the
related 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 Loans. "Fraud Losses"
are losses sustained on a Liquidated Loan by reason of a default arising from
fraud, dishonesty or misrepresentation. See "Credit Enhancement--Subordination
of Certain Classes."
A "Liquidated Loan" is a defaulted Loan as to which the Servicer has
determined that all recoverable liquidation and insurance proceeds have been
received. A "Special Hazard Loan" is a Liquidated 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--Insurance Policies,
Surety Bonds & Guaranties." See "Credit Enhancement--Subordination of Certain
Classes" herein.
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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 Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists of
____________ Loans with the following characteristics:
<TABLE>
<CAPTION>
Original Term to Remaining Term to
Principal Balance Mortgage Rate Net Mortgage Rate Maturity (in months) Maturity (in months) Loan Age
- -------------------- ---------------- -------------------- ---------------------- ---------------------- ------------
<S> <C> <C>
$ % %
$ % %
</TABLE>
(ii) the Loans prepay at the specified constant percentages of SPA, (iii) no
defaults in the payment by mortgagors of principal of and interest on the Loans
are experienced, (iv) scheduled payments on the 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 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 Loan has been
calculated such that each Loan will amortize in amounts sufficient to repay the
current balance of such 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 under "Description of the Certificates--Interest," (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) a Seller is not required to repurchase
or substitute for any Loan, (xiii) the Servicer does not exercise the option to
repurchase the 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 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
Loans which will be delivered to the Trustee and characteristics of the 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 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
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
S-41
<PAGE>
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 Servicer may, at its option, purchase from the Trust Fund any 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 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 Servicer will have the right to repurchase all remaining Loans and REO
Properties in the Mortgage Pool and thereby effect early retirement of the
Certificates, subject to the Pool Principal Balance of such Loans and REO
Properties at the time of repurchase being less than or equal to 5% of the
Cut-off Date Pool Principal Balance. In the event the 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 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 Loan.
The Trustee
______________________ will be the Trustee under the Agreement. The
Depositor and the 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--Taxation of
Holders of Residual Interest Securities--Restrictions on Ownership and Transfer
of Residual Interest Securities" and "--Tax Treatment of Foreign Investors." 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." Each Class A-R Certificate will contain a legend describing the
foregoing restrictions.
S-42
<PAGE>
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
Loans (without any additional distribution of interest or earnings thereon in
respect of such delay).
Delinquencies on the Loans which are not advanced by or on behalf of the
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 Loans. The rate of principal payments on the Loans will in turn
be affected by the amortization schedules of the Loans and by the rate of
principal prepayments (including for this purpose prepayments resulting from
refinancing, liquidations of the Loans due to defaults, casualties,
condemnations and repurchases by a Seller or the Servicer). The Loans may be
prepaid by the mortgagors at any time without a prepayment penalty. The Loans
are subject to the due-on-sale provisions included therein. See "The Mortgage
Pool."
Prepayments, liquidations and purchases of the Loans (including any
optional purchase by the Servicer of a defaulted Loan and any optional
repurchase of the remaining Loans in connection with the termination of the
Trust Fund, in each case as described under "Description of the
Certificates--Optional Purchase of Defaulted Loans" and "--Optional
Termination") will result in distributions on the Offered Certificates of
principal amounts which would otherwise be distributed over the remaining terms
of the Loans. Since the
S-43
<PAGE>
rate of payment of principal of the 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 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 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 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 Loans,
the Loans could be subject to higher prepayment rates than if prevailing
interest rates were to remain at or above the Mortgage Rates on the Loans.
Conversely, if prevailing interest rates were to rise significantly, the rate of
prepayments on the Loans would generally be expected to decrease. No assurances
can be given as to the rate of prepayments on the 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 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 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.
S-44
<PAGE>
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 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 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.
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 Loans. The
Non-Discount Loans will have higher Net Mortgage Rates (and higher Mortgage
Rates) than the other 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 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:
Class Price*
------ ------
Class X............... %
- ----------
* 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 Loans will have the precise
characteristics described herein or that the Non-Discount Loans will all prepay
at the same rate until maturity or that all of the Non-Discount 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 Loans prepay at the indicated percentages of
SPA. No representation is made as to the actual rate of principal payments on
the 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.
S-45
<PAGE>
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 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 Loans. The Discount
Loans will have lower Net Mortgage Rates (and lower Mortgage Rates) than the
other 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 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:
Class Price*
------ ------
Class PO............... %
Sensitivity of the Principal Only Certificates to Prepayments
(Pre-Tax Yields to Maturity)
SPA Prepayment /Assumption
--------------------------
<TABLE>
<CAPTION>
Class 0% % % % % %
- ---------------------- ----------------- ---------------- ---------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class PO % % % % % %
Class PO......................... % % % % % %
</TABLE>
It is unlikely that the Discount Loans will have the precise
characteristics described herein or that the Discount Loans will all prepay at
the same rate until maturity or that all of such Discount 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 Loans prepay at the indicated percentages of SPA. No
representation is made as to the actual rate of principal payments on the 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 , 19 .
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
S-46
<PAGE>
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 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 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 and the distribution of principal of the Planned
Principal Classes and the Targeted Principal Classes in accordance with the
Principal Balance Schedules herein. In particular, if the amount available for
distribution as principal of the Senior Certificates (other than the Class PO
Certificates) on any Distribution Date exceeds the amount required to reduce the
principal balances of the Planned Principal Classes and the Targeted Principal
Classes then entitled to receive a distribution of principal to their respective
scheduled balances as set forth in the Principal Balance Schedules, such excess
principal will be distributed on the remaining classes of Senior Certificates
(other than the Class PO Certificates) on such Distribution Date. Conversely, if
the amount available for distribution of principal of the Senior Certificates
(other than the Class PO Certificates) on any Distribution Date is less than the
amount so required to reduce the Planned Principal Classes and the Targeted
Principal Classes then entitled to receive a distribution of principal to their
respective scheduled balances, no principal will be distributed on such other
classes of Senior Certificates on such Distribution Date. Accordingly, the rate
of principal payments on the Loans is expected to have a greater effect on the
weighted average life of the Support Classes and under certain prepayment
scenarios, the weighted average lives of the Targeted Principal Classes, than on
the weighted average lives of the Planned Principal Classes.
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 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)
S-47
<PAGE>
the Loans will have the precise characteristics described herein or (ii) all of
the Loans will prepay at a constant percentage of SPA. Moreover, the diverse
remaining terms to maturity of the 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 Loans is consistent with the remaining terms to maturity of the
Loans specified in the Structuring Assumptions.
S-48
<PAGE>
Percent of Initial Class Certificate
Balances Outstanding*
<TABLE>
<CAPTION>
Class A-
--------
Distribution Date 0% % % % % % %
- ------------------------------------- -------------- -------------- -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Initial.............................. % % % % % %
19..............................
19..............................
19..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
-- -- -- -- -- --
Weighted Average
Life (in years)**..........
</TABLE>
S-49
<PAGE>
<TABLE>
<CAPTION>
Class
-----
Distribution Date 0% % % % % % %
- ------------------------------------- -------------- -------------- -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Initial.............................. % % % % % %
19..............................
19..............................
19..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
20..............................
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."
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 Loans. Since the rate of distributions in reduction of the Class
Certificate Balance or Notional
S-50
<PAGE>
Amount of each class of Offered Certificates will depend on the rate of payment
(including prepayments) of the 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 Loans
will depend on their particular characteristics, as well as on 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 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 Loans. If the
actual rate and severity of losses on the 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 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 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"), 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."
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.
S-51
<PAGE>
CREDIT ENHANCEMENT
Subordination of Certain Classes
The rights of the holders of the Subordinated Certificates to receive
distributions with respect to the 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
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
greater of (i) __% of the aggregate of the principal balances of the Loans or
(ii) _____ the principal balance of the largest Loan, or (b) the Special Hazard
Loss Coverage Amount as of the Closing Date less the amount, if any, of losses
attributable to Special Hazard 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 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 or (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.
S-52
<PAGE>
The amount of coverage provided by the Subordinated Certificates for
Special Hazard Losses, Bankruptcy Losses and Fraud Losses may be canceled 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. 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 Loan secured by
such Mortgaged Property or may reduce the outstanding principal balance of a
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 Loan thus would become an unsecured creditor to the extent the outstanding
principal balance of such Loan exceeds the value so assigned to the Mortgaged
Property by the bankruptcy court. In addition, certain other modifications of
the terms of a Loan can result from a bankruptcy proceeding, including the
reduction (a "Debt Service Reduction") of the amount of the monthly payment on
the related Loan. Notwithstanding the foregoing, no such occurrence shall be
considered a Debt Service Reduction or Deficient Valuation so long as the
Servicer is pursuing any other remedies that may be available with respect to
the related Loan and (i) such Loan is not in default with respect to payment due
thereunder or (ii) scheduled monthly payments of principal and interest are
being advanced by the 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 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, Stradley, Ronon, Stevens
& Young, LLP, 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. 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
S-53
<PAGE>
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 Loans at a rate equal to ____% SPA (the "Prepayment
Assumption"). No representation is made as to whether the 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.
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 of 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--Restrictions
on Ownership and Transfer of Residual Interest Securities," "--Mark to Market
Rules," "--Excess Inclusions" and "--Tax Treatment of Foreign Investors" in the
Prospectus. Additionally, for information regarding prohibited transactions and
treatment of realized losses, see "Federal Income Tax Consequences--Taxation of
the REMIC--Prohibited Transactions and Contributions Tax" and "--Taxation of
Holders of Residual Interest Securities--Limitation on Losses" in the
Prospectus.
ERISA CONSIDERATIONS
Any Plan fiduciary who proposes to cause a Plan (as defined below) to
acquire any of the Offered Certificates should consult with its counsel with
respect to the potential consequences under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and/or the Code, of the Plan's
acquisition and ownership of such Certificates. See "ERISA Considerations" in
the Prospectus. Section 406 of ERISA prohibits "parties in interest" with
respect to an employee benefit plan subject to ERISA and/or the excise tax
provisions set forth under Section 4975 of the Code (a "Plan") from engaging in
certain transactions involving such Plan and its assets unless a statutory or
administrative exemption applies to the transaction.
S-54
<PAGE>
Section 4975 of the Code imposes certain excise taxes on prohibited transactions
involving Plans and other arrangements (including, but not limited to,
individual retirement accounts) described under that Section; ERISA authorizes
the imposition of civil penalties for prohibited transactions involving Plans
not subject to the requirements of Section 4975 of the Code.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary who decides to
invest the assets of a Plan in the Offered Certificates should consider, among
other factors, the extreme sensitivity of the investment to the rate of
principal payments (including prepayments) on the Loans.
The United States Department of Labor has granted an individual
administrative exemption to (Prohibited Transaction Exemption _______, Exemption
Application No. D-_____, Fed. Reg. ____ (____) (_____) (the "Underwriter
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 Underwriter
Exemption. The Underwriter Exemption applies to mortgage loans such as the Loans
in the Trust Fund.
For a general description of the Underwriter Exemption and the conditions
that must be satisfied for the Underwriter Exemption to apply, see "ERISA
Considerations" in the Prospectus.
It is expected that the Underwriter Exemption will apply to the
acquisition and holding by Plans of the Senior Certificates (other than the
Class _____, Class PO, Class X and Class A-R Certificates) and that all
conditions of the Underwriter Exemption other than those within the control of
the investors will be met. In addition, as of the date hereof, there is no
single mortgagor that is the obligor on five percent (5%) of the Loans included
in the Trust Fund by aggregate unamortized principal balance of the assets of
the Trust Fund. Because the Class _____, Class PO and Class X Certificates are
not being purchased by either Underwriter, such classes of Certificates do not
currently meet the requirements of the Underwriter Exemption or any comparable
individual administrative exemption granted to either Underwriter. Consequently,
the sale or exchange of the Class _____, Class PO and Class X Certificates may
be made only under the conditions set forth for the Class B- , Class B- and
Class B- Certificates below.
Because the characteristics of the Class B- , Class B- , Class B- and
Class A-R Certificates may not meet the requirements of PTE 83-1, the
Underwriter Exemption or any other issued exemption under ERISA, the purchase
and holding of the Class B- , Class B- , Class B- and Class A-R Certificates by
a Plan or by individual retirement accounts or other plans subject to Section
4975 of the Code may result in prohibited transactions or the imposition of
excise taxes or civil penalties. Consequently, transfers of the Class B- , Class
B- , Class B- and Class A-R Certificates will not be registered by the Trustee
unless the Trustee receives: (i) a representation 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 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
S-55
<PAGE>
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 ("PTE 95-60")) and that the
purchase and holding of such Certificates are covered under PTE 95-60; or (iii)
an opinion of counsel satisfactory to the Trustee that the purchase or holding
of such Certificate by a Plan, any person acting on behalf of a Plan or using
such Plan's assets, will not result in the assets of the Trust Fund being deemed
to be "plan assets" and subject to the prohibited transaction requirements of
ERISA and the Code and will not subject the Trustee to any obligation in
addition to those undertaken in the Agreement. Such representation as described
above shall be deemed to have been made to the Trustee by the transferee's
acceptance of a Class B- , Class B- or Class B- Certificate. In the event that
such representation is violated, or any attempt to transfer to a plan or person
acting on behalf of a Plan or using such Plan's assets is attempted without such
opinion of counsel, such attempted transfer or acquisition shall be void and of
no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTE 83-1
described in the Prospectus and the Underwriter Exemption, and the potential
consequences in their specific circumstances, prior to making an investment in
any of the Offered Certificates. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment prudence and
diversification, an investment in any of the Offered Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between Equity One, the Depositor and the Underwriter, the Depositor
has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase from the Depositor the respective classes of Offered Certificates
indicated on the cover page hereof to be purchased by it. Distribution of the
Offered Certificates will be made by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. In connection with the sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The Underwriter intends to make a secondary market in the classes of
Offered Certificates, but the Underwriter has no obligation to do so. There can
be no assurance that a secondary market for the Offered Certificates 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.
Equity One and the Depositor have agreed to indemnify the Underwriter
against, or make contributions to the Underwriter with respect to certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
S-56
<PAGE>
Pennsylvania. Brown & Wood LLP, New York, New York, will pass upon certain legal
matters on behalf of the Underwriter.
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. ______ 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-57
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Advance...............................................................S-9, S-30
Agreement.............................................................S-5, S-17
Applicable Credit Support Percentage.......................................S-38
Available Funds............................................................S-33
Bankruptcy Loss Coverage Amount............................................S-52
Bankruptcy Losses..........................................................S-40
Beneficial Owner...........................................................S-32
Book-Entry Certificates.....................................................S-5
Cede.......................................................................S-32
Certificate Account........................................................S-32
Certificateholders.........................................................S-17
Certificates.....................................................-1-, S-4, S-31
Class Certificate Balance..................................................S-31
Class PO Deferred Amount...................................................S-34
Class PO Principal Distribution Amount.....................................S-39
Class Subordination Percentage.............................................S-38
Code.......................................................................S-11
Collateral Value...........................................................S-18
Combined Loan-to-Value Ratio...............................................S-18
Corporate Trust Office......................................................S-3
Cut-off Date Pool Principal Balance........................................S-18
Debt Service Reduction.....................................................S-53
Deficient Valuation........................................................S-53
Definitive Certificate.....................................................S-32
Deleted Loan...............................................................S-25
Depositor...................................................................S-6
Determination Date..........................................................S-6
Discount Loan..............................................................S-35
Distribution Account.......................................................S-32
Distribution Date.....................................................S-6, S-33
DTC........................................................................S-31
Due Date...................................................................S-18
Equity One............................................................S-6, S-27
Equity One Standards.......................................................S-26
ERISA................................................................S-11, S-54
Excess Losses..............................................................S-40
Fixed Rate Certificates.....................................................S-5
FNMA.......................................................................S-26
Fraud Loss Coverage Amount.................................................S-52
Fraud Losses...............................................................S-40
Insurance Proceeds.........................................................S-34
Interest Accrual Period...............................................S-8, S-34
Interest Distribution Amount...............................................S-34
Interest Only Certificates..................................................S-5
Last Scheduled Distribution Date...........................................S-50
Liquidated Loan............................................................S-40
S-58
<PAGE>
Page
----
Liquidation Proceeds.......................................................S-34
Loan-to-Value Ratio........................................................S-18
Loans............................................................-1-, S-6, S-17
Mixed Use Loan...................................................-1-, S-6, S-17
Mixed Use Properties.......................................................S-14
Mortgage...................................................................S-25
Mortgage File..............................................................S-25
Mortgage Note..............................................................S-25
Mortgage Pool..........................................................-1-, S-5
Mortgage Rate..............................................................S-34
Net Interest Shortfall.....................................................S-34
Net Prepayment Interest Shortfall..........................................S-35
NMR........................................................................S-35
Non-Discount Loan..........................................................S-31
Non-PO Formula Principal Amount............................................S-35
Non-PO Percentage..........................................................S-35
Notional Amount............................................................S-31
Notional Amount Certificates................................................S-5
Offered Certificates.............................................-1-, S-4, S-31
OID..................................................................S-11, S-53
Original Applicable Credit Support Percentage..............................S-38
Original Subordinated Principal Balance....................................S-37
Permitted Investments......................................................S-32
Physical Certificates.......................................................S-5
Plan.................................................................S-11, S-55
PO Formula Principal Amount................................................S-39
PO Percentage..............................................................S-35
Pool Principal Balance.....................................................S-37
Prepayment Assumption......................................................S-54
Prepayment Interest Excess.................................................S-29
Prepayment Interest Shortfall..............................................S-35
Prepayment Period..........................................................S-34
Principal Only Certificates.................................................S-5
Prospectus .................................................................S-3
PTE 95-60 ................................................................S-56
Rating Agencies......................................................S-12, S-57
Realized Loss..............................................................S-40
Record Date................................................................S-33
Refinance Loan.............................................................S-18
Regular Certificates........................................................S-5
Relief Act Reduction.......................................................S-34
REMIC.................................................................S-3, S-11
REO Property...............................................................S-30
Replacement Loan...........................................................S-25
Residential Loan.................................................-1-, S-6, S-17
Residual Certificates.......................................................S-5
Restricted Classes.........................................................S-38
Scheduled Payments.........................................................S-18
Seller......................................................................S-3
S-59
<PAGE>
Page
----
Sellers................................................................S-3, S-6
Senior Certificates...................................................S-5, S-31
Senior Credit Support Depletion Date.......................................S-36
Senior Percentage..........................................................S-37
Senior Prepayment Percentage...............................................S-37
Senior Principal Distribution Amount.......................................S-36
Servicer....................................................................S-6
Servicing Fee Rate.........................................................S-29
SMMEA......................................................................S-11
SPA........................................................................S-41
Special Hazard Loan........................................................S-40
Special Hazard Loss Coverage Amount........................................S-52
Special Hazard Losses......................................................S-40
Stated Principal Balance...................................................S-37
Structuring Assumptions....................................................S-41
Subordinated Certificates.............................................S-5, S-31
Subordinated Percentage....................................................S-38
Subordinated Prepayment Percentage.........................................S-37
Subordinated Principal Distribution Amount.................................S-38
Substitution Adjustment Amount.............................................S-25
Tax Counsel................................................................S-53
Trustee.....................................................................S-6
Underwriter.................................................................-1-
Underwriter Exemption......................................................S-55
Unpaid Interest Amounts....................................................S-34
Variable Rate Certificates..................................................S-5
S-60
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus Supplement or the
Prospectus and, if given or made, such information or representations must not
be relied upon. 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, nor an offer of Offered Certificates in any state or
jurisdiction in which, or to any person to whom, such offer would be unlawful.
The delivery of this Prospectus Supplement or the Prospectus at any time does
not imply that the information contained herein or therein is correct as of any
time subsequent to its date; however, if any material change occurs while this
Prospectus Supplement or Prospectus is required by law to be delivered, this
Prospectus Supplement or the Prospectus will be amended or supplemented
accordingly.
_______________
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary of Terms...........................................................
Risk Factors...............................................................
The Mortgage Pool..........................................................
Servicing of Loans.........................................................
Description of the Certificates............................................
Yield, Prepayment and Maturity Considerations..............................
Credit Enhancement.........................................................
Use of Proceeds............................................................
Federal Income Tax Consequences............................................
ERISA Considerations.......................................................
Method of Distribution.....................................................
Legal Matters..............................................................
Ratings....................................................................
Index of Defined Terms.....................................................
PROSPECTUS
Prospectus Supplement or Current Report on Form 8-K........................
Available Information......................................................
Incorporation of Certain Document by Reference.............................
Reports to Securityholders.................................................
Summary of Terms...........................................................
Risk Factors...............................................................
The Trust Fund.............................................................
Use of Proceeds............................................................
The Depositor..............................................................
Loan Program...............................................................
Description of the Securities..............................................
Credit Enhancement.........................................................
Yield and Prepayment Considerations........................................
The Agreements.............................................................
Certain Legal Aspects of the Loans.........................................
Federal Income Tax Consequences............................................
State Tax Considerations...................................................
ERISA Considerations.......................................................
Legal Investment...........................................................
Method of Distribution.....................................................
Legal Matters..............................................................
Rating.....................................................................
Index of Defined Terms.....................................................
================================================================================
================================================================================
$[_____________]
(Approximate)
Mortgage Pass-Through
Certificates,
Series 199_ - _
Equity One ABS, Inc.
Depositor
Equity One, Inc.
Servicer
____________________
PROSPECTUS SUPPLEMENT
[_________, 199_]
____________________
================================================================================
S-61
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED [ ], 199[ ]
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 1997)
$-------------
EQUITY ONE MORTGAGE LOAN TRUST 199___
$___________ [] ASSET BACKED NOTES, SERIES 199_-_
$__________ [] ASSET BACKED CERTIFICATES, SERIES 199_-_
The Equity One Mortgage 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 Equity One ABS, Inc., (the "Depositor"),
________________ [and _____________], as owner trustee (the "Owner Trustee").
The Trust Fund will issue $___________ aggregate principal amount of [ ] 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 [ ] Asset Backed
Certificates, Series 199_-_ (the "Certificates" and, together with the Notes,
the "Securities"). See "Index of Defined Terms" on Page [ ] of this Prospectus
Supplement and on Page [ ] of the Prospectus for the location of the definitions
of certain capitalized terms.
The property of the Trust Fund will consist of a pool of the following
types of loans (collectively, the "Loans"): fixed rate and variable rate
mortgage loans secured by first and/or subordinate liens on (A) one- to
four-family residential properties, (each, a "Residential Loan") and (B) mixed
commercial/residential use properties (each, a "Mixed Use Loan"). [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 [ ].]
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 [ ] plus [___% 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 [ ] plus [___%
per annum] thereafter.
Payments of interest and principal on the Notes will have equal priority
with (and will be made pro rata with) payments of principal and interest 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 [ ] HEREIN AND ON PAGE [ ] IN THE
ACCOMPANYING PROSPECTUS.
--------------------
<PAGE>
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 [ ] (the
"Underwriter") from the Depositor and will, in each case, be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The 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 the
Underwriter'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, [Centrale de Livraison de Valeurs Mobilieres S.A. and
the Euroclear System] on or about _______, 199_. The Securities will be offered
in the United States [and Europe].
--------------------
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.
--------------------
Each Series of Securities offered hereby constitutes part of a separate
Series of asset backed securities being offered by the Underwriter from time to
time pursuant to the Prospectus dated ____________, 1997. This Prospectus
Supplement does not contain complete information about the offering of the
Securities. Additional information is contained in the Prospectus and investors
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.
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:__________.
--------------------
[UNDERWRITER]
_______________, 199_
S-2
<PAGE>
SUMMARY OF TERMS
This 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 [ ] of this Prospectus Supplement and on
Page [ ] of the Prospectus for the location of the definitions of certain
capitalized terms.
<TABLE>
<S> <C>
Title of Securities............................... [] Asset Backed Notes, Series 199__-__(the "Notes") and [ ]
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....................................... Equity One Mortgage Loan Trust 199_-_ (the "Trust Fund"
or the "Issuer"), a Delaware business trust established pur-
suant to the Trust Agreement (as defined herein), dated as of
___, 199_ (the "Cut-off Date"). The property of the Trust
Fund will consist of a pool of the following types of loans
(collectively, the "Loans"): fixed rate and variable rate
mortgage loans secured by first and/or subordinate liens on
(A) one- to four-family residential properties, (each, a
"Residential Loan") and (B) mixed commercial/residential use
properties (each, a "Mixed Use Loan"); the collections in
respect of the 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 [and/or other assets] that secured a Loan which has
been acquired by foreclosure, deed in lieu of foreclosure [or
realization upon a purchase money security interest]; [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 Loan as of the Cut-off Date (the "Cut-off Date Principal
Balance") plus any additions thereto as a result of new
advances, if any, made pursuant to the applicable Loan
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
S-3
<PAGE>
Loans as of such date. The "Principal Balance" of a Loan (other
than a Liquidated Loan) on any day is equal to its Cutoff Date
Principal Balance, plus (i) any Additional Balances in respect
of such Loan, minus (ii) all collections credited against the
Principal Balance of such Loan in accordance with the related
Loan Agreement prior to such day. The Principal Balance of a
Liquidated Loan after the final recovery of related Liquidation
Proceeds shall be zero. A "Liquidated Loan" is a defaulted Loan
as to which the Master Servicer has determined that all
recoverable liquidation and insurance proceeds have been
received.
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 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........................................ Equity One ABS, Inc. a Delaware corporation and a limited
purpose finance subsidiary of Equity One, Inc., a Delaware
corporation ("Equity One").
Master Servicer.................................. Equity One and, in its capacity as Master Servicer of the
Loans, the "Master Servicer." The Master Servicer will service
the 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 Loans........................................ The Loans are secured by first and/or subordinate liens on
Mortgaged Properties. The Loans were originated or
acquired in the normal course of business by Equity One, Inc.
and certain of its affiliates (in such capacity, collectively, the
"Sellers"). On the Closing Date, the Sellers will sell the
S-4
<PAGE>
Loans to the Depositor, pursuant to a purchase agreement (the
"Purchase Agreement"). The aggregate Principal Balance of the
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
Loans secured by Mortgaged Properties located in the states of
[__________, _________, _________, _______, ______ and
________] is approximately ____%, ____%, ____%, ____%, ____%
and ____%, respectively. The "Combined Loan-to-Value Ratio" of
each Loan is the ratio of (A) the sum of (i) the amount the
borrower borrowed under the applicable Loan Agreement and (ii)
the amounts of any related senior mortgage loans (computed as
of the date of origination of each such Loan) to (B) the lesser
of (i) with respect to Mortgaged Properties, (a) the appraised
value of the Mortgaged Property or (b) in the case of a
Mortgaged Property purchased within one year of the origination
of the related 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
Loans was approximately ____%.
Interest on each 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 Loan, the "Due Date"
is the ___ day of each month. The Cut-off Date Principal Balances
ranged from zero to $____ and averaged approximately $______ . Each Loan
was originated in the period from __________ __, 19__ to
__________ __, 19__. As of the Cut-off Date, approximately ___% of
the Cut-off Date Principal Balance of the Loans represented
[first liens on the related Mortgaged Properties, while
approximately ___% of the Loans represented subordinate liens.] As
of the Cut-off Date, the Loans had remaining terms to scheduled
maturity ranging from __ months to __ months and had a weighted
average of approximately __ months. See "The Loan Program" and
"Description of the Loans" herein.
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<PAGE>
Mortgaged Properties............................... [The real properties which secure repayment of the Loans and on
which Sellers have a first or subordinate lien.]
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 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 _______, ____. 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 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 Master 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 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 (with interest thereon) on the respective
Security Principal Balances of the Notes and the Certificates;
S-6
<PAGE>
(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 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 Liqui-
dated Loan, the unrecovered Principal Balance thereof at the
end of the related Collection Period in which such Loan became
a Liquidated Loan after giving effect to the Net Liquidation
Proceeds 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.
S-7
<PAGE>
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. ("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 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 depositories (collectively, the
"European Depositories")]. 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 depositories 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 Security representing such person's interest
("Definitive Security"), except in the event that Securities in
fully registered, certificated form 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 Securities
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--Consequences of Owning
Book-Entry Securities" herein.
E. Denominations ........................ The Securities will be issued in minimum denominations of
$[________] and integral multiples 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 Loan in
the Trust Fund. The 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 out-
standing Principal Balance and accrued and unpaid interest
thereon at the weighted average of the Loan Rates through the
S-8
<PAGE>
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.
[[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 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............................... Stradley, Ronon, Stevens & Young, LLP, special counsel to
the Depositor ("Tax Counsel"), is of the opinion that the
Trust Fund will not be an association (or a publicly traded
S-9
<PAGE>
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. 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 is of the opinion 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 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 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. 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............................. Generally, plans that are subject to the requirements of ERISA
and the Code are permitted to purchase instruments like the
Notes that are debt under applicable state law and have no
"substantial equity features" without reference to the
prohibited transaction requirements of ERISA and the Code. 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
S-10
<PAGE>
and the Code and the availability of any exemptions. Under
current law the purchase and holding of the Certificates by or
on behalf of any employee benefit plan (a "Plan") subject to
the fiduciary responsibility provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
may result in a "prohibited transaction" within the meaning of
ERISA and the Code or other violation of the fiduciary
responsibility provisions of ERISA and Section 4975 of the
Code. [Consequently, Certificates may not be transferred to a
proposed transferee that is a Plan subject to ERISA or that is
described in Section 4975(e)(1) of the Code, or a person acting
on behalf of any such Plan or using the assets of such plan
unless the Owner Trustee and the Depositor receive the opinion
of counsel reasonably satisfactory to the Owner Trustee and the
Depositor to the effect that the purchase and holding of such
Certificate will not result in the assets of the Trust Fund
being deemed to be "plan assets" for ERISA purposes and will
not be a prohibited transaction under ERISA or Section 4975 of
the Code.] See "ERISA Considerations" herein and in the
Prospectus.
Legal Investment................................ The Securities will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"), because some of
the liens securing the 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 risks associated with an investment in the
Securities, see "Risk Factors" on Page [ ] herein and on
Page [ ] in the Prospectus.
</TABLE>
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RISK FACTORS
Investors should consider the following risks in connection with the
purchase of the 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. See
"Description of the Securities--Book-Entry Securities" herein and "Risk
Factors--Book-Entry Registration" in the Prospectus.
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. See
"Description of the Securities--Book-Entry Securities" herein and "Risk
Factors--Book-Entry Registration" in the Prospectus.
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 DTC Participants 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 DTC
Participants. See "Description of the Securities--Book-Entry Securities" herein
and "Risk Factors--Book-Entry Registration" 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 Loans, substantial delay could be encountered in connection with the
liquidation of 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 Loans. In
the event any of the Mortgaged Properties fail to provide adequate security for
the related 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 Loans may be prepaid in whole or in part at any
time without penalty. 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 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 Loan. To the extent permitted by
applicable law, such assumption will not release the original borrower from its
obligation under any such Loan. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses" in the Prospectus for a description of certain
provisions of the Loan Agreements that may affect the prepayment experience on
the Loans. The yield to maturity and weighted average life of the Securities
will be affected primarily by the rate and timing of prepayments on the Loans.
Any reinvestment risks resulting from a faster or slower incidence of prepayment
of Loans will be borne entirely by the Securityholders.
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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 of the
[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-United States persons.
Legal Considerations--Lien Priority
The Loans are secured by [deeds of trust or mortgages (which are first
and/or subordinate liens). With respect to 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 Loan. Loans secured by second 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
proceeds from realization on the Mortgaged Properties] 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 [Equity One's]
long-term senior unsecured debt is rated at least "____" by ____ and "________"
by ______, the Master Servicer will be entitled to maintain possession of the
documentation relating to each Loan sold by it, [including the Loan Agreements]
and the Related Documents or other evidence of indebtedness signed by the
borrower, and the assignments of the related mortgages [and security interests]
to the Trust Fund will 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 [and security interests] 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 a Seller,
who may have been fraudulently or inadvertently induced to rely on the Loans as
assets of a Seller, or (ii) any purchaser of a Loan who had no notice of the
prior conveyance to the Trust Fund if such purchaser perfects his interest in
the 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 [such Seller].
Bankruptcy and Insolvency Risks
The sale of the Loans from the Sellers to the Depositor pursuant to the
Purchase Agreement will be treated as a sale of the Loans. Each Seller will
warrant that such transfer is either a sale of its interest in the Loans or a
grant of a first priority perfected security interest therein. In the event of a
bankruptcy or insolvency of a Seller, the bankruptcy trustee, a conservator, the
receiver of such Seller or another person may attempt to recharacterize the sale
of the Loans as a borrowing by such Seller secured by a pledge of the
S-13
<PAGE>
Loans. If the bankruptcy trustee, a conservator, the receiver of such Seller or
another person decided to challenge such transfer, delays in payments of the
Securities and possible reductions or eliminations in the amount thereof could
occur. The Depositor will warrant in the Trust Agreement that the sale, transfer
and assignment of its interest in the Loans to the Trust Fund is a valid sale,
transfer and assignment of such interest.
If a conservator, receiver of a Seller or trustee were appointed for a
Seller, or if certain other events relating to the bankruptcy or insolvency of a
Seller were to occur, Additional Balances would not be transferred by such
Seller to the Trust Fund. In such an event, an Event of Default under the Master
Servicing Agreement and Indenture would occur and the Owner Trustee would
attempt to sell the 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, a conservator or the receiver of the Master Servicer 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 Pool
Principal Balance) of the Mortgaged Properties are located in the State of
__________, approximately _____% (by Cut-off Date Pool Principal Balance) of the
Mortgaged Properties are located in the State of __________, approximately
_____% (by Cut-off Date Pool Principal Balance) of the Mortgaged Properties are
located in the State of __________ and 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 markets of
_____________, ________________, _______________ and _______________ could
adversely affect the values of the Mortgaged Properties securing such Loans such
that the Principal Balances of the related Loans could equal or exceed the value
of such Mortgaged Properties. As residential real estate markets are influenced
by many factors, including the general condition of the economy and interest
rates, no assurances may be given that the __________, __________, ___________
and ___________ residential real estate markets will not weaken. If the
__________, ____________, ____________ and ___________ residential real estate
markets should experience an overall decline in property values after the dates
of origination of the Loans, the rates of losses on the Loans would be expected
to increase, and could increase substantially.
[Master Servicer's Ability to Change the Terms of the Loans
The Master Servicer may agree to changes in the terms of a Loan
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 mortgage loans or prudent
business practice will not result in changes in the terms of the Loans.]
Delinquent Loans
The Trust Fund will include Loans which are __ or fewer days delinquent.
The Cut-off Date Principal Balance of such delinquent Loans was $______________.
For a discussion of additional risks pertaining to the Securities, see
"Risk Factors" in the Prospectus.
S-14
<PAGE>
THE TRUST FUND
General
The Issuer, Equity One Mortgage 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 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 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 the following: (i) each of
the Loans that are _________; (ii) collections on the Loans received after the
Cut-off Date; (iii) Mortgaged Properties pertaining to the related 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 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
sub-servicers. Notwithstanding any such sub-servicing 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
Loans. As of the Closing Date, the Master Servicer will service the Loans
without sub-servicing arrangements.
The Master Servicer
Equity One, Inc. ("Equity One"), a Delaware corporation and a wholly
owned operating subsidiary of Banco Popular, FSB, a federal savings bank with
principal offices in Newark, New Jersey, will act as Master Servicer for the
Loans pursuant to the Master Servicing Agreement. Equity One is engaged
primarily in the mortgage banking business, and as such, originates, purchases,
sells and services mortgage loans. Equity One originates mortgage loans through
a retail branch system and through mortgage loan brokers and
S-15
<PAGE>
correspondents nationwide. Equity One's mortgage loans are principally
first-lien, fixed or adjustable rate mortgage loans secured by Single-Family
Properties or Mixed Use Properties.
As of __________, 199_, Equity One provided servicing for approximately
$__________ million in Loans.
The principal executive offices of Equity One are located at 523
Fellowship Road, Suite 230, Mt. Laurel, New Jersey, 08054. Its telephone number
is (609) 273-1119. Equity One conducts operations from its headquarters in Mt.
Laurel and through affiliates, from offices throughout the nation.
THE LOAN PROGRAM
Underwriting Standards
The following is a description of the underwriting procedures customarily
employed by Sellers with respect to Loans.
Each Seller produces its Loans through its retail origination network of
loan officers and managers. Each Seller also produces Loans through a wholesale
network of mortgage brokers and other entities located throughout the United
States. Prior to the funding of any Loan, each Seller underwrites the related
Loan in accordance with the underwriting standards that have been established by
Equity One and are consistent with those utilized by mortgage lenders generally
during the period of origination for similar types of loans (the "Equity One
Standards").
The Equity One Standards are primarily intended to evaluate the value and
adequacy of the Mortgaged Property as collateral for the proposed Loan, but also
take into consideration the borrower's credit standing and repayment ability.
The Equity One Standards allow for the origination and purchase of Loans
generally under the following underwriting programs: (i) Grade A Credits, (ii)
Grade B Credits and (iii) Grade C Credits. See "Specific Underwriting Criteria;
Underwriting Programs" and "Summary of Underwriting Requirements by Program" in
the Prospectus. It is expected that Grade A Credits Loans will represent ___%,
Grade B Credits Loans will represent ___% and Grade C Credits Loans will
represent ___% of the Loans that will be property of the Trust Fund.
On a case by case basis, a Seller may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
specific criteria of Grade A Credits, Grade B Credits or Grade C Credits
warrants an underwriting exception. See "Specific Underwriting Criteria;
Underwriting Programs" in the Prospectus. Compensating factors may include
Loan-to-Value Ratio, Debt-to-Income Ratio, stable employment and time in the
same residence, but the Equity One Standards do not include any specific formula
or assign any specific weight to compensating factors for purposes of such
determinations. It is expected that some of the Loans that will be property of
the Trust Fund will have been originated based on such underwriting exceptions.
Under the Equity One Standards, Sellers must use either the Full Doc or
the NIV loan documentation program to verify a borrower's income. See "Specific
Underwriting Criteria; Underwriting Programs" in the Prospectus. It is expected
that ___% of the Loans that will be property of the Trust Fund will be
underwritten pursuant to the Full Doc program and that ___% of such Loans will
be underwritten pursuant to the NIV program.
The Equity One Standards require an independent appraisal of each
Mortgaged Property securing a Loan in excess of $15,000, which conforms to
Federal National Mortgage Corporation ("FNMA") standards.
S-16
<PAGE>
Each appraisal includes a market data analysis based on recent sales of
comparable homes in the area and, where deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home and generally
is required to have been made not earlier than ___ days prior to the date of
origination of the mortgage loan. Every independent appraisal is reviewed by a
representative of the related Seller before the loan is funded. The maximum loan
amount varies depending upon a borrower's credit grade but does not generally
exceed $500,000. Variations in maximum loan amount limits are permitted based on
compensating factors. Maximum loan amounts for Loans underwritten pursuant to
the NIV program generally do not exceed $300,000.
The Equity One Standards permit loans with Loan-to-Value Ratios at
origination of up to 90% depending on the program, type and use of the property,
creditworthiness of the borrower and Debt-to-Income Ratio. The maximum Combined
Loan-to-Value Ratio for purchase money mortgage loans, including any subordinate
mortgages or deeds of trust is 90%.
Title insurance is required on all Loans in excess of $15,000. Each
Seller also requires that fire and extended coverage casualty insurance be
maintained on the Mortgaged Property in an amount at least equal to the
principal balance or the replacement cost of the Mortgaged Property, whichever
is less.
Servicing of Loans
General. The Master Servicer will service the 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 sub-servicers. Notwithstanding any such sub-servicing 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 Loans. [As of the Closing Date, the Master Servicer will service
the Loans without sub-servicing arrangements.]
The information set forth in the following section through and including
the section captioned "Foreclosure, Delinquency and Loss Experience" has been
provided by Sellers.
Loan Servicing. Equity One services substantially all of the Loans
originated or acquired by the Sellers. Equity One has established standard
policies for the servicing and collection of Loans. Servicing includes, but is
not limited to, collecting and remitting Loan payments, accounting for principal
and interest, making inspections as required of the Mortgaged Properties,
preparation of tax related information in connection with the Loans, supervision
of delinquent Loans, loss mitigation efforts, foreclosure proceedings and, if
applicable, the disposition of Mortgaged Properties, and generally administering
the Loans, for which it receives servicing fees.
Coupon booklets are delivered to borrowers for making monthly payments.
Notice of changes in the applicable loan rate, if applicable, are provided by
Equity One to the mortgagor when appropriate.
Collection Procedures
When a mortgagor fails to make a payment on a Loan, each Seller attempts
to cause the deficiency to be cured by corresponding with the mortgagor. In most
cases, deficiencies are cured promptly. Pursuant to each Seller's servicing
procedures, each Seller 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. 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.
S-17
<PAGE>
Once foreclosure is initiated, 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 Seller determines the amount of the foreclosure bid
and whether to liquidate the Loan.
After foreclosure, the Seller 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 Seller.
Servicing and charge-off policies and collection practices may change
over time in accordance with, among other things, the business judgment of each
Seller, changes in the servicing portfolio and applicable laws and regulations.
Foreclosure, Delinquency and Loss Experience
The following table summarizes the delinquency and loss experience of the
Sellers' Loans at or for the years specified therein. A Loan is characterized as
delinquent if the borrower has not paid the minimum payment due by the due date.
The table below discloses delinquency percentages of Loans 60 days or more past
due on a contractual basis and excludes Loans where the Loan is in foreclosure
or the borrower has filed for bankruptcy. This information should not be
considered as a basis for assessing the likelihood, amount, or severity of
delinquency or losses on the 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 Loans.
S-18
<PAGE>
<TABLE>
<CAPTION>
Loss and Delinquency Tables
At or for the At or for the
Three Months Three Months
At or for the Year Ended November 30, Ended Ended
----------------------------------------------- March 31, March 31,
1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio Unpaid
Principal Balance (1) $ $ $ $ $
Average Portfolio
Unpaid $ $ $ $ $
Principal Balance
....
Period of
Delinquency (2)
60+ Days .... % % % % % %
Total Delinquencies % % % % % %
%
Total Credit Losses(3) % % % % %(4) %(4)
</TABLE>
(1) Portfolio Unpaid Principal Balance is the net amount of principal to
be paid on each Loan, excluding unearned finance charges and other
charges, and excludes the principal balance of each Loan as to which
the related Mortgaged Property has been previously acquired through
foreclosure.
(2) Delinquency percentages are calculated as the dollar amount of Loan
principal delinquent as a percent of the Portfolio Unpaid Principal
Balance. Delinquency percentages include the principal balance of all
Loans in foreclosure proceedings. Generally, all Loans in foreclosure
proceedings are 90 days or more delinquent. Delinquency percentages
do not include the principal balance of Loans which are real estate
owned.
(3) Total Credit Losses includes (a) charge-offs of principal, net of
subsequent recoveries, relating to Loans written off as uncollectible
or charge-offs relating to properties securing any Loans which have
been foreclosed upon and for which, in the opinion of management,
liquidation proceeds would not exceed estimated expenses of
liquidation plus the unpaid principal balance, (b) expenses
associated with maintaining, repairing, and selling foreclosed
properties and real estate owned, and (c) losses (gains) on the
disposition of foreclosed properties and real estate owned.
(4) Annualized.
[These tables do not include ________ 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 Loans has been transferred.]
As of ____________, 199_, ________ Loans with an aggregate principal
balance of $______________ were in foreclosure and, there were __________ Loans
in bankruptcy with a combined loan balance of $______________.
Historically, a variety of factors, including the appreciation of real
estate values, have limited the loss and delinquency experience on Loans. There
can be no assurance that factors beyond each Seller's control, such as national
or local economic conditions or downturn in the real estate markets of its
lending areas, will not result in increased rates of delinquencies and
foreclosure losses in the future.
S-19
<PAGE>
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 Seller may experience an increase in delinquencies on
the Loans serviced and higher net losses on Liquidated Loans.
DESCRIPTION OF THE LOANS
General
The property of the Trust Fund will consist of a pool of the following
types of loans (collectively, the "Loans"): mortgage loans secured by first
and/or subordinate liens on (A) one- to four-family residential properties,
(each, a "Residential Loan") and (B) mixed commercial/residential use properties
(each, a "Mixed Use Loan"). The Loans were originated pursuant to loan
agreements and disclosure statements (the "Loan Agreements"). The Mortgaged
Properties securing the Loans consist of []. See "--Loan Terms" below.
The Cut-off Date Pool Principal Balance is $______________, which is
equal to the aggregate Principal Balance of the Loans as of the Cut-off Date. As
of the Cut-off Date, the 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. The
remaining term to scheduled maturity for the 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 Loans ranged from ____% to ____% and the weighted
average Combined Loan-to-Value Ratio was __%. The Combined Loan-to-Value Ratio
for a Loan is the ratio (expressed as a percentage) of (A) the sum of (i) the
original principal balance of such Loan and (ii) any outstanding principal
balances of mortgage loans senior to such Loan (calculated at the date of
origination of the 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 Loan, the purchase price of such
Mortgaged Property. As of the Cut-off Date, approximately ___% by Cut-off Date
Principal Balance of the Loans represented first liens on the related Mortgaged
Properties, while approximately ___% of the Loans represented subordinate liens.
As of the Cut-off Date, approximately ___% of the 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.
Loan Terms
As of the Cut-off Date, the aggregate of the Principal Balances of the
Loans is expected to be approximately $_____ (the "Cut-off Date Pool Principal
Balance"). [The Loans provide for payment based on the amortization of the
amount financed over a series of substantially equal monthly payments, with
Balloon Payments due at the stated maturities of (i) 15 years, in the case of
Residential Loans and (ii) seven to ten years, in the case of Mixed Use Loans.
Loans with Balloon Payments may involve a greater degree of risk than loans
which are fully amortizing because the ability of a borrower to make a Balloon
Payment typically will depend upon the ability of the borrower to either timely
refinance the Loan or sell the related Mortgaged Property.] All the Loans
provide for payments due on a set day, but not necessarily the first day, of
each month (the "Due Date"). The Loans to be included in a pool were originated
or purchased by the Sellers and were originated substantially in accordance with
the Sellers' underwriting criteria for mortgage loans, described under "The Loan
Program--Underwriting Standards."
Scheduled monthly payments made by the mortgagors on the Loans 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. Any Loan may be prepaid in full or in part at any time without
penalty.
S-20
<PAGE>
Each Loan was originated after ________________________________.
The latest stated maturity date of any Loan is ____________________. The
earliest stated maturity date of any Loan is __________________________.
As of the Cut-off Date, no Loan was delinquent more than ___ days.
No Loan had a Loan-to-Value Ratio at origination of more than ___%.
Approximately __% of the Residential Loans had a Loan-to-Value Ratio at
origination of 90%. In general, the Mixed Use Loans had a Loan-to-Value Ratio at
origination of not more than 70%.
The "Loan-to-Value Ratio" of a Loan at any given time is equal to (i) the
principal balance of such Loan at the date of origination, divided by (ii) the
Collateral Value of the related Mortgaged Property. The "Combined Loan-to-Value
Ratio" of a Loan secured by a subordinate lien at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal balance
of such Loan and (b) the outstanding principal balance, at the date of
origination of such 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 senior 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 Mortgaged Property.
The "Collateral Value" of a Mortgaged 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 based on an appraisal made for the related Seller by an independent fee
appraiser at the time of the origination of the related Loan, and (b) if
applicable: (i) if the Loan was for the purpose of acquiring the Mortgaged
Property, the sales price of such Mortgaged Property at such time of origination
or (ii) if the Loan is secured by a lien on a Mortgaged Property purchased by
the borrower within one year of the origination of such Loan, the purchase price
of such Mortgaged Property. In the case of Refinance Loans, 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 Loans. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Loans become equal to or greater than the value of
the Mortgaged Properties, actual losses on the 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 Loans that will be property of
the Trust Fund. Other than with respect to rates of interest, percentages
(approximate) are stated by Principal Balance of the Loans as of the Cut-off
Date and have been rounded in order to total 100%.
S-21
<PAGE>
<TABLE>
<CAPTION>
Loan Tables
Loan Rates(1)
-----------------------------------
Number of Loans Aggregate Principal Balance
Loan Rates (%) Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.250....................... $ %
6.750.......................
6.875.......................
7.000.......................
7.125.......................
7.250.......................
7.375.......................
7.500.......................
7.625.......................
7.750.......................
7.875.......................
8.000.......................
8.125.......................
8.250.......................
8.375.......................
8.500.......................
8.625.......................
8.750.......................
8.875.......................
9.000.......................
9.125.......................
9.250.......................
9.375.......................
9.500.......................
9.875.......................
10.000.......................
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average Loan Rate of the Loans
(as so adjusted) is expected to be approximately ___%. Without such
adjustment, the weighted average Loan Rate of the Loans is expected
to be approximately ___% per annum.
S-22
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios(1)
---------------------------------------
Original Loan-to-Value Number of Loans Aggregate Principal Balance
Ratios (%) Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
50.00 and below.............. $ %
50.01 to 55.00...............
55.01 to 60.00...............
60.01 to 65.00...............
65.01 to 70.00...............
70.01 to 75.00...............
75.01 to 80.00...............
80.01 to 85.00...............
85.01 to 90.00...............
90.01 to 95.00...............
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
- -------------------
(1) The weighted average original Loan-to-Value Ratio of the Loans is
expected to be approximately ___%.
<TABLE>
<CAPTION>
Current Loan Principal Balances(1)
----------------------------------
Current Loan Amounts Number of Loans Aggregate Principal Balance
Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 0 - $ 50,000........ $ %
$ 50,001 - $ 100,000........
$100,001 - $ 150,000........
$150,001 - $ 200,000........
$200,001 - $ 250,000........
$250,001 - $ 300,000........
$300,001 - $ 350,000........
$350,001 - $ 400,000........
$400,001 - $ 450,000........
$450,001 - $ 500,000........
$500,001 - $ 550,000........
$550,001 - $ 600,000........
$600,001 - $ 650,000........
$650,001 - $ 750,000........
$750,001 - $1,000,000........
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
- -------------------
(1) As of the Cut-off Date, the average current Loan principal balance is
expected to be approximately $ .
<TABLE>
<CAPTION>
Documentation Program for Loans
---------------------------------------
Type of Program (1) Number of Loans Aggregate Principal Balance
Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Full Doc..................... $ %
NIV..........................
S-23
<PAGE>
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
- -------------------
(1) See "The Loan Program--Underwriting Standards" herein and "Loan
Program--Specific Underwriting Criteria; Underwriting Programs" in the
Prospectus.
<TABLE>
<CAPTION>
Type of Mortgaged Properties
--------------------------------------
Property Type Number of Loans Aggregate Principal Balance
Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Family................ $ %
Condominium..................
Mixed Use....................
Two- to Four-Family..........
Planned Unit Development.....
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
<TABLE>
<CAPTION>
Occupancy Types(1)
----------------------------------
Occupancy Type Number of Loans Aggregate Principal Balance
Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary Residence............ $ %
Investor Property............
Second Residence.............
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
- -------------------
(1) Based upon representations of the related mortgagors at the time of
origination.
S-24
<PAGE>
<TABLE>
<CAPTION>
State Distribution of Mortgaged Properties(1)
---------------------------------------------
State Number of Loans Aggregate Principal Balance
Outstanding Percent of 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 Loans will be
secured by Mortgaged Properties located in any one postal zip code
area.
<TABLE>
<CAPTION>
Purpose of Loans
----------------------------------
Loan Purpose Number of Loans Aggregate Principal Balance
Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase..................... $ %
Refinance (rate/term)........
Refinance (cash out).........
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
Remaining Terms to Maturity(1)
-----------------------------------------
Remaining Term to Maturity Number of Loans Aggregate Principal Balance
(Months) Outstanding Percent of Pool
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
180..........................
179..........................
178..........................
177..........................
176..........................
175..........................
174..........................
173..........................
172..........................
171..........................
170..........................
169..........................
168..........................
167..........................
166..........................
165..........................
164..........................
163..........................
162..........................
161..........................
160..........................
159..........................
158..........................
157..........................
156..........................
155..........................
154..........................
153..........................
152..........................
151..........................
150..........................
149..........................
148..........................
147..........................
146..........................
145..........................
144..........................
-- ----------- ------
Totals....................... $ 100.00%
-- ----------- ------
-- ----------- ------
</TABLE>
- -------------------
(1) As of the Cut-off Date, the weighted average remaining term to
maturity of the Loans is expected to be approximately ___ months.
Sale of Loans
At the time of issuance of the Securities, the Depositor will sell,
assign and transfer to the Trust Fund all of its right, title and interest in
and to each Loan (including its right to purchase any Additional Balances
arising in the future), related Loan Agreements, mortgages [, security
agreements] and other related documents (collectively, the "Related Documents"),
without recourse, including all collections received on or with respect to each
such Loan after the Cut-off Date (exclusive of payments in respect of accrued
interest due on or prior to the
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<PAGE>
Cut-off Date or due in the month of ______). The Owner Trustee, concurrently
with such transfer, will deliver the Securities. Each Loan sold, transferred and
assigned to the Trust Fund 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 Loan, as well as
information with respect to the Loan Rate.
The Purchase Agreement will permit each Seller to maintain
possession of the Related Documents and certain other documents relating to the
Loans (the "Mortgage Files") and the sale, transfer and assignment of the Loans
to the Owner Trustee will be filed of public record.
Within 90 days of on Assignment Event the Owner Trustee will review the
Loans and the Related Documents and if any 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 Loan and to deposit the
Repurchase Price into the Collection Account. Upon such retransfer, the
Principal Balance of such Loan will be deducted from the Pool Balance. In lieu
of any such repurchase, the Seller may substitute an Eligible Substitute Loan.
Any such repurchase or substitution will be considered a payment in full of such
Loan. The obligation of the Seller to accept a transfer of a Defective Loan is
the sole remedy regarding any defects in the Loans and Related Documents
available to the Owner Trustee or the holders.
With respect to any Loan, the "Repurchase Price" is equal to the
Principal Balance of such Loan at the time of any transfer described above plus
accrued and unpaid interest thereon to the date of repurchase.
An "Eligible Substitute Loan" is a Loan substituted by the Depositor
for a Defective 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
Loan for a Defective Loan, an aggregate outstanding Principal Balance) of not
__% more or less than the Transfer Deficiency relating to such Defective Loan;
(ii) have a Loan Rate not less than the Loan Rate of the Defective Loan and not
more than 1% in excess of the Loan Rate of such Defective Loan; (iii) have a
Loan Rate based on the same Index Rate with adjustments to such Loan Rate made
on the same Interest Rate Adjustment Date as that of the Defective Loan; (iv)
have a mortgage or security interest of the same or higher level of priority as
the mortgage or security interest relating to the Defective Loan; (v) 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 Loan; (vi)
comply with each representation and warranty as to the Loans set forth in the
Purchase Agreement (deemed to be made as of the date of substitution); (vii) in
general, have an original Combined Loan-to-Value Ratio not greater than that of
the Defective Loans; and (viii) satisfy certain other conditions specified in
the Purchase Agreement. To the extent the Principal Balance of an Eligible
Substitute Loan is less than the Principal Balance of the related Defective
Loan, the Seller will be required to make a deposit to the Collection Account
equal to such difference.
Each 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 Loan (e.g., Cut-off Date Principal Balance and the
Loan Rate). In addition, each Seller will represent and warrant on the Closing
Date that at the time of transfer to the Depositor, such Seller has sold,
transferred and assigned all of its right, title and interest in each 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 Loan and Related Documents, such
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, such
Seller will be obligated to repurchase or substitute the Defective Loan from the
Trust Fund. The same procedure and limitations that are set forth above for the
repurchase or substitution of Defective Loans will apply to the transfer of a
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.
Loans required to be transferred to the Seller as described in the
preceding paragraphs are referred to as "Defective Loans."
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<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
All of the Loans may be prepaid in full or in part at any time. The
prepayment experience with respect to the Loans will affect the weighted average
life of the Securities.
The rate of prepayment on the 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 loans similar to the Loans. The
prepayment experience of the Trust Fund with respect to the Loans may be
affected 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 Loan
Rates on the Loans, the Loans could be subject to higher prepayment rates than
if prevailing interest rates were to remain at or above the Loan Rates on the
Loans. Conversely, if prevailing interest rates were to rise significantly, the
rate of prepayments on the Loans would generally be expected to decrease. No
assurances can be given as to the rate of prepayments on the Loans in stable or
changing interest rate environments. Substantially all of the Loans contain
due-on-sale provisions and 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 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 Loans is actually different than the rate anticipated
by such investor at the time such Securities were purchased.
Collections on the Loans may vary due to, among other things, the
seasonal purchasing and payment habits of borrowers. In addition, It is possible
that borrowers may fail to make scheduled payments.
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 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 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 Master 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 (each, a "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 ("FDIC") 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) an
account that is otherwise acceptable to each Rating Agency as evidenced by a
S-28
<PAGE>
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 Master 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 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; (v) 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; (vi) 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; (vii) 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; (viii) 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 (ix) 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 an Eligible 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 Loans will generally be allocated in accordance
with the Loan 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 Loan
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 Loan Agreements and (ii) any [Substitution Adjustment Amounts].
"Net Liquidation Proceeds" with respect to a Loan are equal to the aggregate of
all amounts received upon liquidation of such 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
Loan at the end of the Collection Period immediately preceding the Collection
Period in which such Loan became a Liquidated Loan plus accrued and unpaid
interest thereon through the date of liquidation.
S-29
<PAGE>
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Loans as of such date. The Principal
Balance of a Loan (other than a Liquidated Loan) on any day is equal to the
Cut-off Date Principal Balance thereof, plus (i) any Additional Balances in
respect of such Loan minus (ii) all collections credited against the Principal
Balance of such Loan in accordance with the related Loan Agreement prior to such
day. The Principal Balance of a Liquidated 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
Loans. While the terms of the related Loan 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 Loan acquired upon foreclosure of a
Loan, by deed in lieu of such foreclosure [or upon realization of a security
interest], 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 Loan plus the outstanding balance on any mortgage
loan senior to such Loan at the time of foreclosure, deed in lieu of foreclosure
[or realization upon the security interest], plus accrued interest and the
Master Servicer's good faith estimate of the related 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 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 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 Loans
The Master Servicer will foreclose upon or otherwise comparably convert
to ownership Mortgaged Properties securing such of the 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 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 Securityholders or the [related Seller].
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 Loan a portion of such interest collections as a monthly Servicing
S-30
<PAGE>
Fee in the amount equal to ___% per annum ("Servicing Fee Rate") on the
aggregate Principal Balances of the 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 Master 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 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.
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 freely transferrable 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 Securities will be initially issued in book-entry form (the
"Book-Entry Securities"). Persons acquiring beneficial ownership interests in
the Book-Entry Securities ("Beneficial 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 depositories
which in turn will hold such positions in customers' securities accounts in the
depositories' names on the books of DTC. [Citibank will act as depository for
CEDEL and Chase will act as depository for Euroclear (in such capacities,
individually the "Relevant Depository" and collectively the "European
Depositories").] Investors may hold such beneficial interests in the Book-Entry
Securities in minimum denominations representing Security Principal Balances of
$1,000 and in integral multiples in excess thereof. Except as described below,
no person acquiring a Book-Entry Security will be entitled to receive a physical
certificate representing such Security (a "Definitive Security"). Unless and
until Definitive Securities are issued, it is anticipated that the only
"Securityholder" of the Book-Entry Securities will be Cede & Co., as nominee of
DTC. Beneficial Owners will not be Securityholders as that term is used in the
Agreements. Beneficial Owners are only permitted to exercise their rights
indirectly through DTC participants and DTC.
Distributions
On each Distribution Date, collections on the 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;
S-31
<PAGE>
(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 Loans;
(v) as payment for the premium for the [Letter of Credit][Surety Bond];
(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 Loan,
the unrecovered Principal Balance thereof at the end of the Collection Period in
which such Loan became a Liquidated 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 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 Loan in the Trust Fund. The 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 $ (5% 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
Equity One ABS, Inc., the Depositor, is a Delaware corporation
organized in March of 1997 for the limited purpose of acquiring, owning and
transferring Trust Assets and selling interests therein or bonds secured
thereby. The Depositor is a limited purpose wholly owned finance subsidiary of
Equity One. The Depositor maintains its principal office at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19810. Its telephone number
is (302) 478-6160.
S-32
<PAGE>
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 description 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.
Events of Default; Rights Upon Event of Default
With respect to the Notes, "Events of Default" under the Indenture will
consist of the following: (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
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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.
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
Noteholder 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
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or change any place of payment where or the coin or currency in which any Note
or any 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 description 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 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
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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 such
holders.
Insolvency Event
"Insolvency Event" means, with respect to any person, any of the
following events or actions; certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such person and certain actions by such person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations. 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 Loans will be treated as collections on the 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 Loans.
FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion, which summarizes the material United States
federal income tax aspects of the purchase, ownership and disposition of the
Notes and Certificates, is based on the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
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 United States federal income tax
laws which may be relevant to Noteholders and Certificateholders in light of
their personal investment circumstances or to certain types of
Certificateholders subject to special treatment under the United States federal
income tax laws (for example, tax exempt investors, banks and life insurance
companies). Accordingly, investors should consult their tax advisors regarding
United States 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
Stradley, Ronon, Stevens & Young, LLP, special counsel to the Depositor
("Tax Counsel"), is of the opinion 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 was 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
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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.
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. 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 is of the opinion 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 Noteholder 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 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 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. 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 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 United States 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
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corresponding federal tax law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Securities offered hereunder.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and Section 4975 of the Code impose certain restrictions on employee
benefit plans subject to ERISA or plans or arrangements subject to Section 4975
of the Code ("Plans") and on persons who are parties in interest or disqualified
persons ("Parties in Interest") with respect to such Plans. 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. Any Plan fiduciary which proposes to cause a
Plan to acquire any of the Securities should consult with its counsel with
respect to the potential consequences under ERISA, and the Code, of the Plan's
acquisition and ownership of the Securities. See "ERISA Considerations" in the
Prospectus. Investments by Plans are also subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Prohibited Transactions
General
Section 406 of ERISA prohibits Parties in Interest with respect to a
Plan from engaging in certain transactions (including loans) involving a Plan
and its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
Parties in Interest which engage in non-exempt prohibited transactions.
Plan Asset Regulation
The United States Department of Labor ("DOL") has issued final
regulations concerning the definition of what constitutes the assets of a Plan
for purposes of ERISA and the prohibited transaction provisions of the Code (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" (as defined therein) 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 investor unless
certain exceptions apply. If the [Notes/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. 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 Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA, and Section 4975 of the Code
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, 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, DOL
declined to provide a precise
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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. Stradley, Ronon, Stevens & Young, LLP ("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
DOL has granted to [ ] (the "Underwriter") an administrative exemption
(Prohibited Transaction Exemption _____ (the "Exemption")) which exempts from
the application of the prohibited transaction rules of ERISA and the related
excise tax provisions of Section 4975 of the Code transactions relating to (i)
the acquisition, sale and holding by Plans of certificates representing an
undivided interest in certain asset backed pass-through trusts with respect to
which the Underwriter or any of its affiliates is the sole underwriter or the
manager or co-manager of the underwriting syndicate; and (ii) the servicing,
operation and management of such asset backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied. The Exemption will apply to the acquisition, holding and resale
of the Certificates by a Plan provided that certain conditions (some of which
are described below) are met.
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 the Certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) the rights and interest evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other Certificates of the trust;
(3) the Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Moody's Investors Service, Inc, Duff & Phelps Credit
Rating Co. or Fitch Investors Service, Inc.;
(4) the trustee must not be an affiliate of the Underwriter, the
Trustee, any Master Servicer, any obligor with respect to assets held in
the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund;
(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 the Certificates; the sum of
all payments made to and retain by the Issuer pursuant to the assignment of
the Loans to the Trust Fund represents not more than the fair market value
of such Loans; the sum of all payments made to and retained by the servicer
represents not more than reasonable compensation for such person's services
under a master 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, as amended.
The Underwriter believes that the Exemption will apply to the
acquisition and holding of the Certificates by Plans and that all conditions of
the Exemption other than those within the control of the investors will be met.
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Review by Plan Fiduciaries
Any Plan fiduciary considering whether to purchase any Securities on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Securities, a fiduciary of a Plan should make its own determination as to
whether the Trust Fund, as obligor on the Securities, is a party in interest
with respect to the Plan, the availability of the exemptive relief provided in
the Plan Asset Regulations and the availability of any other prohibited
transaction exemptions. Purchasers should analyze whether the decision may have
an impact with respect to purchases of the Securities.
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 between the Depositor and [ ] (the "Underwriting Agreement"), the
Depositor has agreed to sell to [ ] (the "Underwriter"), and the Underwriter has
agreed to purchase from the Depositor, the Securities. The Underwriter is
obligated to purchase all the Securities offered hereby if any are purchased.
Distribution of the Securities will be made by the Underwriter from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the Depositor are expected to be $________________
from the sale of the Notes and $___________ from the sale of the Certificates,
before deducting expenses payable by the Depositor of $_________. In connection
with the purchase and sale of the Securities, the Underwriter may be deemed to
have received compensation from the Depositor in the form of underwriting
discounts, concessions or commissions.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof. The Depositor is an affiliate of the Underwriter.
The Underwriter is an affiliate of the Depositor.
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed
upon for the Depositor by Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
Pennsylvania and for the Underwriter by
- -----------------------------.
RATINGS
It is a condition to issuance that each class of the Notes be rated be
rated not lower than "_________" by [ ] and _______ by [ ]. It is a condition to
issuance that the Certificates be rated at least "___" by [ ] and "___" by [ ].
A securities rating addresses the likelihood of the receipt by
Certificateholders and Noteholders of distributions on the Loans. The rating
takes into consideration the structural, legal and tax aspects associated with
the Certificates and Notes. The ratings on the Securities do not, however,
constitute statements regarding the possibility that Certificateholders or
Noteholders might realize a lower than anticipated yield. A securities rating
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is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organization. Each
securities rating should be evaluated independently of similar ratings on
different securities.
[The ratings assigned by Duff & Phelps Credit Rating Co. ("DCR") to
securities address the likelihood of the receipt by the holders of such
securities of all distributions to which they are entitled under the transaction
structure. DCR's ratings reflect its analysis of the riskiness of the mortgages
and its analysis of the structure of the transaction as set forth in the
operative documents. DCR's ratings do not address the effect on yield on the
securities attributable to prepayments or recoveries on the underlying assets.]
[The ratings assigned by Fitch Investors Service, L.P. ("Fitch") to
securities address the likelihood of the receipt of all distributions on the
assets by the related holders of securities under the agreements pursuant to
which such securities are issued. Fitch's ratings take into consideration the
credit quality of the related pool, including any credit support providers,
structural and legal aspects associated with such securities, and the extent to
which the payment stream on the pool is adequate to make the payments required
by such securities. Fitch ratings on such securities do not, however, constitute
a statement regarding frequency of prepayments of the assets.]
[The ratings assigned by Moody's Investors Service, Inc. ("Moody's") to
securities address the likelihood of the receipt by holders of securities of all
distributions to which such holders of securities are entitled. Moody's ratings
on securities do not represent any assessment of the likelihood or rate of
principal prepayments. The ratings do not address the possibility that holders
of securities might suffer a lower than anticipated yield as a result of
prepayments.]
[The ratings assigned by Standard & Poor's Ratings Group, a Division of
The McGraw-Hill Companies ("Standard & Poor's"), to securities address the
likelihood of the receipt of all distributions on the assets by the related
holders of securities under the agreements pursuant to which such securities are
issued. Standard & Poor's ratings take into consideration the credit quality of
the related pool, including any credit support providers, structural and legal
aspects associated with such securities, and the extent to which the payment
stream on such pool is adequate to make payments required by such securities.
Standard & Poor's ratings on such certificates do not, however, constitute a
statement regarding frequency of prepayments on the related assets. The letter
"r" attached to a Standard & Poor's rating highlights derivative, hybrid and
certain other types of securities that Standard & Poor's believes may experience
high volatility or high variability in expected returns due to non-credit risks.
The absence of an "r" symbol in the rating of a class of securities should not
be taken as an indication that such securities will exhibit no volatility or
variability in total return.]
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.
S-42
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Additional Balances.....................................................S-3
Administrator..........................................................S-37
Agreement..............................................................S-31
Beneficial Owners......................................................S-31
BIF....................................................................S-28
Book-Entry Securities.............................................S-8, S-31
Business Day............................................................S-6
Cede....................................................................S-8
CEDEL...................................................................S-8
Certificate Insurer.....................................................S-1
Certificates.......................................................S-1, S-3
Chase...................................................................S-8
Citibank................................................................S-8
Code...................................................................S-37
Collateral Value.......................................................S-21
Collection Account................................................S-6, S-28
Collection Period.................................................S-7, S-32
Collections.............................................................S-6
Combined Loan-to-Value Ratio......................................S-5, S-21
Cut-off Date............................................................S-3
Cut-off Date Pool Principal Balance...............................S-5, S-20
Cut-off Date Principal Balance..........................................S-3
DCR....................................................................S-42
Defective Loans........................................................S-27
Definitive Security...............................................S-8, S-31
Depositor...............................................................S-1
Determination Date................................................S-4, S-28
Distribution Date.......................................................S-1
DTC...............................................................S-8, S-31
Due Date..........................................................S-5, S-20
Eligible Account.......................................................S-28
Eligible Investments...................................................S-29
Eligible Substitute Loan...............................................S-27
Equity One.............................................................S-15
Equity One Standards...................................................S-16
ERISA............................................................S-11, S-39
ERISA Counsel..........................................................S-40
Euroclear...............................................................S-8
European Depositories..................................................S-31
Events of Default......................................................S-33
Exemption..............................................................S-40
Fitch..................................................................S-42
FNMA...................................................................S-16
Indenture..........................................................S-1, S-4
Indenture Trustee..................................................S-1, S-4
Insolvency Event.......................................................S-36
Interest Accrual Period...........................................S-7, S-32
Interest Collections....................................................S-6
Issuer..................................................................S-3
Liquidated Loan.........................................................S-4
Liquidation Loss Amount.................................................S-7
Loan Agreements........................................................S-20
Loan Rate...............................................................S-5
S-43
<PAGE>
Page
----
Loan-to-Value Ratio....................................................S-21
Loans .......................................................S-1, S-3, S-20
Master Servicer.........................................................S-4
Mixed Use Loan...............................................S-1, S-3, S-20
Moody's................................................................S-42
Mortgage Files.........................................................S-27
Net Liquidation Proceeds...............................................S-29
Note Rate....................................................S-1, S-7, S-32
Noteholders.............................................................S-4
Notes..............................................................S-1, S-3
OID..............................................................S-10, S-38
Owner Trustee .....................................................S-1, S-4
Pass-Through Rate............................................S-1, S-7, S-32
Plan.............................................................S-11, S-39
Plan Asset Regulation..................................................S-39
Policy.............................................................S-1, S-3
Pool Balance......................................................S-3, S-30
Principal Balance.......................................................S-4
Principal Collections.............................................S-6, S-29
Purchase Agreement......................................................S-5
Rating Agency .........................................................S-11
Refinance Loan.........................................................S-21
Related Documents......................................................S-26
Relevant Depository....................................................S-31
Repurchase Price.......................................................S-27
Residential Loan.............................................S-1, S-3, S-20
SAIF...................................................................S-28
Securities.........................................................S-1, S-3
Security Account.......................................................S-28
Security Principal Balance..............................................S-6
Sellers.................................................................S-4
Servicing Fee Rate.....................................................S-31
SMMEA..................................................................S-11
Standard & Poor's......................................................S-42
Tax Counsel.......................................................S-9, S-37
Trust Agreement....................................................S-1, S-4
Trust Fund.........................................................S-1, S-3
Underwriter.................................................S-2, S-40, S-41
Underwriting Agreement.................................................S-41
Voting Interests.......................................................S-36
S-44
<PAGE>
Page
----
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR THE UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
[to be completed]
PROSPECTUS
[to be completed]
$______________
EQUITY ONE MORTGAGE
LOAN
TRUST 199___
$______ [] ASSET BACKED
NOTES
$______ [] ASSET BACKED
CERTIFICATES
EQUITY ONE ABS, INC.
(Depositor)
S-45
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY ___, 1997
PROSPECTUS
EQUITY ONE ABS, INC.
Depositor
$325,000,000
(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 Equity One ABS, 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
certain assets (the "Trust Fund Assets") which will consist of the following
types of loans (the "Loans"): (i) mortgage loans secured by first and/or
subordinate liens on (A) one- to four-family residential properties (each, a
"Residential Loan") and (B) mixed commercial/residential use properties (each, a
"Mixed Use Loan" and, together with the Residential Loans, the "Mortgage
Loans"), (ii) revolving home equity loans or certain balances thereof (the
"Revolving Credit Line Loans") secured by first and/or subordinate liens on one-
to four-family residential properties and (iii) home improvement installment
sales contracts and installment loan agreements (collectively, the "Home
Improvement Contracts") that are either unsecured or secured by first and/or
subordinate liens on one- to four-family residential properties or by purchase
money security interests in the home improvements financed thereby
(collectively, the "Home Improvements"). 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. Trust Fund Assets 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 100 of this Prospectus for the
location of the definitions of certain capitalized terms.
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. The only obligations of the Depositor with respect
to a Series of Securities will be to obtain certain representations and
warranties from each Seller 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 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 "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."
------------
FOR A DISCUSSION OF RISKS ASSOCIATED WITH AN INVESTMENT IN THE SECURITIES,
SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 14.
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,
THE 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.
------------
It is not expected that the Securities for any transaction contemplated
under this Prospectus will be listed on a national securities exchange or that
such Securities would be quoted on an automated quotation system of a registered
securities association. In addition, prior to issuance there will have been no
market for the Securities of any Series. Accordingly, 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. This Prospectus may not be used to consummate sales of
Securities of any Series unless accompanied by a Prospectus Supplement. Offers
of the Securities may be made through one or more different methods, including
offerings through underwriters, as more fully described under "Method of
Distribution" herein and in the related Prospectus Supplement.
[ ], 1997
<PAGE>
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.
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 Sellers, the 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 (the "Securities Act"), 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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
2
<PAGE>
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 constitute a part of this
Prospectus. Neither the Depositor nor the 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). Additionally, the Trustee will provide a copy of
the Agreement (without exhibits) relating to any Series without charge upon
written request of a holder of record of a Security of such Series. 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.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a Series
of Securities will be forwarded to Securityholders. Unless and until the
Securities are issued in definitive certificated form, periodic reports
concerning the assets of the related Trust Fund for a Series of Securities will
be forwarded to Cede & Co. ("Cede") as nominee of The Depository Trust Company
("DTC") and registered Securityholder of such Securities. Cede will make such
reports available to the persons holding beneficial ownership of such Securities
("Beneficial Owners") upon request. See "Description of the Securities--Reports
to Securityholders." Any reports forwarded to Securityholders will not contain
financial information that has been examined and reported upon by, with an
opinion expressed by, an independent public or certified public accountant. The
Depositor will file with the Commission such periodic reports with respect to
the related Trust Fund as are required under the Exchange Act, as amended, and
the rules and regulations of the Commission thereunder.
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary of certain pertinent information 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 100 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.
Issuer................ With respect to each Series of Securities, the trust
("Trust Fund") to be formed pursuant to either a trust
agreement or a pooling and servicing agreement.
Depositor............. Equity One ABS, Inc., a Delaware corporation. Equity One
ABS, Inc. is a limited purpose wholly owned finance
subsidiary of Equity One, Inc., a Delaware Corporation
("Equity One"). Equity One is a wholly owned operating
subsidiary of Banco Popular, FSB, a federal savings bank
with principal offices in Newark, New Jersey (the
"Bank"), which in turn in an indirect wholly owned
subsidiary of Popular, Inc., a diversified, publicly
owned bank holding company incorporated under the
General Corporation Law of Puerto Rico ("Popular").
Trustee............... The trustee(s) (the "Trustee") for each Series of
Securities will be specified in the related Prospectus
Supplement. See "The Agreements" for a description of
the Trustee's rights and obligations.
Servicer.............. The entity or entities named as Servicer (the
"Servicer") in the related Prospectus Supplement, which
may be an affiliate of the Depositor. See "The
Agreements--Certain Matters Regarding the Servicer and
the Depositor."
Trust Fund Assets..... Assets of the Trust Fund for a Series of Securities will
include certain assets (the "Trust Fund Assets") which
will consist of the Loans, together with payments in
respect of such Trust Fund Assets, as specified in the
related Prospectus Supplement. At the time of issuance
of the Securities of the Series, the Depositor will
cause the Loans comprising the related Trust Fund to be
conveyed to the Trustee, without recourse. The Loans
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").
Trust Fund Assets 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 "Credit
Enhancement." In addition, if the related Prospectus
Supplement so provides, the related Trust Fund Assets
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."
Pre-Funding Account... If so provided in the related Prospectus Supplement, on
the Closing Date the Depositor will deposit cash in an
amount (the "Pre-Funded Amount") specified in such
Prospectus Supplement into the Pre-Funding Account. The
Pre-Funded Amount may comprise up to 50% 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 one year after such
Closing Date (such period, the "Funding Period") from
the Depositor. See "Risk Factors--Pre-Funding Account
and Possibility of Prepayment" and "The Agreements--
Pre-Funding Account."
Loans................. The Loans will consist of (i) mortgage loans secured by
first and/or subordinate liens on (A) one- to
four-family residential properties (each, a "Residential
Loan") and (B) mixed commercial/residential use
properties (each, a "Mixed Use Loan" and, together with
the Residential Loans, the "Mortgage Loans"),
(ii) revolving home equity loans or certain balances
thereof (the "Revolving Credit Line Loans")
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
secured by first and/or subordinate liens on one- to
four-family residential properties and (iii) home
improvement installment sales contracts and installment
loan agreements (collectively, the "Home Improvement
Contracts") that are either unsecured or secured by
first and/or subordinate liens on one- to four-family
residential properties, or by purchase money security
interests in the home improvements financed thereby
(collectively, the "Home Improvements"). All Loans will
have been purchased by the Depositor, either directly or
through an affiliate, from one or more Sellers. The
Sellers will have either originated the Loans or
purchased the Loans from other lenders.
As specified in the related Prospectus Supplement, the
Revolving Credit Line Loans will, and the Home
Improvement Contracts may, be secured by mortgages or
deeds of trust or other similar security instruments
creating a lien on a Mortgaged Property, as described in
the related Prospectus Supplement. As specified in the
related Prospectus Supplement, Home Improvement
Contracts may be unsecured or secured by purchase money
security interests in the Home Improvements financed
thereby. The Mortgaged Properties and the Home
Improvements are collectively referred to herein as the
"Properties."
Balloon 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
at their stated maturity ("Balloon Payments"). See "Risk
Factors--Balloon Payments and Risk of Losses."
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 Servicer and the 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 subordinated 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; (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 fixed rate or a rate that is subject to
change from time to time; and (vii) as to Securities
entitled to distributions allocable
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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.
No Exchange Listing... It is not expected that the Securities for any
transaction contemplated under this Prospectus will be
listed on a national securities exchange or that such
Securities would be quoted on an automated quotation
system of a registered securities association.
Form and Registration
of the Securities..... If so specified in the related Prospectus Supplement,
the Securities will be available in book-entry form.
Persons acquiring beneficial ownership interest in the
Securities ("Beneficial Owners") will hold such
Securities through the book-entry facilities of The
Depository Trust Company ("DTC"). Transfers within DTC
will be made in accordance with the usual rules and
operating procedures of DTC. So long as each class of
Securities is in book-entry form, each such class will
be evidenced by one or more certificates registered in
the name of Cede & Co. ("Cede"), the nominee of DTC. The
interests of the Beneficial Owners will be represented
by book-entries on the records of DTC and participating
members thereof. No Beneficial Owner will be entitled to
receive a definitive certificate representing such
person's interest, except in the event that Definitive
Securities are issued under the limited circumstances
described herein. All references in this Prospectus to
any class of Securities reflect the rights of the
Beneficial Owners of such class only as such rights may
be exercised through DTC and its participating members
so long as such class of Securities is held by DTC. See
"Risk Factors--Book Entry Registration" and "Description
of the Securities--Book Entry Registration of
Securities."
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 for
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 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,
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
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will be determined based on the characteristics of the
Loans comprising the Trust Fund Assets 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; or (iii) a combination of clauses (i) and
(ii) above. 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 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 losses resulting
from delinquent payments on the Loans in the related
Trust Fund, losses from risks not covered by standard
hazard insurance policies, losses due to bankruptcy
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of a borrower and application of certain provisions of
the Bankruptcy Reform Act of 1978, as amended, and
related rules promulgated thereunder (the "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 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.
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G. FHA Insurance....... If specified in the related Prospectus Supplement, all
or a portion of the Loans in a Pool 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 of the forms of credit
enhancement described in this Prospectus 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
enhancement relates and the manner of determining the
amount of coverage provided to such Trust Funds thereby
and of the application of such coverage to the
identified Trust Funds. See "Credit
Enhancement--Cross-Collateralization."
Advances.............. The Servicer and, if applicable, each mortgage servicing
institution that services a Loan in a Pool on behalf of
the Servicer (each, a "Sub-Servicer") may be obligated
to advance amounts (each, an "Advance") corresponding to
delinquent interest and/or principal payments on such
Loan 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 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 Servicer or Sub-Servicer. See "Description of the
Securities--Advances."
Optional Termination.. The 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
Servicer will
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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 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 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.
The early retirement of a Series of Securities will
result in premature distributions of principal amounts
on such Securities and, as such, may reduce the yields
to maturity and weighted averaged lives of such
Securities. See "Risk Factors--Prepayment and Yield
Considerations" and "Yield and Prepayment
Considerations." The foregoing is subject to the
provision that if a REMIC election is made with respect
to a Trust Fund, any such purchase will be made only in
connection with a "qualified liquidation" of the REMIC
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, as amended ("SMMEA"). Classes
of Securities 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.
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In the opinion of Stradley, Ronon, Stevens & Young, LLP,
if a REMIC election is made with respect to a Series of
Securities, then 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. Securities will be
designated as "regular interests" or "residual
interests" in a REMIC. 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.
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. The portion of the REMIC taxable income
consisting of "excess inclusions" may not be offset
against other deductions or losses of the holder,
including net operating losses.
In the opinion of Stradley, Ronon, Stevens & Young, LLP,
if a REMIC or a partnership election is not made with
respect to a Series of Securities, then 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, there will be no separation of the
principal and interest payments on the Loans. In such
circumstances, the holder will be considered to have
purchased a pro rata undivided interest in each of the
Loans. In other cases, 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.
In the opinion of Stradley, Ronon, Stevens & Young, LLP,
if a partnership election is made, 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
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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.
Certain classes of Securities may be issued with OID. A
holder should be aware that the Code and the regulations
promulgated by the United States Department of the
Treasury (the "Treasury") under the Code do not
adequately address certain issues relevant to prepayable
securities, such as the Securities.
The Securities will be, or, in the case of Certificates
issued by a Trust Fund electing to be treated as a
partnership, should be treated as assets described in
section 7701(a)(19)(C) of the Code and as real estate
assets described in section 856(c) of the Code.
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."
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
and related consent of Stradley, Ronon, Stevens & Young,
LLP with respect to the validity of the information set
forth under "Federal Income Tax Consequences" herein and
in the related Prospectus Supplement.
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.
See "ERISA Considerations." 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 of ERISA and the Code
and will not subject the Trustee, the Depositor or the
Servicer to additional obligations. See "Description of
the Securities--General" and "ERISA Considerations."
Risk Factors.......... For a discussion of risks associated with an investment
in the Securities, see "Risk Factors" on Page 14 herein
and in the related Prospectus Supplement.
Ratings............... It is a condition precedent to the issuance of any class
of Securities sold under this Prospectus that they be
rated in one of the four highest rating categories
(within which there may be subcategories or gradations
indicating relative standing) of at least one nationally
recognized statistical rating organization. A security
rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal
at any time by the assigning rating agency.
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Ratings of the Securities address the likelihood of the
receipt of all distributions on the Loans by the related
Securityholders under the agreements pursuant to which
such Securities are issued. The ratings take into
consideration the credit quality of the related Trust
Fund Assets, including any credit enhancement,
structural and legal aspects associated with such
Securities, and the extent to which the payment stream
on such Trust Fund Assets is adequate to make payments
required by such Securities. The ratings on such
Securities do not, however, constitute a statement
regarding frequency of prepayments on the related Loans.
See "Risk Factors--Rating of the Securities" and
"Rating."
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RISK FACTORS
Investors should consider the following factors in connection with the
purchase of the Securities.
Nature of Mortgages
Possible Effect of Property Values on Securities. 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 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 Loans secured by subordinate liens, 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 applicable
Prospectus Supplement will be borne by the holder of one or more classes of
Securities of the related Series. See "The Trust Fund--The Loans--Additional
Information."
Delays Due to Liquidation. 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, or can be restricted, following a nonjudicial or judicial sale of a
Property. In the event of a default by a borrower, these restrictions, among
other things, may impede the ability of the 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 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. See "Yield and Prepayment
Considerations."
Disproportionate Effect of Liquidation Expenses. 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. See "Yield and Prepayment Considerations."
Junior Liens. Since the mortgages and deeds of trust securing Loans may be
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 liens 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. See "Certain
Legal Aspects of the Loans--Junior Mortgages; Rights of Senior Mortgages."
Mixed Use Loans. Due to the limited market for Mixed Use Properties, in
the event of a foreclosure, it is expected that the time it takes to recover
Liquidation Proceeds may be longer than with Single Family Properties and may
have a higher risk of loss. See "The Trust Fund--The Loans--General."
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Balloon Payments and Risk of Losses
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 the ability of the
borrower 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.
Pre-Funding Account and Possibility of Prepayment
If so provided in the related Prospectus Supplement, on the date of
the related conveyance of Loans by the Depositor to the Trust (the "Closing
Date") the Depositor will deposit cash 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 50% 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 one year 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). Subsequent
Loans will be required to conform to the requirements set forth in the related
Agreement and described 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 holders of
Certificates and/or Notes (respectively "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.
Credit Enhancement
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, if any, 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 will not cover all potential
losses or risks. 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."
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Value of Trust Fund Assets
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" 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 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.
Limited Source of Payments--No Recourse to Sellers, Depositor or 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, the
Sellers 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 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 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 pursuant to certain 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 Loan, 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 Loan 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.
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The only obligations of the Servicer, other than its servicing
obligations, with respect to the Trust Fund Assets or the Securities of any
Series will be pursuant to certain representations and warranties. The Servicer
may be required to repurchase or substitute for any Loan with respect to which
such representations and warranties are breached. There is no assurance,
however, that the Servicer will have the financial ability to effect any such
repurchase or substitution.
The only obligations of any Seller (and Equity One, where the Seller is a
subsidiary of Equity One) 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 (and Equity One, where the
Seller is a subsidiary of Equity One) may be required to repurchase or
substitute for any Loan with respect to which such representations and
warranties or document delivery requirements are breached. There is no
assurance, however, that such Seller (and Equity One, where the Seller is a
subsidiary of Equity One) will have the financial ability to effect such
repurchase or substitution. See "Loan Program--Representations by Sellers;
Repurchases."
Bankruptcy and Insolvency Risks
Sellers. The Servicer, the Sellers and the Depositor each intend that each
conveyance of Loans by the Sellers to the Depositor constitutes a sale, rather
than a pledge of the Loans to secure indebtedness of the Sellers. As a sale of
the Loans by the Sellers to the Depositor, the Loans would not be part of a
Seller's bankruptcy estate and would not be available to a Seller's creditors.
However, in the event of the bankruptcy or insolvency of a Seller, it is
possible that the bankruptcy trustee, a conservator or receiver of the Seller or
another person may attempt to recharacterize the sale of the Loans as a
borrowing by the Seller, secured by a pledge of the Loans. 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.
In addition, it is anticipated that the Trustee will hold original
promissory notes for each of the Loans, together with assignments of each of the
Mortgages, and the assignments of Mortgages will be filed of public record.
Depositor. The Depositor intends that each conveyance of Loans from the
Depositor to the Trust Fund constitutes a sale, rather than a pledge of the
Loans to secure indebtedness of the Depositor. As a sale of the Loans by the
Depositor to the Trust Fund, the Loans would not be part of the Depositor's
bankruptcy estate and would not be available to the Depositor's creditors.
However, in the event of the bankruptcy or insolvency of the Depositor, it is
possible that the bankruptcy trustee, a conservator or receiver of the Depositor
or another person may attempt to recharacterize the sale of the Loans as a
borrowing by the Depositor, secured by a pledge of the Loans. 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.
In addition, it is anticipated that the Trustee will hold original
promissory notes for each of the Loans, together with assignments of each of the
Mortgages, and the assignments of Mortgages will be filed of public record.
Servicer. In the event of a bankruptcy or insolvency of the Servicer, the
bankruptcy trustee or a conservator or receiver of the Servicer may have the
power to prevent the Trustee or the Securityholders from appointing a successor
servicer.
Bank. In the event of an insolvency, receivership or conservatorship of the
Bank, the FDIC or another agency in its capacity as receiver or conservator has
extensive powers under federal banking laws in the administration of the assets
of a failed insured depository institution and its subsidiaries. In the event of
a receivership or conservatorship for the Bank, the FDIC would also have the
power to exercise all of the rights of a shareholder of Equity One and, through
Equity One, of the Depositor.
Mortgagor Debtor. In addition, federal and state statutory provisions,
including the Bankruptcy Code 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 Bankruptcy Code, a
lender may not foreclose on a mortgaged property without the permission of the
bankruptcy court. The rehabilitation plan proposed by the debtor may provide, if
the mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and/or alter the mortgage loan repayment
schedule. The effect of any such proceedings under the 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, or eliminations of, the aggregate amount of such payments.
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Prepayment and Yield Considerations
The timing of principal payments of the Securities of a Series will be
affected by a number of factors, including the following: (i) the 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 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 the Depositor, a Seller (and Equity One,
where the Seller is a subsidiary of Equity One) or the Servicer may result from
repurchases of Trust Fund Assets due to material breaches of the Depositor's,
Equity One's, a Seller's or the Servicer's representations and warranties, as
applicable. See "Loan Program--Representations by Sellers; Repurchases." 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. In addition, the yields to maturity and weighted average lives of
the Securities will be affected by the distribution of amounts remaining in any
Pre-Funding Account following the end of the related Funding Period. 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. 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."
Book-Entry Registration
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 ("DTC
Participants"), 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. Beneficial Owners will not be
recognized as "Noteholders" or "Certificateholders" as such terms are used in
the related Agreement, and Beneficial Owners will be permitted to exercise the
rights of Securityholders only indirectly through DTC and DTC 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 DTC
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."
Consequences of Owning Original Issue Discount Securities.
Debt Securities that are Accrual Securities will be, and certain of the
other Debt Securities may be, issued with OID for federal income tax purposes. A
holder of Debt Securities issued with OID will be required to include OID 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 Debt Securities that are Accrual Securities generally will be treated as OID
for this purpose. See "Federal Income Tax Consequences--Taxation of Debt
Securities--Interest and Acquisition Discount" and "--Market Discount."
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Limited 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.
Certain Other Legal Aspects of the Loans
Consumer Protection Laws. 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 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 Servicer to damages and
administrative sanctions. See "Certain Legal Aspects of the Loans."
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.
The Riegle Act. Certain 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 nonpurchase 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. The Home Improvement 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.
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Violations of certain provisions of these federal laws may limit the
ability of the 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 applicable 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."
Environmental Risks
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, as amended ("CERCLA"), and the Asset Conservation, Lender
Liability and Deposit Insurance Protection Act of 1996, 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 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. Such costs could result in a loss to the holders of one
or more classes of Securities of the related Series. A lender also risks such
liability on foreclosure of the related property. See "Certain Legal Aspects of
the Loans--Environmental Risks."
Rating of the Securities
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 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
Mortgaged 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 Mortgaged Properties become equal to or
greater than the value of the Mortgaged 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."
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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 certain assets (the "Trust Fund Assets") consisting
of a pool (each, a "Pool") comprised of Loans as specified in the related
Prospectus Supplement, together with payments in respect of such Loans, 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 originators or sellers which may be affiliates of
the Depositor (collectively, the "Sellers") pursuant to a Pooling and Servicing
Agreement with respect to a Series consisting solely of Certificates, or a
purchase agreement (each, a "Purchase Agreement") with respect to a Series
consisting of Certificates and Notes, and conveyed without recourse by the
Depositor to the related Trust Fund. Loans acquired by the Depositor will have
been originated in accordance with the underwriting criteria specified below
under "Loan Program--Underwriting Standards," "--Specific Underwriting Criteria;
Underwriting Programs" and "--Summary of Underwriting Requirements by Program"
or as otherwise described in the related Prospectus Supplement. See "Loan
Program--Underwriting Standards," "--Specific Underwriting Criteria;
Underwriting Programs" and "--Summary of Underwriting Requirements by Program."
The Depositor will cause the Trust Fund Assets to be conveyed to the
Trustee named in the related Prospectus Supplement for the benefit of the
holders of the Securities of the related Series. The Servicer will service the
Trust Fund Assets, either directly or through other servicing institutions
(each, a "Sub-Servicer"), pursuant to a Pooling and Servicing Agreement with
respect to a Series consisting solely of Certificates, or a master servicing
agreement (each, a "Master Servicing Agreement") between the Trustee and the
Servicer with respect to a Series consisting of Certificates and Notes, and will
receive a fee for such services. See "Loan Program" and "The Agreements." With
respect to Loans serviced by the Servicer through a Sub-Servicer, the Servicer
will remain liable for its servicing obligations under the related Agreement as
if the Servicer alone were servicing such Loans.
As used herein, "Agreement" means, with respect to a Series consisting
solely of Certificates, the Pooling and Servicing Agreement, and with respect to
a Series consisting of Certificates and Notes, the Purchase Agreement, 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.
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 purchasing,
- ----------
* 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 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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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 Equity One and the Sellers
and to assign to the Trustee for such Series of Securities the Depositor's
rights with respect to such representations and warranties. See "Loan
Program--Representations by Sellers; Repurchases" and "The
Agreements--Assignment of the Trust Fund Assets." The obligations of the
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 "Loan Program--Representations by Sellers; 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 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 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
relating to such Series will be attached to the Agreement delivered to the
Trustee upon delivery of the Securities.
The Loans
General. The Loans will consist of (i) fixed rate and variable rate
mortgage loans secured by first and/or subordinate liens on (A) one- to
four-family residential properties (each, a "Residential Loan") and (B) mixed
commercial/residential use properties (each, a "Mixed Use Loan" and, together
with the Residential Loans, the "Mortgage Loans"), (ii) revolving home equity
loans or certain balances thereof (the "Revolving Credit Line Loans") secured by
first and/or subordinate liens on one- to four-family residential properties and
(iii) home improvement installment sales contracts and installment loan
agreements (collectively, the "Home Improvement Contracts") that are either
unsecured or secured by first and/or subordinate liens on one- to four-family
residential properties, or by purchase money security interests in the home
improvements financed thereby (collectively, the "Home Improvements"). All Loans
will have been purchased by the Depositor, either directly or through an
affiliate, from one or more Sellers. The Sellers will have either originated the
Loans or purchased the Loans from other lenders. 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.
All of the Loans in a Pool will have monthly payments due on a set day,
but not necessarily 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 of such limitations. Accrued interest may
be deferred and added to the principal of a Loan for such periods
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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 specified interest rate borne by such Loan (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.
The real properties which secure repayment of the Loans are referred to as
the "Mortgaged Properties." Home Improvement Contracts may, and the other Loans
will, be secured by mortgages or deeds of trust or other similar security
instruments creating a lien on a Mortgaged Property. In the case of Revolving
Credit Line 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 may be unsecured or secured by first and/or subordinate
liens on one- to four family residential properties, or by purchase money
security interests in the Home Improvements. The Mortgaged Properties and the
Home Improvements are collectively referred to herein as the "Properties."
The Mortgaged Properties relating to Residential Loans and Revolving
Credit Line Loans will consist 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 (the
"Single Family Properties"). The Mortgaged Properties relating to Mixed Use
Loans will consist of multi-family properties and structures which include
residential dwelling units and space used for retail, professional or other
commercial uses (the "Mixed Use Properties"). The Mortgaged Properties may
include vacation and second homes and investment properties and may be located
in any one of the fifty states, the District of Columbia, Puerto Rico or any
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 Mortgaged 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 the making of a representation
by the borrower at origination of the Loan either that
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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.
Home Equity Loans. Certain of the Loans are non-purchase money loans
secured by the borrower's equity in his or her home. The full amount of these
Loans 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 these Loans will
not exceed 360 months. Under certain circumstances, a borrower under one of
these Loans 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, may have fixed 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.
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
Properties, Mixed Use Properties, or other real property), (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 APRs borne by
the Loans, (viii) the maximum and minimum per annum Loan Rates, and (ix) the
geographical location of the Properties. 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 secured by a first lien on a Property,
at any given time, is equal to (i) the principal balance of such Loan at the
date of origination divided by (ii) the Collateral Value of the related
Property. The "Combined Loan-to-Value Ratio" of a Loan secured by a subordinate
lien on a Property, 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. 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), including without limitation, loss of employment,
illness or other personal difficulties suffered by obligors on the Loans, 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.
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. Substituted Trust Fund Assets generally will comply with
all of the representations and warranties and satisfy the criteria set forth in
the related Agreement and described in the related Prospectus Supplement as of
the date of substitution. See "Loan Program--Representations By Sellers;
Repurchases" and "The Agreements--Assignment of the Trust Fund Assets."
USE OF PROCEEDS
The Depositor will use 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 Reserve
Accounts described in the related Prospectus Supplement, (iii) to pay costs of
structuring and issuing such Securities, including the costs of obtaining Credit
Enhancement, if any, and (iv) to serve any other corporate purpose specifically
permitted by its Certificate of Incorporation. 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
Equity One ABS, Inc., a Delaware corporation (the "Depositor"), was
incorporated in March of 1997 for the limited purpose of acquiring, owning and
transferring Trust Fund Assets and selling interests therein or bonds secured
thereby. The Depositor is a limited purpose wholly owned finance subsidiary of
Equity One, Inc., a Delaware corporation ("Equity One"). Equity One is a wholly
owned operating subsidiary of Banco Popular, FSB, a federal savings bank with
principal offices in Newark, New Jersey (the "Bank"), which in turn is an
indirect wholly owned subsidiary of Popular, Inc., a diversified, publicly owned
bank holding company incorporated under the General Corporation Law of Puerto
Rico ("Popular"). As such, the Depositor and Equity One are subject to
comprehensive regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve"), the Office of Thrift Supervision ("OTS") and the Federal
Deposit Insurance Corporation ("FDIC"). No obligations of the Depositor are
insured by any governmental agency. The Depositor maintains its principal office
at 103 Springer Building, 3411 Silverside Road, Wilmington, Delaware 19810. Its
telephone number is (302) 478-6160.
Neither the Depositor nor any of the Depositor's affiliates will insure or
guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been purchased by the Depositor, either directly or
through affiliates, from the Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Loans so purchased by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"Underwriting Standards," "Specific Underwriting Criteria; Underwriting
Programs" and "Summary of Underwriting Requirements by Program."
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Underwriting Standards
Each Seller operates under certain underwriting standards that have been
approved by Equity One and are consistent with those utilized by mortgage
lenders generally during the period of origination for similar types of loans
(the "Equity One Standards"). Unless otherwise specified in the related
Prospectus Supplement, Equity One and each Seller will represent and warrant
that all Loans conveyed by it to the Depositor or one of its affiliates will
have been underwritten in accordance with the Equity One Standards. As to any
Loan insured by the FHA or partially guaranteed by the VA, each Seller will
represent that it has complied with underwriting policies of the FHA or the VA,
as the case may be.
Underwriting standards are applied by or on behalf of a lender to evaluate
the borrower's credit standing and repayment ability, and the value and adequacy
of the related Property as collateral. In general, a prospective borrower
applying for a Loan is required to fill out a detailed application designed to
provide to the underwriting officer pertinent information with respect to the
applicant's liabilities, income, credit history, including the principal balance
and payment history with respect to any senior mortgage, and employment history,
as well as certain other personal information, which, unless otherwise specified
in the related Prospectus Supplement, will be verified by the related Seller. In
addition, unless otherwise specified in the related Prospectus Supplement, each
Seller, as part of its quality control system, reverifies information with
respect to the foregoing matters that has been provided by a mortgage brokerage
company prior to funding a loan and periodically audits files based on a random
sample of closed loans. Each borrower is generally required to provide an
authorization to apply for a credit report which summarizes the borrower's
credit history with local and national merchants and lenders, installment debt
payments and any record of defaults, bankruptcies, repossessions, suits or
judgments. In most cases, an employment verification is obtained either in
writing or verbally from 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.
In determining the adequacy of the property to be used as collateral, an
appraisal will generally be made of each property considered for financing in an
amount in excess of $15,000. 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 homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home. 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.
Once all applicable employment, credit and property information is
received, a determination generally is made, with the assistance of a
Debt-to-Income Ratio, as to whether the prospective borrower has sufficient
monthly income available (i) to meet the borrower's monthly obligations on the
proposed mortgage loan (generally determined on the basis of the monthly
payments due in the year of origination) and other expenses related to the
property (such as property taxes and hazard insurance) and (ii) to meet other
financial obligations and monthly living expenses. 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 varies depending upon a
borrower's credit grade and loan documentation level (as described below) but
does not generally exceed 50%. Variations in the monthly Debt-to-Income Ratios
limit are permitted based on compensating factors. The underwriting standards
applied by Sellers, particularly with respect to the level of loan documentation
and the borrower's income and credit history, may be varied in appropriate cases
where factors such as low Combined Loan-to-Value Ratios or other favorable
credit exist.
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 may provide for
escalating or variable payments by the borrower. These types of Loans are
underwritten on the basis of a judgment that the borrowers have the ability to
make the monthly payments required initially. In some instances, 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.
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Specific Underwriting Criteria; Underwriting Programs
The Equity One Standards allow for the origination and purchase of Loans
generally under three underwriting programs, known as Grade A Credits, Grade B
Credits and Grade C Credits, all of which are summarized below. These programs
and their underwriting criteria may change from time to time. Deviations from
the specific criteria of an underwriting program are permitted to reflect local
economic trends and real estate valuations, as well as other credit factors
specific to each Loan application and/or each portfolio acquired. Some Loans may
be to borrowers whose creditworthiness may not coincide with program criteria.
Overall, the goal is to maintain the integrity of these programs and
simultaneously provide lending officers and correspondent networks with the
flexibility to consider the specific circumstances of each Loan.
Under the Equity One Standards, the following two types of income
documentation programs are used: (i) full income documentation ("Full Doc") and
(ii) no income verification ("NIV"). Under the Full Doc program, income is
verified by reviewing the borrower's W-2s for the past two years and two of the
borrower's current paystubs. Under the NIV program, the borrower must submit
bank statements for the past three months, and a current profit and loss
statement to review cash flow and verify the validity of the business. Tax
returns are generally not required under either income documentation program,
however, each lender always has the right to require tax returns if that is the
only means of verifying income/cash flow.
Underwriting with the NIV program is reserved for Grade A Credits and
Grade B Credits Loans, and offers an alternative for self-employed and employed
applicants with supplemental income, who are either unable to or do not wish to
produce income documentation to substantiate all of their income. For Loans
underwritten pursuant to the NIV program, the Debt-to-Income Ratio is based on a
maximum of 45% of stated income as disclosed on the Loan application.
Summary of Underwriting Requirements by Program
Grade A Credits. For Grade A Credits, the following criteria generally
apply:
1. An in-file credit report on the borrower by an independent credit
reporting agency reflecting the borrower's complete credit history is required.
Typically, a good to excellent credit history of at least one year is required,
and prior credit history may be rated on a case-by-case basis. The credit
history should reflect that existing and previous debts were paid in a timely
manner. A Chapter 7 bankruptcy is not acceptable. A Chapter 13 bankruptcy that
has been discharged for a minimum of two years is acceptable if the borrower has
since established a payment history, notwithstanding such bankruptcy, consistent
with this underwriting program. No unpaid collections, liens or judgments are
allowed under this credit grade. During the most recent 12 month period, the
borrower may not have more than (i) one 30 day delinquency in his or her
mortgage payment history, (ii) three major credit cards with a maximum of one 30
day delinquency and (iii) three retail credit cards with a maximum of two 30 day
delinquencies.
2. Generally, the borrower must have (i) been employed for not less than
three years with the same employer or (ii) established comparable stability in a
particular field of work.
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3. Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to
the following criteria:
Maximum Combined Maximum Debt-
Loan-to-Value Ratio to-Income Ratio
------------------- ---------------
Property Type
-------------
Owner occupied one- to four-
family dwellings, townhouses,
condominiums 90% 45%
or
80% 50%
True Second Homes 80% 50%
Non-owner occupied single
family dwellings, townhouses,
condominiums 75% 50%
Non-owner occupied two- to four-
family dwellings, townhouses 70% 50%
Mixed use: Purchase 70% Minimum Debt
Refinance 65% Service Coverage 1.30
Grade B Credits. For Grade B Credits, the following criteria generally
apply:
1. An in-file credit report on the borrower by an independent credit
reporting agency reflecting the borrower's complete credit history is required.
Typically, a satisfactory to good credit history of at least one year is
required, and prior credit history may be rated on a case-by-case basis. The
credit history should reflect that existing and previous debts were paid in a
predominately timely manner. A Chapter 7 bankruptcy, if discharged for two
years, is acceptable if there are two years of re-established credit and a
satisfactory written explanation. A Chapter 13 bankruptcy with a minimum of a
three year satisfactory payment plan and one year of re-established credit is
acceptable. All unpaid charge-offs, liens or judgments in the last two years
must be paid in full. During the most recent twelve month period, the borrower
may not have (i) more than two 30 day delinquencies in his or her mortgage
payment history (consecutive 30 day delinquencies are treated as one 30 day
account), (ii) more than four major credit cards or installment debts with a
maximum of two 30 day delinquencies, (iii) any retail credit cards with more
than three 30 day delinquencies and (iv) more than two retail credit cards with
a maximum of one 60 day delinquency.
2. Generally, the borrower must have (i) been employed for not less than
three years with the same employer or (ii) established comparable stability in a
particular field of work.
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3. Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to
the following criteria:
Maximum Combined Maximum Debt-
Loan-to-Value Ratio to-Income Ratio
------------------- ---------------
Property Type
-------------
Owner occupied one- to four-
family dwellings, townhouses,
condominiums 90% 45%
or
80% 50%
True Second Homes 80% 50%
Non-owner occupied single
family dwellings, townhouses,
condominiums 75% 50%
Non-owner occupied two- to four-
family dwellings, townhouses 70% 50%
Mixed use: Purchase 70% Minimum Debt
Refinance 65% Service Coverage 1.30
Grade C Credits. For Grade C Credits, the following criteria generally
apply:
1. An in-file credit report on the borrower by an independent credit
reporting agency reflecting the borrower's complete credit history is required.
Typically, a fair to satisfactory credit history of at least one year is
required. A discharged Chapter 7 bankruptcy is acceptable with one year of
re-established credit. A non-discharged Chapter 13 bankruptcy will be considered
with a minimum of a two year satisfactory payment plan, one year of
re-established credit and trustee permission. A written explanation of
derogatory credit is required. Mortgage payment history may not reflect any more
than three 30 day delinquencies and one 60 day delinquency during the most
recent 12 months (consecutive 30 day delinquencies are treated as one 30 day
account). In addition, all accounts that are delinquent for 60 days or longer
must be paid from proceeds.
2. Generally, the borrower must have (i) been employed for not less than
one year with the same employer or (ii) established comparable stability in a
particular field of work.
3. Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to
the following criteria:
Maximum Combined Maximum Debt-
Loan-to-Value Ratio to-Income Ratio
------------------- ---------------
Property Type
-------------
Owner occupied single family
dwellings, townhouses 80% 50%
Owner occupied two- to four-
family dwellings, townhouses,
condominiums 75% 50%
Owner occupied condominiums 70% 50%
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True Second Homes 75% 50%
Non-owner occupied one- to four-
family dwellings 70% 50%
Qualifications of Sellers
Unless otherwise specified in the related Prospectus Supplement, each
Seller is required to satisfy the following qualifications. Each Seller is an
institution experienced in originating loans of the type contained in the
related Pool in accordance with accepted practices and prudent guidelines and
must maintain satisfactory facilities to originate those loans. The Servicer is
an institution experienced in originating and servicing loans of the type
contained in the related Pool in accordance with accepted practices and prudent
guidelines and must maintain satisfactory facilities to originate and service
those loans. Each Seller has all of the licenses necessary for the conduct of
its business.
Representations by Sellers; Repurchases
Each Seller (and Equity One, where a Seller is a subsidiary of Equity One)
will have made representations and warranties in respect of the Loans sold by
such Seller and evidenced by all, or a part, of a Series of Securities. Such
representations and warranties may include, among other things: (i) that (except
for Loans in amounts less than $15,000) title insurance (or in the case of
Properties located in areas where such policies are generally not available, an
attorney's certificate of title) and any required hazard insurance policy were
effective at origination of each Loan and that the title insurace (or
certificate of title as applicable) remained in effect on the date of purchase
of the Loan from Seller by or on behalf of the Depositor; (ii) that Seller had
good title to each such Loan and that 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 all applicable
local, state and federal laws and regulations in all material respects.
The Servicer or the Trustee, if the Servicer is the Seller, will promptly
notify the relevant Seller (and Equity One, if it is not the Servicer or the
Seller) of any breach of any representation or warranty made by it in respect of
a Loan which materially and adversely affects the interests of the
Securityholders in such Loan. Unless otherwise specified in the related
Prospectus Supplement, if such Seller cannot cure such breach within 90 days
following notice from the Servicer or the Trustee, as the case may be, then such
Seller will be obligated either to (i) 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
is the Servicer) or (ii) substitute for such Loan a replacement loan that
satisfies the criteria specified in the related Agreement and described 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 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 subject the
Trust Fund to a prohibited transaction tax. The 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 Servicer is the Seller,
the 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
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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.
If Equity One makes a representation or warranty on behalf of a Seller,
Equity One will be obligated to purchase or substitute a Loan if a Seller
defaults on its obligation to do so, but no assurance can be given that Equity
One will carry out its purchase or substitution obligations with respect to
Loans. Neither the Depositor nor the Servicer (unless the Servicer is a Seller)
will be obligated to purchase or substitute a Loan if a Seller defaults on its
obligation to do so, and no assurance can be given that Sellers will carry out
their respective repurchase or substitution obligations with respect to Loans.
However, to the extent that a breach of a representation and warranty of a
Seller may also constitute a breach of a representation made by the Servicer,
the Servicer may have a repurchase or substitution obligation as described below
under "The Agreements--Assignment of Trust Fund Assets."
DESCRIPTION OF THE SECURITIES
Each Series of Asset Backed Certificates (the "Certificates") will be
issued pursuant to either (i) a pooling and servicing agreement (a "Pooling and
Servicing Agreement") among the Depositor, the Servicer, the trustee(s) named in
the related Prospectus Supplement (the "Trustee") and the Sellers or (ii) a
trust agreement (a "Trust Agreement") between the Depositor and the Trustee. A
form of Pooling and Servicing Agreement and Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Each Series of Asset Backed Notes (the "Notes" and, together with the
Certificates, the "Securities") will be issued pursuant to an indenture (an
"Indenture") between the related trust fund established by the Depositor (a
"Trust Fund") and the Trustee, and the related Loans will be serviced by the
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 Servicer, the Sellers 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 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.
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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.
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 Servicer, the Sellers 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 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 Servicer or a holder of the related residual certificate will be
obligated to take all actions required in order
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to comply with applicable laws and regulations and will be obligated to pay any
prohibited transaction taxes. The 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.
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 or
other cash account established and available therefore (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 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 fixed rate or rate adjustable as specified in such Prospectus
Supplement), and for the periods specified in such Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each such specified
period on each class of Securities entitled to interest (other than a class of
Securities that provides for interest that accrues, but is not currently
payable, referred to 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
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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 Accrual Securities, as reflected in the aggregate Class Security
Balance of such class of Accrual Securities, will increase on each Distribution
Date by the amount of interest that accrued on such class of Accrual Securities
during the preceding interest accrual period but that was not required to be
distributed to such class on such Distribution Date. Any such class of Accrual
Securities will thereafter accrue interest on its outstanding Class Security
Balance as so adjusted.
Distributions of Principal. The 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 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
Prepayments to such class or classes of Securities will have the effect of
accelerating the amortization of such Securities while increasing the interests
evidenced by one or more other classes of Securities in the Trust 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 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 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 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), subject to the Servicer's determination that
such advances may be recoverable out of late payments by borrowers, Liquidation
Proceeds, Insurance Proceeds or otherwise ("Advances").
In making Advances, the 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
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made by the Servicer from cash being held for future distribution to
Securityholders, the 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. Each Advance will be
reimbursable to the 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 also will be reimbursable to the
Servicer from cash otherwise distributable to Securityholders (including the
holders of Senior Securities) to the extent that the 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 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. Such
Advances are reimbursable to the Servicer to the extent permitted by the related
Agreement. The obligations of the Servicer to make Advances may be supported by
a cash advance reserve fund, a surety bond or other arrangement of the type
described herein under "Credit Enhancement," in each case as described in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in the
event the 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 Servicer is entitled to be
reimbursed for Advances. See "Description of the Securities--Distributions on
Securities."
Reports to Securityholders
Prior to or concurrently with each distribution on a Distribution Date the
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 Securities on such Distribution Date, and (b) withdrawn from
the Reserve Account, if any, that is included in the amounts distributed
to the Senior Securities;
(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
Principal 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 Servicer, and the amount of
additional servicing compensation received by the Servicer attributable to
penalties, fees, excess Liquidation Proceeds and other similar charges and
items;
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(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 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 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.
Categories of Classes Definition
PRINCIPAL TYPES
Accretion Directed Class.......... A class that receives principal payments
from the accreted interest from specified
Accrual Classes. An Accretion Directed Class
also may receive principal payments from
principal paid on the underlying Trust Fund
Assets for the related Series.
Component Class................... A class consisting of "components." The
components of a Component Class may have
different principal and/or interest payment
characteristics but together constitute a
single class. Each component of a Component
Class may
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Categories of Classes Definition
be identified as falling into one or more of
the categories in this chart.
Notional Amount Class............. A class having no principal balance and
bearing interest on the related notional
amount. The notional amount is used for
purposes of the determination of interest
distributions.
Planned Principal Class
(also sometimes
referred to as a "PAC")......... A class that is designed to receive
principal payments using a predetermined
principal balance schedule derived by
assuming two constant prepayment rates for
the underlying 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. The Prospectus Supplement
relating to each Planned Principal Class
will disclose the principal balance schedule
pertaining to such class and the pricing and
prepayment assumptions based upon which the
schedule will have been prepared, including
the actual characteristics of the underlying
Loans, the assumptions with respect to
original terms to maturity, the remaining
terms to maturity, and interest rates with
respect to the underlying Loans, and the
assumptions with respect to the rate of
prepayment on the underlying Loans.
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.
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 Class....................... 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 a "Companion Class")......... A class that receives principal payments on
any Distribution Date only if scheduled
payments have been made on specified Planned
Principal Classes, Targeted Principal
Classes and/or Scheduled Principal Classes.
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Categories of Classes Definition
Targeted Principal Class
(also sometimes
referred to as a "TAC")......... A class that is designed to receive
principal payments using a predetermined
principal balance schedule derived by
assuming a single constant prepayment rate
for the underlying Trust Fund Assets. The
Prospectus Supplement relating to each
Targeted Principal Class will disclose the
principal balance schedule pertaining to
such class and the pricing and prepayment
assumptions based upon which the schedule
will have been prepared, including the
actual characteristics of the underlying
Loans, the assumptions with respect to
original terms to maturity, the remaining
terms to maturity, and interest rates with
respect to the underlying Loans, and the
assumptions with respect to the rate of
prepayment on the underlying Loans.
INTEREST TYPES
Fixed Rate Class.................. A class with an interest rate that is fixed
throughout the life of the class.
Floating Rate Class............... A class with an interest rate that resets
periodically based upon a designated index
and that varies with changes in such index.
Inverse Floating Rate Class....... A class with an interest rate that resets
periodically based upon a designated index
and that varies inversely with changes in
such index.
Variable Rate Class............... A class with an interest rate that resets
periodically and is calculated by reference
to the rate or rates of interest applicable
to specified assets or instruments (e.g.,
the Loan Rates borne by the underlying
Loans).
Interest Only Class............... A class that receives some or all of the
interest payments made on the underlying
Trust Fund Assets 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 Class.............. A class that does not bear interest and is
entitled to receive only distributions in
respect of principal.
Partial Accrual Class............. 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 Class..................... A class that accretes the amount of accrued
interest otherwise distributable on such
class, which amount will be added as
principal to the principal balance of such
class on each applicable Distribution Date.
Such accretion may
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Categories of Classes Definition
continue until some specified event has
occurred or until such Accrual Class is
retired.
Indices Applicable to Floating Rate and Inverse Floating Rate Classes
General. Except as otherwise specified in the related Prospectus
Supplement, the indices applicable to Floating Rate and Inverse Floating Rate
Classes will be limited to the indices 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 or Pass-Through 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 Telerate Screen Page 3750, 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 Telerate Screen Page 3750, the
Calculation Agent will request each of the Reference Banks to provide such
offered quotations at such time. "Telerate Screen Page 3750" means the display
page currently so designated on the Dow Jones Telerate Service (or such other
page as may replace that page on that service for the purpose of displaying
comparable rates or prices).
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 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 (as such term is defined in the related Prospectus
Supplement) 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
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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.
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 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,
United States 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 United States Treasury securities at "constant maturity" are
derived from the United States 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 United States 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.
The interest rate index or indices applicable to floating rate and inverse
floating rate classes of any Series (the "Securities Index") may not reflect the
actual index or indices employed under applicable Loan documents in calculating
the interest rates on Loans in such class or classes of Securities (the "Loan
Indices"). To this extent, the amounts available for payment of interest on such
class or classes of Securities may increase or decrease depending upon
divergences between performance of the applicable Securities Index and the
composite performance of the applicable Loan Indices. While it might be
possible, through the use of a reserve account, interest rate swaps, financial
derivative contracts or other means, to hedge against the risk that divergences
between the
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Securities Index and the Loan Indices might result in insufficient interest
payments being generated from Loans backing such class or classes of Securities
to pay the interest accruing on such class or classes of Securities, the
availability of interest rate hedging protection, if any, shall only be as
disclosed in the related Prospectus Supplement.
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
securities (the "Book-Entry Securities"). Persons acquiring beneficial ownership
interests in the Securities ("Beneficial Owners") will hold their Securities
through the Depository Trust Company ("DTC") in the United States, or Cedel
Bank, Societe Anonyme ("CEDEL") or Euroclear System ("Euroclear") in Europe, if
they are participants of such systems, or indirectly through organizations which
are participants in such systems. The Book-Entry Securities will be issued in
one or more certificates which equal the aggregate principal balance of the
Securities and will initially be registered in the name of Cede & Co., the
nominee of DTC. 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 depositories which in turn
will hold such positions in customers' securities accounts in the depositories'
names on the books of DTC. Citibank, N.A., will act as depository for CEDEL and
The Chase Manhattan Bank will act as depository for Euroclear (in such
capacities, individually the "Relevant Depository" and collectively the
"European Depositories"). Except as described below, no Beneficial Owner will be
entitled to receive a physical certificate representing such Security (a
"Definitive Security"). Unless and until Definitive Securities are issued, it is
anticipated that the only "Securityholders" of the Securities will be Cede &
Co., as nominee of DTC. Beneficial Owners are only permitted to exercise their
rights indirectly through DTC 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).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and DTC Participants.
While the Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among DTC 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. DTC Participants and indirect participants with
whom Beneficial 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 Beneficial Owners. Accordingly,
although Beneficial Owners will not possess physical certificates, the Rules
provide a mechanism by which Beneficial Owners will receive distributions and
will be able to transfer their interest.
Beneficial Owners will not receive or be entitled to receive physical
certificates representing their respective interests in the Securities, except
under the limited circumstances described below. Unless and until Definitive
Securities are issued, Beneficial Owners who are not DTC Participants may
transfer ownership of Securities only through DTC Participants and indirect
participants by instructing such DTC 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
DTC 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 DTC Participants will be debited and
credited. Similarly, the DTC Participants and indirect participants will make
debits or credits, as the case may be, on their records on behalf of the selling
and purchasing Beneficial Owners.
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Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC 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
or Euroclear Participant 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 DTC Participants will occur in accordance with the
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 the Rules on behalf of the relevant European international
clearing system by the Relevant Depository; 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 Depository 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 Depositories.
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants (the "DTC Participants") deposit with
DTC. DTC also facilitates the settlement among DTC Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in DTC Participants' accounts,
thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of DTC Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as Financial Intermediaries
that clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly. The Rules are on file with the Commission.
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
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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 Federal Reserve 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 Depository. 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 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, 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 Depository to
effect such actions on its behalf through DTC. DTC may take actions, at the
direction of the related DTC Participants, with respect to some Securities which
conflict with actions taken with respect to other Securities.
Definitive Securities will be issued to Securityholders only if (i) the
Servicer advises the applicable Trustee in writing that DTC is no longer willing
or able to discharge properly its responsibilities as depository with respect to
such Securities and such Trustee is unable to locate a qualified successor, (ii)
the Servicer at its option, elects to terminate the book-entry system through
DTC or (iii) after the occurrence of an Event of Default or the
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resignation or removal of the Servicer with respect to such Securities, holders
representing at least a majority of the outstanding principal amount of the
related Securities of such series advise DTC, either directly or through DTC
Participants, in writing (with instructions to notify the applicable Trustee in
writing) that the continuation of a book-entry system through DTC (or a
successor thereto) with respect to such Securities is no longer in the best
interest of the holders of such 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 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 Guaranty, bankruptcy bond,
special hazard insurance policy, surety bond, letter of credit, guaranteed
investment contract, overcollateralization, 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.
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
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 further
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
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holders of Subordinated Securities that will be distributable to holders of
Senior Securities 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 Bankruptcy Code, or losses resulting from denial of insurance coverage due
to misrepresentations in connection with the origination of a Loan. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the L/C Bank
under the letter of credit for each Series of Securities will expire at the
earlier of the date specified in the 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.
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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 holders of Subordinated Securities, 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 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
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in the downgrading or withdrawal of the rating then assigned to such Securities
by any such Rating Agency; (v) 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; (vi) 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; (vii) 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; (viii) 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 such Securities by any such Rating
Agency, as evidenced by a signed writing delivered by each such Rating Agency;
(ix) 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; (x) 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; and (xi) 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 such 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; and provided, further that no investment specified
in clause (ix) or clause (x) above shall be a Permitted Investment for any
Pre-Funding Account or any related Capitalized Interest Account. 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 Servicer will present claims
thereunder to the Pool Insurer on behalf of itself, the Trustee and the holders
of the Securities of the related Series. The Pool Insurance Policies, however,
are not blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Loans and only upon satisfaction of certain
conditions precedent described below. 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
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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
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 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 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 any building or
structure located on a Property in accordance with plans and specifications. A
failure of coverage attributable to one of the foregoing events might result in
a breach of the related Seller's representations described above, and, in such
events might give rise to an obligation on the part of such Seller to repurchase
the defaulted Loan if the breach cannot be cured by such Seller. No Pool
Insurance Policy will cover (and many Primary Mortgage Insurance Policies do not
cover) a claim in respect of a defaulted Loan occurring when the servicer of
such Loan, at the time of default or thereafter, was not approved by the
applicable insurer.
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 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 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 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
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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 of the forms of credit enhancement described in this Prospectus
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
enhancement relates and the manner of determining the amount of coverage
provided to such Trust Funds thereby and of the application of such coverage to
the identified Trust Funds.
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. The Depositor is
not aware of any publicly available studies or statistics on the rate of
prepayment of mortgage loans of the types generated by the Sellers. 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 and homeowner mobility.
Other factors that might be expected to affect the prepayment rate of a pool of
Revolving Credit Line Loans 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, such 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 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 Loans on Single
Family Properties partially guaranteed by the VA, are assumable with the consent
of the FHA and the VA, respectively. Thus, the rate of prepayments on such Loans
may be lower than that of conventional Loans bearing comparable interest rates.
The 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 Servicer will not take any enforcement action that would
impair or threaten to impair any recovery under any related
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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. The effect of prepayments in full will be to reduce the amount of
interest passed through or paid in the following month to holders of Securities
because interest on the principal amount of any Loan so prepaid will generally
be paid only to the date of prepayment. Partial prepayments in a given month may
be applied to the outstanding principal balances of the Loans so prepaid on the
first day of the month of receipt or the month following receipt. In the latter
case, partial prepayments will not reduce the amount of interest passed through
or paid in such month. 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 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 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 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 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
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Supplement), the distribution of such interest will not be made earlier than the
month following the month of accrual.
Under certain circumstances, the 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
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.
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
Conveyance of the Loans. At the time of issuance of the Securities of a
Series, the Depositor will cause the Loans comprising the related Trust Fund to
be conveyed 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 conveyance,
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 Annual
Percentage Rate ("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 Revolving Credit
Line 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, (iv) such other assignments deemed necessary by
the Trustee, including assignments of title insurance policies covering the
Properties and (v) 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.
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 Servicer and the Depositor, and the Servicer will notify the
related Seller. If such Seller
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cannot cure the omission or defect within the time period specified in the
related Prospectus Supplement after receipt of such notice, such Seller 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 in the related Agreement
and described in the related Prospectus Supplement. There can be no assurance
that a Seller will fulfill this purchase or substitution obligation. Although
the Servicer may be obligated to enforce such obligation to the extent described
above under "Loan Program--Representations by Sellers; Repurchases," neither the
Servicer nor the Depositor will be obligated to purchase or replace such Loan if
the Seller defaults on its obligation, unless such breach also constitutes a
breach of the representations or warranties of the 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 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 Servicer which
materially and adversely affects the interests of the Securityholders in a Loan,
the 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 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; Depositor or Servicer. As described above under
"--Conveyance of the Loans," the Depositor will cause the Loans comprising the
related Trust Fund to be conveyed to the Trustee, without recourse. However,
each Seller (and Equity One, where the Seller is a subsidiary of Equity One)
will be obligated to repurchase or substitute for any Loan as to which certain
representations and warranties are breached or for failure to deliver certain
documents relating to the Loans as described herein under "--Conveyance of the
Loans" and "Loan Program--Representations by Sellers; Repurchases." In addition,
the Servicer and the Depositor will be obligated to purchase or substitute for
any Loan as to which certain representations and warranties are breached as
described herein under "--Conveyance of the Loans." 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 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 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 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 (the "SAIF")), (iii) an account or accounts the deposits
in which are insured by the BIF or the 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
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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 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 Servicer or with a depository
institution that is an affiliate of the Servicer, provided it meets the
standards set forth above.
The 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 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 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 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 Servicer, the Depositor or any Seller as described under
"Loan Program--Representations by Sellers; Repurchases" or "--Assignment
of the Trust Fund Assets" and all proceeds of any Loan repurchased as
described under "--Termination; Optional Termination;"
(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;"
(vi) any amount required to be deposited by the Servicer in
connection with losses realized on investments for the benefit of the
Servicer of funds held in the Security Account and, to the extent
specified in the related Prospectus Supplement, any payments required to
be made by the Servicer in connection with prepayment interest shortfalls;
and
(vii) all other amounts required to be deposited in the Security
Account pursuant to the Agreement.
The 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 Servicer the servicing fees described in the
related Prospectus Supplement, the 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;
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(ii) to reimburse the 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 Servicer for any Advances previously made
which the Servicer has determined to be nonrecoverable;
(iv) to reimburse the Servicer from Insurance Proceeds for expenses
incurred by the Servicer and covered by the related insurance policies;
(v) to reimburse the Servicer for unpaid Servicing Fees and
unreimbursed out-of-pocket costs and expenses incurred by the 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 Servicer, with respect to each Loan or property
acquired in respect thereof that has been purchased by the 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 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 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 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 in an amount equal to the Pre-Funded Amount on the related Closing Date.
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. Subsequent Loans will be required to conform to the
requirements set forth in the related Agreement and described in the related
Prospectus Supplement. 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 not exceed 50% of the initial aggregate principal amount
of the Certificates and Notes of the related Series. 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. 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 one year 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. 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.
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In addition, if so provided in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the "Capitalized
Interest Account") cash in such amount as is necessary to cover shortfalls in
interest on the related Series of Securities that may arise as a result of
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. 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 Servicer and the SubServicer, the Agreement pursuant to which a Series of
Securities is issued will provide that, if for any reason the Servicer for such
Series of Securities is no longer the Servicer of the related Loans, the Trustee
or any successor Servicer must recognize the Sub-Servicer's rights and
obligations under such Sub-Servicing Agreement. Notwithstanding any such
sub-servicing arrangement, unless otherwise provided in the related Prospectus
Supplement, the Servicer will remain liable for its servicing duties and
obligations under the Master Servicing Agreement as if the Servicer alone were
servicing the Loans.
Collection Procedures
The 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 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 Servicer
may, in its discretion, (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. To the extent the Servicer is obligated to make or cause to be
made Advances, such obligation will remain during any period of such an
arrangement.
In any case in which property securing a Loan has been, or is about to be,
conveyed by the mortgagor or obligor, the 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 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 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 Servicer for entering into an assumption agreement will be
retained by or on behalf of the 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.
Hazard Insurance
Except as otherwise specified in the related Prospectus Supplement, the
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
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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
(a) the outstanding principal balance of the 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. All amounts collected by the 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 Servicer's normal servicing procedures) will be deposited in the
related Security Account. In the event that the 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 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 Servicer will require the mortgagor or
obligor to obtain and maintain flood insurance.
The hazard insurance policy covering each Property securing each Loan
typically contains a clause which in effect requires the insured at all times to
carry insurance in an amount which is the lesser of (i) the replacement value of
the Mortgaged Property or (ii) the principal amount of the Loan. Most insurance
policies provide that if the insured's coverage falls below a specified
percentage (usually 80% to 90%), 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 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."
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 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 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 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 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 Servicer of its
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expenses, in excess of the principal balance of such Loan plus interest accrued
thereon that is payable to Securityholders, the 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.
If the Servicer or its designee recovers Insurance Proceeds which, when
added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Servicer, exceed the principal balance of such Loan
plus interest accrued thereon that is payable to Securityholders, the 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 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 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."
The proceeds from any liquidation of a Loan will be applied in the
following order of priority: first, to reimburse the Servicer for any
unreimbursed expenses incurred by it to restore the related Property and any
unreimbursed servicing compensation payable to the Servicer with respect to such
Loan; second, to reimburse the 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
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--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.
Primary Mortgage Insurance Policies. If so specified in the related
Prospectus Supplement, the 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. The 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.
Servicing and Other Compensation and Payment of Expenses
The principal servicing compensation to be paid to the Servicer in respect
of its 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 "Servicing Fee"). As compensation
for its servicing duties, a Sub-Servicer or, if there is no Sub-Servicer, the
Servicer will be entitled to a monthly servicing fee as described in the related
Prospectus Supplement. In addition, the Servicer or SubServicer will retain all
prepayment charges, assumption fees and late payment charges, to the extent
collected from borrowers, and any benefit that may accrue as a result of the
investment of funds in the applicable Security Account (unless otherwise
specified in the related Prospectus Supplement).
The 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 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 Servicer of mortgage loans or
private asset backed securities, or under pooling and servicing agreements
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 the Federal Home Loan Mortgage Corporation
("FHLMC" or "Freddie Mac"), 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 Servicer to the effect that the 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 Servicer may be obtained by Securityholders of the related Series without
charge upon written request to the Servicer at the address set forth in the
related Prospectus Supplement.
Certain Matters Regarding the Servicer and the Depositor
The Servicer under each Pooling and Servicing Agreement or Master
Servicing Agreement, as applicable, will be named in the related Prospectus
Supplement. The entity serving as Servicer may have normal business
relationships with the Depositor or the Depositor's affiliates.
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Each Agreement will provide that the 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 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 Servicer's obligations and duties under the
Agreement.
Each Agreement will further provide that neither the Servicer, the
Depositor nor any director, officer, employee, or agent of the 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 Servicer, the Depositor nor any such person
will be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. Each Agreement will further provide that the Servicer, the
Depositor and any director, officer, employee or agent of the 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 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 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 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 Servicer may be merged or consolidated, or any person
resulting from any merger or consolidation to which the Servicer is a party, or
any person succeeding to the business of the Servicer, will be the successor of
the Servicer under each Agreement, provided that such person is qualified to
sell mortgage loans to, and service mortgage loans on behalf of, the Federal
National Mortgage Association ("FNMA" or "Fannie Mae") 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 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 Servicer by the
Trustee or the Depositor, or to the 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 Servicer to make an Advance as required under the Agreement,
unless cured as specified therein; (iii) any failure by the 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 Servicer by the Trustee or the
Depositor, or to the 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 Servicer indicating its
insolvency, reorganization or inability to pay its obligations.
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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 provided 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
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 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 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 Servicer under the Agreement.
Unless otherwise provided 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 shall
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 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 Notes 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
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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
662/3% 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 holders of Notes 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 holders of Notes 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 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 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
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
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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 Certificates will
terminate upon the payment to the related holders of Certificates of all amounts
held in the Security Account or by the 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 or (ii) the purchase by the 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 Certificates will be made at the option of the
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 Certificates of that
Series, but the right of the 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.
The foregoing is subject to the provision that if a REMIC election is made with
respect to a Trust Fund, any purchase 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 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.
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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 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 jurisdiction, or encompass the laws of all
jurisdictions 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 jurisdictions 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. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments. Priority
between mortgages depends on their terms and generally on the order of recording
with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust formally has three parties, the
borrower-property owner called the trustor (similar to a mortgagor), a lender
(similar to a mortgagee) called the beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. A security deed and a deed to
secure debt are special types of deeds which indicate on their face that they
are granted to secure an underlying debt. By executing a security deed or deed
to secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the underlying
debt is repaid. The trustee's authority under a deed of trust, the mortgagee's
authority under a mortgage and the grantee's authority under a security deed or
deed to secure debt are governed by law and, with respect to some deeds of
trust, the directions of the beneficiary.
Foreclosure/Repossession
Deeds of Trust and Security Deeds. Foreclosure of a deed of trust or a
security deed is generally accomplished by a non-judicial sale under a specific
provision in the deed of trust or security deed which authorizes the trustee or
grantee to sell the property at public auction upon any default by borrower
under the terms of the note, deed of trust or security deed. In certain states,
such foreclosure also may be accomplished by judicial sale in the manner
provided for foreclosure of mortgages.
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.
Actions prior to Commencement of Foreclosure. Many states require notices,
sometimes in prescribed form, be given to borrowers prior to commencement of
foreclosure proceedings in addition to any notice requirements contained in the
mortgage or deed of trust. In some states, a notice of default must be recorded
and a copy sent to the borrower and any other party with an interest in the
property. In some states, the borrower has the right to reinstate the loan at
any time following default until shortly before the sale. If a deed of trust,
security deed or mortgage is not reinstated within any applicable cure period, a
notice of sale must be posted in a public place and, in most states, published
for a specific period of time in one or more newspapers. In addition, some state
laws
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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.
Foreclosure Proceedings. In the case of foreclosure of a security deed,
deed of trust or mortgage, 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, but when
the mortgagee's right to foreclose is contested, the legal proceedings necessary
to resolve the issue can be time consuming. After completion of a judicial
foreclosure proceeding, the court generally issues a judgment of foreclosure and
the court either appoints or directs a referee, sheriff, 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. Deeds of trust and security deeds are generally foreclosed by the
Trustee or Grantee in a non-judicial sale.
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, referee, sheriff, or other court officer, 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. However, the lender may purchase for a lesser amount in some
jurisdictions which only require a minimum bid, or, in states where a deficiency
judgment is available, in order to preserve its right to seek such judgment.
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 equitable principles upon foreclosure, which are
generally designed to mitigate the legal consequences to the borrower of the
borrower's default 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.
Right of Redemption. In many states, 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.
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."
Environmental Risks
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment
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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, as amended ("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.
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 (as
amended, as to lender liability, by the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996), 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 United States v. Fleet Factors Corp., 901 F.2d 1550 (11th
Cir. 1990), the United States 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 control or responsibility for (including day-to-day
management of) all operational functions of the mortgaged property. However,
such amendments do not affect the potential for liability under other federal or
state laws which impose liability on "owners or operators" but do not provide
any protection for secured creditors.
If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would result in a loss to Securityholders.
CERCLA does not apply to petroleum products, and the Secured Creditor
Exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. 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.
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In the case of the Residential Loans, at the time of origination, no
environmental assessment was conducted. In the case of the Mixed Use Loans,
except as otherwise specified in the related Prospectus Supplement, at the time
of origination, no environmental assessment of the Properties was conducted.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In certain
other states, 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.
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against 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
Servicer will utilize the non-judicial foreclosure remedy and will not seek
deficiency judgments against defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower. In some states, exceptions to the anti-deficiency
statutes are provided for in certain instances where the value of the lender's
security has been impaired by acts or omissions of the borrower, for example, in
the event of waste of the property. Finally, other statutory provisions limit
any deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the Bankruptcy Code, a lender may not foreclose
on a mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of the
mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the Bankruptcy Code,
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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. 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. The
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 thereunder
may not exercise its rights under a due-on-sale clause, notwithstanding the fact
that a transfer of the property may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Property to an
uncreditworthy person, which could increase the likelihood of default or may
result in a mortgage bearing an interest rate below the current market rate
being assumed by a new home buyer, which may affect the average life of the
Loans and the number of Loans which may extend to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
Enforceability of Prepayment and Late Payment Fees
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon the late charges which a lender may
collect from a borrower for delinquent payments. Certain states also limit the
amounts that a lender may collect from a borrower as an additional charge if the
loan is prepaid. Under certain state laws, prepayment charges may not be imposed
after a certain period of time following the origination of mortgage loans with
respect to prepayments on loans secured by liens encumbering owner-occupied
residential properties. Since many of the Properties will be owner-occupied, it
is anticipated that prepayment charges may not be imposed with respect to many
of the Loans. The absence of such a restraint on prepayment, particularly with
respect to fixed rate Loans having higher Loan Rates, may increase the
likelihood of refinancing or other early retirement of such loans or contracts.
Late charges and prepayment fees are typically retained by servicers as
additional servicing compensation.
Equitable Limitations on Remedies
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In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes of the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate a borrower suffering from temporary financial disability. In other
cases, courts have limited the right of a lender to realize upon the lender's
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition to the
statutorily-prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in some cases
involving the sale by a trustee under a deed of trust or by a mortgagee under a
mortgage having a power of sale, there is insufficient state action to afford
constitutional protection to the borrower.
Applicability of Usury Laws
Each Mortgage Loan jurisdiction has usury laws which limit the interest
and other amounts that may be charged under certain loans. Title V of the
Depository Institutions Deregulation and Monetary Control Act of 1980, enacted
in March 1980, as amended ("Title V") provides that state usury limitations
shall not apply to certain types of residential first mortgage loans originated
by certain lenders after March 31, 1980. The OTS, as successor to the 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 was not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or other
charges.
The Home Improvement Contracts
General. The Home Improvement Contracts, excluding those Home Improvement
Contracts that are unsecured or secured by mortgages on real estate (such Home
Improvement Contracts, as limited by said exclusions, are referred to herein as
"Contracts") are generally "chattel paper," as defined in the Uniform Commercial
Code of the applicable jurisdiction (the "UCC"). In some cases, an interest in a
Contract may constitute an "account" within the meaning of the UCC. Under the
UCC, a purchaser of chattel paper or an account is treated as a secured party
whose interest in the chattel paper or account is treated as a security interest
which must be properly perfected in order to take priority over competing
security interests. Under the related Agreement, the Seller will transfer
physical possession of the Contracts to the Depositor, and the Depositor may
file UCC-1 financing statements in the appropriate state and local recording
offices (if any) to, among other things, give notice of its ownership of the
Contracts. The Depositor in turn 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. The Trustee may then file UCC-1
financing statements in the appropriate state and local recording offices (if
any) 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 sale to
either the Depositor or the Trust Fund. Therefore, if through negligence, fraud,
or otherwise, a subsequent purchaser were able to take physical possession of
the Contracts without notice of such prior sale, the Depositor's or the Trust
Fund's interest in the Contracts could be defeated.
Security Interests in Home Improvements. The Contracts may grant to the
seller of the Home Improvements or another person (the "HIC Secured Party")
related to such Contracts a "purchase money security interest" (within the
meaning of the UCC) in the Home Improvements financed thereby. A financing
statement generally is not required to be filed to perfect a purchase money
security interest in consumer goods. Such purchase money security
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interests are assignable. In general, a properly perfected purchase money
security interest grants to the HIC Secured Party 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 HIC Secured Party'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. A contractual obligation to pay for
lumber, bricks or other types of ordinary building material which is
incorporated into improvements on land will generally not be secured by an
interest in such building material.
Enforcement of Security Interest in Home Improvements. Following a default
under a Contract, and provided that the Home Improvement has not become subject
to real estate law, a creditor may be able to repossess a Home Improvement
securing the contractual obligation by voluntary surrender, self-help
repossession that is peaceful (i.e., without breach of the peace) or by judicial
process. The HIC Secured Party related to a Contract must give the debtor a
number of days' notice, which generally varies from 10 to 30 days according to
most state laws, prior to commencing any act of 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 sales. The law in most states also requires
that the debtor be given notice prior to any resale of property that the debtor
may redeem at or before such sale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency which remains following
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 may 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/or resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule of the
Federal Trade Commission is intended to defeat the ability of the transferor of
a consumer credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a contract to all claims and defenses
which the debtor could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a contract; however, the obligor also may
be able to assert the rule to set off remaining amounts due as a defense against
a claim brought by the Trustee against such obligor. Numerous other federal and
state consumer protection laws impose requirements applicable to the origination
and lending pursuant to the contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of these
laws, the failure to comply with their provisions may affect the enforceability
of the related contract.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"), provides
that, subject to the following conditions, state usury limitations shall not
apply to any contract which is secured by a first lien on certain kinds of
consumer goods. The contracts would be covered if they satisfy certain
conditions governing, among other things, the terms of any prepayments, late
charges and deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
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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 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 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 on behalf of the mortgagor. All sums so expended by
the mortgagee become part of the indebtedness secured by the mortgage.
The Title I Program
General. Certain of the Loans contained in a Trust Fund may be loans
insured under the 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 Secretary of the Department of Housing and Urban
Development ("HUD") is authorized and empowered to insure qualified lending
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institutions against losses on eligible loans. The Title I Program operates
as a coinsurance program in which the Secretary of HUD 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 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 Secretary of HUD
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
must be negotiated and agreed to by the borrower and 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 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 Secretary of HUD 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
Secretary of HUD. 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 misstatement 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
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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. 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.
HUD Insurance Coverage. Under the Title I Program the Secretary of HUD
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 the Secretary of HUD
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 Secretary of HUD and the 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 Secretary of HUD of a timely filed loan report on the
prescribed form pursuant to the Title I regulations. The Secretary of HUD
charges a fee of 0.50% of the loan amount multiplied by the number of years in
the loan term for any eligible loan so reported and acknowledged for insurance.
For loans with maturities of 25 months or less, payment of the entire insurance
premium is due 25 days after the Secretary of HUD acknowledges the loan report.
For loans with a term longer than 25 months, payment of the insurance premium is
made in annual installments beginning 25 days after the Secretary of HUD
acknowledges the loan report. If an insured loan is prepaid during the year, FHA
will not refund or abate portions of the insurance premium already paid. Refunds
and abatements are allowed only in limited circumstances.
Under the Title I Program the Secretary of HUD will reduce the insurance
coverage available in the lender's insurance coverage reserve account with
respect to loans insured under the lender's contract of insurance by (i) the
amount of 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. The balance of the lender's insurance coverage reserve account will
be further adjusted as required under Title I or by the Secretary of HUD.
Originations 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 Secretary of HUD 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
of HUD's interest to do so.
The lender may transfer insured loans and loans reported for insurance only
to another qualified lender under a valid Title I contract of insurance (except
as collateral in a bona fide transaction). Unless an insured loan is transferred
with recourse or with a guaranty or repurchase agreement, the Secretary of HUD,
upon receipt of the loan report required upon transfer in accordance with the
Title I regulations, will transfer from the transferor's
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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 Secretary of HUD under the
Title I Program, the Secretary of HUD 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 Property
Improvement Loan must be filed with the Secretary of HUD 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 the lender's
entire interest in the loan note (or a judgment in lieu of the note), in any
security held and in any claim filed in any legal proceedings. If the Secretary
of HUD has reason to believe that the note is not valid or enforceable against
the borrower, the Secretary of HUD may deny the claim and reassign the note to
the lender. If either such defect is discovered after the Secretary of HUD has
paid a claim, the Secretary of HUD 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 Secretary
of HUD 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 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.
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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, the
Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act and
Regulation B promulgated thereunder, the Fair Credit Billing Act, the 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 cases their assignees to damages and
administrative enforcement.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of the anticipated material federal income tax
consequences of the purchase, ownership, and disposition of the Securities and
is based on the advice of Stradley, Ronon, Stevens & Young, LLP, 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
advised to consult their own tax advisers concerning the federal, state, local
and any other tax consequences to them of the purchase, ownership and
disposition of the Securities.
The federal income tax consequences to holders will vary depending on
whether (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) an election is made to treat the Trust Fund
relating to a particular Series of Certificates 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 and related
consent of Stradley, Ronon, Stevens & Young, LLP 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, Stradley, Ronon, Stevens & Young, LLP will
have advised the Depositor that (i) Securities held by a domestic building and
loan association will or, in the case of Certificates issued by a Trust Fund
electing to be taxed as a partnership, should constitute "loans... secured by an
interest in real property" within the meaning of
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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)(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).
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 Accrual Securities 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 January 27, 1994, as amended on June 11, 1996 (the "OID
Regulations"). A holder 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.
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
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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 Accrual 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 Regulations
specifically do not apply for purposes of calculating OID on debt instruments
subject to Code Section 1272(a)(6), such as the Debt Security. Additionally, the
OID Regulations do not contain provisions specifically interpreting Code Section
1272(a)(6). Until the Treasury issues guidance to the contrary, the Trustee
intends to base its computation on Code Section 1272(a)(6) and the OID
Regulations as described in this Prospectus. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that 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 OID. The amount of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the 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 Loans, the amount of
OID includible in income of a holder 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, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals or OID,
reduced by the total payments made with respect to such Debt Security in all
prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, 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 of the Pay-Through
Security,
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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 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 that
Loans will be prepaid at that rate or at any other rate.
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.
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 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 Loans, except possibly to the extent that it can
be established that any accrual of interest on a security is uncollectible. The
IRS, in a recent Technical Advice Memorandum, has ruled that holders of a debt
instrument having OID must continue to accrue OID, as distinguished from the
accrual of interest, even when the issuer's financial condition is such that
there is no reasonable expectation that the instrument will be redeemed
according to its terms. 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 reduced as a result of a Loan 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") 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 Certificates
(the "Interest Weighted Securities"). The Issuer 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 an Accrual 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 Certificates."
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
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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 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 Certificate (as defined herein), as
set forth below, the Loans underlying such Security) not originally issued with
OID, stated interest payable in the relevant period to total stated interest
remaining to be paid at the beginning of the period or (b) in the case of
Securities (or, in the case of a Pass-Through Certificate, 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 Certificate, the Loans),
the excess of interest paid or accrued to purchase or carry a Security (or, in
the case of a Pass-Through Certificate, 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 Certificate, 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 Code 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. Premium on a Pay-Through
Security that is not amortized pursuant to an election under Code Section 171 is
allocated among the principal payments to be made on the Pay-Through Security
and is allowed as an interest offset (or possibly as a loss deduction). If a
holder 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.
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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. In the opinion of Stradley, Ronon, Stevens & Young, LLP, special
counsel to the Depositor, if a REMIC election is made with respect to a Series
of Securities, then the arrangement by which the Securities of that Series are
issued will be treated as a REMIC as long as all of the provisions of the
applicable Agreement are complied with and the statutory and regulatory
requirements are satisfied. Securities will be designated as "regular interests"
or "residual interests" in a REMIC, as specified in the 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) and (ii) in the proportion that
such REMIC assets are qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for Thrift Institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC Expenses; Single Class REMICs
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities (as defined herein) on a daily basis
in proportion to the relative amounts of income accruing to each holder on that
day. In the case of a holder of a Regular Interest Security who is an individual
or a "pass-through interest holder" (including certain pass-through entities but
not 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, 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
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Prospectus Supplement, the expenses of the REMIC will be allocated to holders of
the related residual interest securities.
Taxation of the REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income produced
by the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (ii) deductions, including stated interest and
OID accrued on Regular Interest Securities, amortization of any premium with
respect to Loans, and servicing fees and other expenses of the REMIC. A holder
of a Residual Interest Security that is an individual or a "pass-through
interest holder" (including certain pass-through entities, but not including
real estate investment trusts) will be unable to deduct servicing fees payable
on the loans or other administrative expenses of the REMIC for a given taxable
year, to the extent that such expenses, when aggregated with such holder's other
miscellaneous itemized deductions for that year, do not exceed two percent of
such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the startup
day (i.e., the day on which the REMIC issues all of its regular and residual
interests). 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 "--Taxation of Debt Securities." 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
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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 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 be greater or less than 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
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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 (e.g., an organization described
under Code Section 401(a) or 501(c), with certain limited exceptions), 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 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,
1986, 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 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, is an interest rate that is based on the average market yield
of outstanding marketable obligations of the United States government having
remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Interest Securities" and "--Tax Treatment of Foreign
Investors."
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 (other than a farmers' cooperative
described in Code Section 521) imposed by Sections 1-1399 of the Code, if such
entity is not subject to tax on its unrelated business income. Accordingly, the
applicable Pooling and Servicing 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-
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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 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 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 Treasury recently issued final 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. Prospective purchasers of a REMIC Residual
Interest Security should consult their tax advisors regarding the 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, in the opinion of Stradley, Ronon, Stevens &
Young, LLP, special counsel to the Depositor, 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, the
"Pass-Through Certificates"). In some Series there will be no separation of the
principal and interest payments on the Loans. In such circumstances, a holder
will be considered to have purchased a pro rata undivided interest in each of
the Loans. In other cases (the "Stripped Securities"), sale of the Securities
will produce a separation in the ownership of all or a portion of the principal
payments from all or a portion of the interest payments on the Loans.
Each holder must report on its federal income tax return its share of the
gross income derived from the Loans (not reduced by the amount payable as 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 Certificates 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
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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, 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 Certificates. The holder's purchase
price of a Pass-Through Certificate 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 Certificate 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 Certificate, the interest in the Loan allocable to the
Pass-Through Certificate 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 Certificates, market discount is calculated
with respect to the Loans underlying the Certificate, rather than with respect
to the Certificate. A holder that acquires an interest in a Loan originated
after July 18, 1984 with more than a de minimis amount of market discount
(generally, the excess of the principal amount of the Loan over the purchaser's
allocable purchase price) will be required to include accrued market discount in
income in the manner set forth above. See "--Taxation of Debt Securities--Market
Discount" and "--Premium."
In the case of market discount on a Pass-Through Certificate attributable
to Loans originated on or before July 18, 1984, the holder generally will be
required to allocate (e.g., on a ratable or straight line basis) 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 initially at a faster 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 (the "Ratio Strip
Securities") may represent a right to receive differing percentages of both the
interest and principal on each Loan. Pursuant to Section 1286 of the Code, the
separation of ownership of the right to receive some or all of the interest
payments on an obligation from ownership of the right to receive some or all of
the principal payments results in the creation of "stripped bonds" with respect
to principal payments and "stripped coupons" with respect to interest payments.
Section 1286 of the Code applies the OID rules to stripped bonds and stripped
coupons. For purposes of computing OID, a stripped bond or a stripped coupon is
treated as a debt instrument issued on the date that such stripped interest is
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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 (1%) (i.e., 1% interest on the Loan principal
balance) or the Securities are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Securities should be treated as market
discount. The IRS appears to require that reasonable servicing fees be
calculated on a Loan by Loan basis, which could result in some Loans being
treated as having more than 100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to apply
to Stripped Securities and other Pass-Through Certificates. 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 Code 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 Certificates, the Trustee will treat all payments to
be received by a holder with respect to the underlying Loans as payments on a
single installment obligation. The IRS could, however, assert that OID must be
calculated separately for each Loan underlying a Security.
Under certain circumstances, if the Loans prepay at a rate faster than the
Prepayment Assumption, the use of the Cash Flow Bond Method may accelerate a
holder's recognition of income. If, however, the Loans prepay at a rate slower
than the Prepayment Assumption, in some circumstances the use of this method may
decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted Security,
the Trustee intends, absent contrary authority, to report income to Security
holders 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 Certificates 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; and 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.
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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 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 (ii) the amount of ordinary
income actually recognized by the holder with respect to such Regular Interest
Security. For taxable years beginning after December 31, 1992, 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, 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 OID 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, including payments to certain
exempt recipients (such as exempt organizations) and to certain Foreign Persons
(as defined below) who provide appropriate ownership statements as to status as
a Foreign Person. Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
The Trustee will report to the holders and to the 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
The term "United States Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate whose income is subject to United States federal income tax regardless of
its source 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. A "Foreign Person" is any person that is not a United
States Person.
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 Foreign Person, 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
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receipt of appropriate ownership statements as to status as a Foreign Person,
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 Foreign Persons. Holders of
Pass-Through Certificates and Stripped Securities, including Ratio Strip
Securities, however, may be subject to withholding to the extent that the Loans
were originated on or before July 18, 1984.
Interest and OID of holders who are Foreign Persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the regular
United States income tax.
Payments to holders of Residual Interest Securities who are Foreign
Persons will generally be treated as interest for purposes of the 30% (or lower
treaty rate) United States withholding tax. Holders should assume that 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 Foreign Person 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 Foreign Person 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 Residential Securities--Excess
Inclusions."
Tax Characterization of the Trust Fund as a Partnership
In the opinion of Stradley, Ronon, Stevens & Young, LLP, special counsel
to the Depositor, 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 is based on the assumption that the
terms of the Trust Agreement and related documents, including the requirement
that the Trust Fund file with the IRS a protective election to be classified as
a partnership, will be complied with, and on counsel's conclusions that (i) the
Trust Fund will be eligible to be classified as a partnership and (ii) 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 Certificateholders could be liable for
any such tax that is unpaid by the Trust Fund.
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Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and the
Noteholders 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.
Assumptions Regarding the Notes. The discussion below assumes that all
payments on the Notes are denominated in United States dollars, and that the
Notes are not 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 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 Noteholder 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.
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 Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such Noteholder
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 Noteholder who
is 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"
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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 Owner Trustee or other person who is otherwise required to
withhold United States tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the Beneficial Owner of the Note is a Foreign Person and
providing the Foreign Person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the Foreign Person that
owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a Foreign Person will be exempt from United
States federal income and withholding tax, 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 Foreign Person who
provides certification as to status as a Foreign Person) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust 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 Company, 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 United States tax and United States 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
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 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 debt of the partnership. However, the proper characterization of
the arrangement involving the Trust Fund, the Certificates, the Notes, the Trust
Fund and the 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
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
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Assumptions Regarding the Certificates. The following discussion assumes
that all payments on the Certificates are denominated in United States dollars,
none of the Certificates are 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 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 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.
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 Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
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 Company. 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 Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust 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 Certificateholders 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 Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust Fund.
The taxable income allocated to a Certificateholder that is a pension,
profit sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account) will constitute "unrelated business taxable
income" generally taxable to such a holder under the Code to the extent that
such Certificateholder's share of the taxable income is derived from, or on
account of, debt financed securities. The Notes will constitute acquisition
indebtedness of the Trust Fund for this purpose under Code Section 514.
An individual taxpayer's share of expenses of the Trust Fund (including
fees to the 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 Certificateholders 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 Certificateholders.
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
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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 Certificateholders.
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 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 Certificateholder'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 Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, 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 Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of 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 Certificateholders. 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 Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust Fund's assets will not be adjusted to reflect that
higher (or lower) basis unless the
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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,
Certificateholders 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 Trustee 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 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 Certificateholder'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 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 (a) the name, address and identification number of such person,
(b) 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 (c) 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
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust Fund by the appropriate taxing authorities
could result in an adjustment of the returns of the Certificateholders, and,
under certain circumstances, a Certificateholder 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 Certificateholder's returns and
adjustments of items not related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. 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 Foreign
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 Certificateholders who are not Foreign Persons
pursuant to Section 1446 of the Code, as if such income were effectively
connected to a United States trade or business, at a rate of 35% for holders
that are Foreign Persons taxable as corporations and 39.6% for all other holders
who are Foreign Persons. 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 foreign status signed under penalties of perjury.
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Each holder who is a Foreign Person might be required to file a United
States 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 holder who is a Foreign Person 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 holder who is a Foreign
Person generally would be entitled to file with the IRS a claim for refund with
respect to taxes withheld by the Trust Fund taking the position that no taxes
were due because the Trust Fund was not engaged in a United States trade or
business. However, interest payments made (or accrued) to a Certificateholder
who is a Foreign Person generally will be considered guaranteed payments to the
extent such payments are determined without regard to the income of the Trust
Fund. If these interest payments are properly characterized as guaranteed
payments, then the interest will not be considered "portfolio interest." As a
result, Certificateholders will be subject to United States federal income tax
and withholding tax at a rate of 30 percent, unless reduced or eliminated
pursuant to an applicable treaty. In such case, a holder who is a Foreign Person
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state and
local income tax consequences of the acquisition, ownership, and disposition of
the Securities. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Securities of a Series that are not divided into subclasses.
If Securities are divided into subclasses the related Prospectus Supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested) (collectively, "Plans")
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of Plans be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plans. ERISA also imposes certain duties
on persons who are fiduciaries of Plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a Plan is considered to be a fiduciary of such Plan (subject to certain
exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)) and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in ERISA
Section 3(33)), are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Securities without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Code Sections 401(a) and 501(a), however, is subject to the prohibited
transaction rules set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain other
entities in which a
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Plan makes an "equity" investment could be deemed for purposes of ERISA to be
assets of the investing Plan in certain circumstances. However, the regulation
provides that, generally, the assets of a corporation or partnership in which a
Plan invests will not be deemed for purposes of ERISA to be assets of such Plan
if the equity interest acquired by the investing Plan is a publicly-offered
security. A publicly-offered security, as defined in the Labor Reg. Section
2510.3-101, is a security that is widely held, freely transferable and
registered under the Exchange Act.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the Loans
may be deemed Plan assets of each Plan that purchases Securities, an investment
in the Securities by a Plan might be a prohibited transaction under ERISA
Sections 406 and 407 and subject to an excise tax under Code Section 4975 unless
a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction 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 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 Subordinated Securities.
Accordingly, unless otherwise provided in the related Prospectus Supplement, no
transfer of a Subordinated Security or a Security which is not a Single Family
Security may be made to a Plan.
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 pass-through certificate" would include (i) Securities issued
in a Series consisting of only a single class of Securities; and (ii) Securities
issued in a Series in which there is only one class of such Securities; provided
that the Securities in the case of clause (i), or the Securities in the case of
clause (ii), evidence the beneficial ownership of both a specified percentage of
future interest payments (greater than 0%) and a specified percentage (greater
than 0%) of future principal payments 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
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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 issued without a subordination feature, or the
Securities only in a Series issued with a subordination feature, provided that
the subordination and Reserve Account, subordination by shifting of interests,
the pool insurance or other form of credit enhancement described under "Credit
Enhancement" herein (such subordination, pool insurance or other form of credit
enhancement being the system of insurance or other protection referred to above)
with respect to a Series of 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."
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. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the Securities is appropriate for the
Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Underwriter Exemptions. The Underwriter Exemptions contain
several requirements, some of which differ from those in PTE 83-l. The
Underwriter Exemptions contain an expanded definition of "certificate" which
includes an interest which entitles the holder to pass-through payments of
principal, interest and/or other payments. The Underwriter Exemptions contain an
expanded definition of "trust" which permits the trust corpus to consist of
secured consumer receivables.
While each Underwriter Exemption is an individual exemption separately
granted to a specific underwriter, the terms and conditions which generally
apply to the Underwriter Exemptions are substantially the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) the rights and interest 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 required by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch Investors
Service, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group as defined below;
(5) the sum of all payments made to and retained by the underwriters
in connection with the distribution of the certificates represents not
more than reasonable compensation for underwriting the certificates; the
sum of all payments made to and retained by the seller pursuant to the
assignment of the loans to the trust fund represents not more than the
fair market value of such loans; the sum of all payments made to and
retained by the servicer and any other servicer represents not more than
reasonable
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compensation for such person's services under the agreement pursuant to
which the loans are pooled and reimbursements of such person's reasonable
expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
The Underwriter Exemptions provide that the term "trust" does not include
any investment pool unless, among other things, it meets 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 in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR for at
least one year prior to the Plan's acquisition of 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 certificates.
Moreover, the Underwriter Exemptions generally provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust as to which
the fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements, (i) in the case of an acquisition
in connection with the initial issuance of certificates, at least fifty percent
(50%) of each class of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group; (ii) such fiduciary (or its
affiliate) is an obligor with respect to five percent (5%) or less of the fair
market value of the obligations contained in the trust; (iii) the Plan's
investment in certificates of any class does not exceed twenty-five percent
(25%) of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent (25%) of the assets of the Plan with respect to which such
person is a fiduciary is invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Seller, the
related Underwriter, the Trustee, the Servicer, any insurer with respect to the
Loans, any obligor with respect to Loans included in the Trust Fund constituting
more than five percent (5%) of the aggregate unamortized principal balance of
the assets in the Trust Fund, or any affiliate of such parties (the "Restricted
Group").
The Prospectus Supplement for each Series of Securities will indicate the
classes of Securities, if any, offered thereby as to which it is expected that
an Underwriter Exemption will apply.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with their counsel concerning the impact of ERISA and the Code,
the applicability of PTE 83-1 and the Underwriter Exemptions, and the potential
consequences in their specific circumstances, prior to making such investment.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment procedure and diversification an investment in
the Securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
LEGAL INVESTMENT
The related 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 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
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legal investment authority of any such entities with respect to "mortgage
related securities," securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
such legislation affect the validity of any contractual commitment to purchase,
hold or invest in securities, or require the sale or other disposition of
securities, so long as such contractual commitment was made or such securities
were acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by 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
Securities are being offered hereby in Series from time to time through
any of the following methods:
1. By negotiated firm commitment underwriting and public reoffering
by underwriters;
2. By agency placements through one or more placement agents
primarily with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional
investors.
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A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Securities will be determined. Each Prospectus Supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters' obligations, any material relationship between the Depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the Securities so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Securities of such Series if any such Securities are purchased. Securities
may be acquired by the underwriters for their own accounts and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such underwriters or agents may be required to
make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Securities of such Series.
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 Stradley, Ronon, Stevens & Young, LLP, 2600 One Commerce Square,
Philadelphia, PA 19103.
RATING
It is a condition to the issuance of the Securities of each Series offered
hereby and by the related 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 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
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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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INDEX OF DEFINED TERMS
Term Page
Accretion Directed Class....................................................36
Accrual Class...............................................................38
Accrual Securities..........................................................33
Advance......................................................................9
Advances....................................................................34
Agreement...................................................................21
Amortizable Bond Premium Regulations........................................79
APR.....................................................................24, 51
Available Funds.............................................................33
Balloon Payment..........................................................5, 23
Bank.....................................................................4, 25
Bankruptcy Code..............................................................8
Belgian Cooperative.........................................................43
Beneficial Owners.....................................................3, 6, 41
BIF.........................................................................52
Book-Entry Securities.......................................................41
Calculation Agent...........................................................39
Capitalized Interest Account................................................55
Cash Flow Bond Method.......................................................85
Cede.................................................................. 3, 6
CEDEL.......................................................................41
CEDEL Participants..........................................................42
CERCLA..................................................................17, 65
Certificateholders..........................................................19
Certificates..........................................................1, 4, 31
Claimable Amount............................................................73
Class Security Balance......................................................33
Closing Date................................................................19
Code....................................................................10, 74
Collateral Value............................................................24
Combined Loan-to-Value Ratio................................................24
Commission .................................................................2
Companion Class.............................................................37
Component Class.............................................................36
Contingent Regulations......................................................76
Contracts...................................................................68
Cut-off Date.............................................................4, 21
Cut-off Date Principal Balance..............................................31
DCR.........................................................................96
Debt Securities.............................................................75
Debt-to-Income Ratio........................................................26
Definitive Security.........................................................41
Depositor................................................................1, 25
Detailed Description........................................................22
Disqualified Organization...................................................82
Distribution Date............................................................6
DOL.........................................................................94
DTC...............................................................3, 6, 18, 41
DTC Participants........................................................18, 42
EPA.........................................................................65
Equity One...............................................................4, 25
100
<PAGE>
Equity One Standards........................................................26
ERISA.......................................................................12
Euroclear...................................................................41
Euroclear Operator..........................................................43
Euroclear Participants......................................................42
European Depositaries.......................................................41
Events of Default...........................................................59
Excess Servicing............................................................85
Exchange Act.................................................................2
Fannie Mae..................................................................59
FDIC........................................................................25
Federal Reserve.............................................................25
FHA..........................................................................9
FHLMC.......................................................................58
Financial Intermediary......................................................41
Fitch.......................................................................96
Fixed Rate Class............................................................38
Floating Rate Class.........................................................38
FNMA........................................................................59
Foreign Person..............................................................87
Freddie Mac.................................................................58
Full Doc....................................................................27
Funding Period...........................................................4, 19
Garn-St Germain Act.........................................................67
HIC Secured Party...........................................................68
Holder in Due Course Rules..................................................17
Home Improvement Contracts............................................1, 5, 22
Home Improvements.....................................................1, 5, 22
HUD.........................................................................69
Indenture...................................................................31
Insurance Proceeds..........................................................53
Insured Expenses............................................................53
Interest Only Class.........................................................38
Interest Weighted Securities................................................77
Inverse Floating Rate Class.................................................38
IRS.........................................................................76
L/C Bank.................................................................8, 45
L/C Percentage...........................................................8, 45
Liquidation Expenses........................................................53
Liquidation Proceeds........................................................53
Loan Indices................................................................40
Loan Rate................................................................6, 23
Loan-to-Value Ratio.........................................................24
Loans........................................................................1
Lockout Periods.............................................................23
Mark-to-Market Regulations..................................................83
Master Servicing Agreement..................................................21
Mixed Use Loan........................................................1, 4, 22
Moody's.....................................................................96
Morgan......................................................................43
Mortgage....................................................................51
Mortgage Loans........................................................1, 4, 22
Mortgaged Properties........................................................23
NCUA........................................................................97
NIV.........................................................................27
Noteholders ................................................................19
Notes.................................................................1, 4, 31
Notional Amount Class.......................................................37
OID.....................................................................10, 75
101
<PAGE>
OID Regulations.............................................................75
OTS.........................................................................25
PAC.........................................................................37
Partial Accrual Class.......................................................38
Parties in Interest.........................................................94
Pass-Through Certificates...................................................83
Pass-Through Rate............................................................6
Pay-Through Security........................................................76
Percentage Interests........................................................59
Permitted Investments.......................................................46
Planned Principal Class.....................................................37
Plans.......................................................................94
Policy Statement............................................................97
Pool.....................................................................4, 21
Pool Insurance Policy.......................................................47
Pool Insurer................................................................47
Pooling and Servicing Agreement.............................................31
Popular..................................................................4, 25
Pre-Funded Amount........................................................4, 19
Pre-Funding Account......................................................4, 19
Prepayment Assumption.......................................................76
Primary Mortgage Insurance Policy...........................................23
Prime Rate..................................................................40
Principal Only Class........................................................38
Principal Prepayments.......................................................34
Properties..................................................................23
Property Improvement Loans..................................................71
PTE 83-1....................................................................94
Purchase Agreement..........................................................21
Purchase Price..............................................................30
Rating Agency...............................................................98
Ratio Strip Securities......................................................84
RCRA........................................................................65
Record Date ................................................................32
Reference Banks.............................................................39
Refinance Loan..............................................................24
Regular Interest Securities.................................................75
Relevant Depositary.........................................................41
Relief Act..................................................................70
REMIC....................................................................1, 74
Reserve Account..........................................................7, 33
Reserve Interest Rate.......................................................39
Residential Loan......................................................1, 4, 22
Residual Interest Security..................................................81
Restricted Group............................................................96
Retained Interest...........................................................31
Revolving Credit Line Loans...........................................1, 4, 22
Riegle Act..................................................................17
Rules.......................................................................41
S&P.........................................................................96
SAIF........................................................................52
Scheduled Principal Class...................................................37
Secured Creditor Exclusion..................................................65
Securities............................................................1, 4, 31
Securities Act...............................................................2
Securities Index............................................................40
Security Account............................................................52
Security Register...........................................................32
102
<PAGE>
Securityholders..........................................................1, 41
Seller.......................................................................1
Sellers.....................................................................21
Senior Securities........................................................5, 44
Sequential Pay Class........................................................37
Series.......................................................................1
Servicer.....................................................................4
Servicing Fee...........................................................58, 84
Short-Term Note.............................................................88
Single Family Properties....................................................23
Single Family Securities....................................................94
SMMEA...................................................................10, 97
Strip Class ................................................................37
Stripped Securities.........................................................83
Sub-Servicer.................................................................9
Sub-Servicers...............................................................21
Sub-Servicing Agreement.....................................................55
Subordinated Securities......................................................5
Subsequent Loans.........................................................4, 19
Support Class...............................................................37
TAC.........................................................................38
Targeted Principal Class....................................................38
Terms and Conditions........................................................43
Thrift Institutions.........................................................82
TIN.........................................................................86
Title I Loans...............................................................71
Title I Program.............................................................70
Title V.................................................................68, 69
Treasury....................................................................11
Treasury Index..............................................................40
Trust Agreement.........................................................21, 31
Trust Fund...............................................................1, 31
Trust Fund Assets.....................................................1, 4, 21
Trustee..................................................................4, 31
UCC.........................................................................68
Underwriter Exemptions......................................................95
United States Person........................................................87
VA...........................................................................9
VA Guaranty.................................................................57
Variable Rate Class.........................................................38
103
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions:
SEC Registration Fee............................................... $303.03
Printing and Engraving Expenses ................................... **
Legal Fees and Expenses............................................ **
Trustee Fees and Expenses.......................................... **
Accounting Fees and Expenses....................................... **
Blue Sky Fees and Expenses......................................... **
Rating Agency Fees................................................. **
Miscellaneous...................................................... **
=======
Total.............................................................. **
=======
- ----------
* 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 $____________ of Securities registered hereby.
** To be completed by amendment.
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 of the Registrant provides, 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
II-1
<PAGE>
described above by reason of the fact that he or she (i) is or was a director or
officer of the Registrant or (ii) is or was serving at the request of the
Registrant as a director or officer (or its equivalent) of another enterprise,
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 of the
Registrant. The Registrant does not maintain liability insurance coverage for
its directors, officers or other persons; however, such persons are covered by a
liability insurance policy maintained by Popular, Inc. for itself and its
subsidiaries.
Item 16. Exhibits.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Pooling and Servicing Agreement.
4.2 Form of Trust Agreement.
4.3 Form of Indenture.
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to legality of the
Securities.
8.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to certain tax
matters (included in Exhibit 5.1).
23.1 Consent of Stradley, Ronon, Stevens & Young, LLP (included in Exhibits
5.1 and 8.1 hereof).
24.1 Power of Attorney.
- --------------------------
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 end 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 a 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) of this section
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.
(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.
II-2
<PAGE>
(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.
II-3
<PAGE>
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 to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wilmington, State of Delaware on the 28th day of
May, 1997.
Equity One ABS, Inc.
By: /s/ Thomas J. Fitzpatrick
---------------------------
Thomas J. Fitzpatrick
President
Each person whose signature appears below hereby constitutes and appoints
Thomas J. Fitzpatrick and Dennis Kildea, and each of them, with full power to
act without the other, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for her or him and in her or
his name, place and stead in any and all capacities (until revoked in writing)
to sign all amendments (including post-effective amendments) to this
Registration Statement on Form S-3 of Equity One ABS, Inc., and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as she or he might or could do in person thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or her or his substitute, may lawfully do or cause to be done, by virtue
hereof. Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Thomas J. Fitzpatrick
- ------------------------- Director and President
Thomas J. Fitzpatrick (Chief Executive Officer) May 28, 1997
/s/ Dennis Kildea*
- ------------------------- Director, Vice President,
Dennis Kildea Treasurer and Assistant May 28, 1997
Secretary (Chief Financial/
Accounting Officer)
/s/ John N. Martella*
- ------------------------- Director, Vice President,
John N. Martella Secretary and Assistant May 28, 1997
Treasurer
II-4
<PAGE>
/s/ George P. Warren, Jr.*
- -------------------------- Director, Vice President
George P. Warren, Jr. and Assistant Secretary May 28, 1997
/s/ Joseph Corvaia*
- ------------------------- Director
Joseph Corvaia May 28, 1997
* By: /s/ Thomas J. Fitzpatrick
---------------------------
Thomas J. Fitzpatrick May 28, 1997
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description of Exhibit Number
- ------- ---------------------- ------
** 3.1 -- Certificate of Incorporation of the Registrant.
** 3.2 -- Bylaws of the Registrant.
** 4.1 -- Form of Pooling and Servicing Agreement.
4.2 -- Form of Trust Agreement.
4.3 -- Form of Indenture.
* 5.1 -- Opinion of Stradley, Ronon, Stevens & Young, LLP as to
legality of the Securities.
* 8.1 -- Opinion of Stradley, Ronon, Stevens & Young, LLP as to
certain tax matters (included in Exhibit 5.1).
* 23.1 -- Consent of Stradley, Ronon, Stevens & Young, LLP (included in
Exhibits 5.1 and 8.1).
24.1 -- Power of Attorney (see Page II-4 and II-5).
- ----------
* To be filed by amendment.
** Previously filed with this Registration Statement.
================================================================================
TRUST AGREEMENT
among
EQUITY ONE ABS, INC.,
as Depositor,
[insert names of all Sellers as Companies]
and
[____________________________],
as Owner Trustee
Dated as of ___________1, 199_
================================================================================
<PAGE>
Table of Contents
Page
----
ARTICLE I
Definitions
SECTION 1.01. Capitalized Terms........................................ 1
SECTION 1.02. Other Definitional Provisions............................ 4
ARTICLE II
Organization
SECTION 2.01. Name..................................................... 5
SECTION 2.02. Office................................................... 5
SECTION 2.03. Purposes and Powers...................................... 5
SECTION 2.04. Appointment of Owner Trustee............................. 6
SECTION 2.05. Initial Capital Contribution of Owner Trust Estate....... 6
SECTION 2.06. Declaration of Trust..................................... 6
SECTION 2.07. Liability of the Companies............................... 6
SECTION 2.08. Title to Trust Property.................................. 7
SECTION 2.09. Situs of Trust........................................... 7
SECTION 2.10. Representations and Warranties of the Depositor and the
Companies.............................................. 7
SECTION 2.11. Federal Income Tax Allocations........................... 9
ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.01. Initial Ownership........................................ 10
SECTION 3.02. The Trust Certificates................................... 10
SECTION 3.03. Authentication of Trust Certificates..................... 10
SECTION 3.04. Registration of Transfer and Exchange of Trust
Certificates........................................... 10
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates.. 11
SECTION 3.06. Persons Deemed Owners.................................... 11
SECTION 3.07. Access to List of Certificateholders' Names and
Addresses.............................................. 11
SECTION 3.08. Maintenance of Office or Agency.......................... 12
SECTION 3.09. Appointment of Paying Agent.............................. 12
SECTION 3.10. Ownership by Companies of Trust Certificates............. 13
SECTION 3.11. Book-Entry Trust Certificates............................ 13
SECTION 3.12. Notices to Clearing Agency............................... 14
SECTION 3.13. Definitive Trust Certificates............................ 14
i
<PAGE>
Table of Contents (cont'd)
Page
----
ARTICLE IV
Actions by Owner Trustee
SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters... 14
SECTION 4.02. Action by Owners with Respect to Certain Matters......... 15
SECTION 4.03. Action by Owners with Respect to Bankruptcy.............. 15
SECTION 4.04. Restrictions on Owners' Power............................ 15
SECTION 4.05. Majority Control......................................... 15
ARTICLE V
Application of Trust Funds; Certain Duties
SECTION 5.01. Establishment of Trust Account........................... 16
SECTION 5.02. Application of Trust Funds............................... 16
SECTION 5.03. Method of Payment........................................ 16
SECTION 5.04. No Segregation of Moneys; No Interest.................... 17
SECTION 5.05. Accounting and Reports to the Noteholders, Owners, the
Internal Revenue Service and Others.................... 17
SECTION 5.06. Signature on Returns; Tax Matters Partner................ 17
ARTICLE VI
Authority and Duties of Owner Trustee
SECTION 6.01. General Authority........................................ 17
SECTION 6.02. General Duties........................................... 18
SECTION 6.03. Action upon Instruction.................................. 18
SECTION 6.04. No Duties Except as Specified in this Agreement or in
Instructions........................................... 19
SECTION 6.05. No Action Except Under Specified Documents or
Instructions........................................... 19
SECTION 6.06. Restrictions............................................. 19
ARTICLE VII
Concerning the Owner Trustee
SECTION 7.01. Acceptance of Trusts and Duties.......................... 19
SECTION 7.02. Furnishing of Documents.................................. 20
SECTION 7.03. Representations and Warranties........................... 21
SECTION 7.04. Reliance; Advice of Counsel............................. 21
SECTION 7.05. Not Acting in Individual Capacity........................ 21
SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or
Loans.................................................. 22
SECTION 7.07. Owner Trustee May Own Trust Certificates and Notes....... 22
ii
<PAGE>
Table of Contents (cont'd)
Page
----
ARTICLE VIII
Compensation of Owner Trustee
SECTION 8.01. Owner Trustee's Fees and Expenses........................ 22
SECTION 8.02. Indemnification.......................................... 22
SECTION 8.03. Payments to the Owner Trustee............................ 23
ARTICLE IX
Termination of Trust Agreement
SECTION 9.01. Termination of Trust Agreement........................... 23
SECTION 9.02. Dissolution upon Insolvency Event of any one of the
Companies.............................................. 24
ARTICLE X
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.01. Eligibility Requirements for Owner Trustee............... 24
SECTION 10.02. Resignation or Removal of Owner Trustee.................. 25
SECTION 10.03. Successor Owner Trustee.................................. 25
SECTION 10.04. Merger or Consolidation of Owner Trustee................. 26
SECTION 10.05. Appointment of Co-Trustee or Separate Trustee............ 26
ARTICLE XI
Miscellaneous
SECTION 11.01. Supplements and Amendments............................... 27
SECTION 11.02. No Legal Title to Owner Trust Estate in Owners........... 28
SECTION 11.03. Limitations on Rights of Others.......................... 28
SECTION 11.04. Notices.................................................. 28
SECTION 11.05. Severability............................................. 29
SECTION 11.06. Separate Counterparts.................................... 29
SECTION 11.07. Successors and Assigns................................... 29
SECTION 11.08. Covenants of the Companies............................... 29
SECTION 11.09. No Petition.............................................. 29
SECTION 11.10. No Recourse.............................................. 30
SECTION 11.11. Headings................................................. 30
SECTION 11.12. GOVERNING LAW............................................ 30
SECTION 11.13. Depositor Payment Obligation............................. 30
iii
<PAGE>
Table of Contents (cont'd)
Page
----
EXHIBIT A Applicable Percentages
EXHIBIT B Form of Certificate of Trust
EXHIBIT C Form of Trust Certificate
EXHIBIT D Incorporation Jurisdictions
EXHIBIT E Initial Minimum Purchase of Trust Certificates
EXHIBIT F Continuing Minimum Holding of Trust Certificates
EXHIBIT G Addresses of Companies
EXHIBIT H Form of Certificate Depository Agreement
iv
<PAGE>
THIS TRUST AGREEMENT (the "Trust Agreement") is dated as of
________1, 199_, by and among EQUITY ONE ABS, INC., a Delaware
corporation, as depositor (the "Depositor"), [insert names and
jurisdiction of incorporation of all Sellers], (collectively, the
"Companies"), and [____________], a [__________________], as owner
trustee (the "Owner Trustee").
WHEREAS, the Companies have agreed to convey to the Depositor any and
all of the Companies' rights and interests with respect to the Loans; and
WHEREAS, in connection therewith, the Companies are willing to assume
certain obligations pursuant hereto;
NOW, THEREFORE, the Depositor, the Companies and the Owner Trustee
hereby agree as follows:
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" shall mean the Administration Agreement
dated as of ________1, 199_, among the Trust, the Indenture Trustee and
[_________________________], as Administrator.
"Agreement" shall mean this Trust Agreement and all of the Exhibits
attached hereto, as the same may be amended and supplemented from time to time.
"Applicable Percentage" shall mean, for each Company, the percentage
number for each Company listed on Exhibit A attached hereto.
"Basic Documents" shall mean the Master Servicing Agreement, the
Indenture, the Administration Agreement and the other documents and certificates
delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
_____.
"Book-Entry Trust Certificate" shall mean 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 3.11.
"Business Trust Statute" shall mean 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" shall mean any of the Book-Entry Trust Certificates or
Definitive Trust Certificates.
1
<PAGE>
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.01.
"Certificate of Trust" shall mean 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" shall mean, 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" shall mean the
register mentioned in and the registrar appointed pursuant to Section 3.04.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Trust Certificate is registered.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean 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" shall mean the Internal Revenue Code of 1986, as amended, and
the Treasury Regulations promulgated thereunder.
"Conveyance" shall mean the conveyance of all of the right, title and
interest of the Depositor in the Loans to the Trust.
"Corporate Trust Office" shall mean, 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 Companies, 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 Companies.
"Definitive Trust Certificates" shall have the meaning set forth in
Section 3.11.
"Depositor" shall mean Equity One ABS, Inc. in its capacity as
depositor hereunder.
"Eligible Distribution Account" shall mean 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
2
<PAGE>
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" shall have the meaning assigned thereto in Section _____.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section
8.02.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.02.
"Indenture" shall mean the Indenture dated as of ________, 199_ between
the Trust and [_____________________________], as Indenture Trustee.
"Initial Certificate Balance" shall mean $__________.
"Insolvency Event" shall mean, with respect to any Person, any of the
following events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
"Loans" shall mean a pool of (i) mortgage loans secured by first and/or
subordinate liens on (a) one-two-four-family residential properties and (b)
mixed commercial/residential use properties, (ii) revolving home equity loans or
certain balances thereof secured by first and/or subordinate liens.
"Master Servicing Agreement" shall mean the Master Servicing Agreement
dated as of ________1, 199_, by and between the Trust, as issuer and
_______________, as master servicer, as the same may be amended or supplemented
from time to time.
"Owner" shall mean each holder of a Trust Certificate.
"Owner Trust Estate" shall mean 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" shall mean [____________________], a [_________]
banking corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor Owner Trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent appointed
pursuant to Section 3.09 and shall initially be [_____________].
"Rating Agency" shall mean any nationally recognized statistical rating
agency asked to rate the Certificates.
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"Record Date" shall mean, with respect to any Distribution Date, the
close of business on a specified day prior to such Distribution Date 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" shall mean the Secretary of State of the State of
Delaware.
"Treasury Regulations" shall mean 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" shall mean the trust established by this Agreement.
"Trust Account" shall mean any account set up by the Owner Trustee
pursuant to the provisions of Section 5.01.
"Trust Certificate" shall mean a certificate evidencing the beneficial
interest of an Owner in the Trust, substantially in the form attached hereto as
Exhibit C.
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 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
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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 "Equity
One Mortgage 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 the
State of Delaware as the Owner Trustee may designate by written notice to the
Owners, the Depositor and the Companies.
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 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;
(iv) to enter into and perform its obligations under this
Agreement and 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 this Agreement and 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.
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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 this Agreement and 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 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 Companies. (a) The Companies shall each,
to the extent, and only to the extent, of each Company's Applicable Percentages
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
Companies would be liable if the Trust were a partnership under the Delaware
Revised Uniform Limited Partnership Act in which the Companies were a general
partner; provided, however, that the Companies 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 in the preceding sentence for which the Companies
shall not be liable) shall be deemed third party beneficiaries of this
paragraph. The obligations of the Companies 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.
[Should this be the Depositor's obligation and not the Companies?]
(b) No Company, other than to the extent set forth in paragraph (a),
shall have any personal liability for any liability or obligation of the Trust.
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SECTION 2.08. Title to Trust Property. Legal title to all of 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 and the
Companies. (a) The Depositor hereby represents and warrants to the Owner Trustee
that:
(i) 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.
(ii) 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.
(iii) 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 convey the property to be sold and
assigned to and deposited with the Trust and the Depositor has duly
authorized such sale and conveyance 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.
(iv) 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 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.
(v) To the Depositor's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative
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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.
(vi) The representations and warranties of the Depositor in
Section 2(b) of each of the Mortgage Loan Purchase Agreement are true
and correct.
(b) Each of the Companies, separately and not jointly, hereby
represents and warrants to the Owner Trustee that:
(i) Each of the Companies has been duly organized and is
validly existing as a corporation in good standing under the laws of
the states set forth on Exhibit D, with the power and authority to own
its properties and to conduct its business as such properties are
currently owned and such business is presently conducted.
(ii) Each of the Companies is duly qualified to do business as
a foreign corporation in good standing and have 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.
(iii) Each of the Companies has the power and authority to
execute and deliver this Agreement and to carry out its terms; each of
the Companies have full power and authority to purchase the Trust
Certificates that each of the Companies has agreed to purchase pursuant
to Section 3.10; and the execution, delivery and performance of this
Agreement has been duly authorized by each of the Companies by all
necessary corporate action.
(iv) 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 charter or bylaws of any of the Companies, or any indenture,
agreement or other instrument to which any of the Companies is a party
or by which any of them are bound; nor result in the creation or
imposition of any Lien upon any of their 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 actual knowledge of any of the Companies, any order, rule or
regulation applicable to any of the Companies of any court or of any
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over any of the
Companies or their properties.
(v) There are no proceedings or investigations pending or, to
the actual knowledge of any of the Companies, threatened before any
court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over any of the Companies or their
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
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materially and adversely affect the performance by any of the Companies
of their obligations under, or the validity or enforceability of, this
Agreement.
(vi) The representatives and warranties of each of the
Companies in Section 2(a) of the separate Mortgage Loan Purchase
Agreement to which a company is a party 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 each of the Companies, to the extent of any remaining net income
according to the Applicable Percentage.
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 each of the
Companies to the extent one of the Companies 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 Companies is authorized to modify the
allocations in this paragraph if necessary or appropriate, in their sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to each of the Companies or to the Certificate Owners, or as otherwise
required by the Code.
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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
$_______ in excess thereof; provided, however, that the Trust Certificates
issued to the Companies 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 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 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 C, 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 (or shall cause [___________] as its
authenticating agent to authenticate and
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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 canceled 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
Servicer and the Depositor, within
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15 days after receipt by the Owner Trustee of a written request therefor from
the Servicer or the Depositor, a list, in such form as the Servicer or the
Depositor may reasonably require, of 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 Companies,
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 each of the Companies and 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.
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SECTION 3.10. Ownership by Companies of Trust Certificates. Each of the
Companies shall on the Closing Date purchase Trust Certificates representing,
for each of the Companies, the Initial Certificate Balance specified in Exhibit
E and shall thereafter retain beneficial and record ownership of Trust
Certificates representing at least the minimum percentage of the Certificate
Balance specified in Exhibit F. Any attempted transfer of any Trust Certificate
that would reduce such interest of any of the Companies below the percentage of
the Certificate Balance specified in Exhibit F shall be void. The Owner Trustee
shall cause any Trust Certificate issued to any of the Companies 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 written Trust
Certificate or Trust Certificates representing Book-Entry Trust Certificates, to
be delivered to The Depository Trust Companies, the initial Clearing Agency, by,
or on behalf of, the Trust; provided, however, that one Definitive Trust
Certificate may be issued to each of the Companies pursuant to Section 3.10.
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.
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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 an Event of Default or a 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 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 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);
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(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.
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 Servicer under
the Master Servicing Agreement pursuant to Section [_____] thereof or (d) except
as expressly provided in the Basic Documents, sell the 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.
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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.
(b) On each Distribution Date, the Owner Trustee shall send to each
Certificateholder the statement or statements provided to the Owner Trustee by
the 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
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$[____________], 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 Companies.
(b) The Companies 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
Companies 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.
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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.
(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.
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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 (a) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (b) in accordance with the Basic Documents
and (c) 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 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 (a) for its own willful
[malfeasance, bad faith or gross] negligence or (b) 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):
(i) The Owner Trustee shall not be liable for any error of judgment
made by a Trust Officer of the Owner Trustee;
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(ii) 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;
(iii) 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;
(iv) 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;
(v) 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 the Companies 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;
(vi) The Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller or Depositor, the Companies, the
Indenture Trustee or the 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 Servicer or the
Seller or Depositor under the Master Servicing Agreement; and
(vii) 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.
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.
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SECTION 7.03. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Companies, 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 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.
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SECTION 7.06. Owner Trustee Not Liable for Trust Certificates or 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 Companies, 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 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 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 Loan; the existence and enforceability of any insurance
thereon; the validity of the assignment of any Loan to the Trust or of any
intervening assignment; the performance or enforcement of any Loan; the
compliance by the Depositor, the Companies or the 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 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
Companies, the Administrator, the Indenture Trustee and the 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
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of Section 7.01. The indemnities contained in this 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 (i) 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 or (ii) at
the time provided in Section 9.02. The bankruptcy, liquidation, dissolution,
death or incapacity of any Owner, other than any one of the Companies as
described in Section 9.02, 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), none of the Depositor, the
Companies or 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 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
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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 Companies, with such distribution being allocated among the
Companies in accordance with each Company's Applicable Percentage.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
SECTION 9.02. Dissolution upon Insolvency Event of any one of the
Companies. In the event that an Insolvency Event shall occur with respect to
each of the Companies, this Agreement shall be terminated in accordance with
Section 9.01 90 days after the date of such Insolvency Event, unless, before the
end of such 90-day period, the Owner Trustee shall have received written
instructions from holders of Certificates (other than the Companies)
representing more than 50% of the Certificate Balance (not including the
Certificate Balance of the Trust Certificates held by the Companies), to the
effect that each such party disapproves of the liquidation of the Loans and of
the Trust. Promptly after the occurrence of any Insolvency Event with respect to
any one of the Companies, (A) such Companies shall give the Indenture Trustee
and the Owner Trustee written notice of such Insolvency Event, (B) the Owner
Trustee shall, upon the receipt of such written notice from such Companies, give
prompt written notice to the Certificateholders and the Indenture Trustee, of
the occurrence of such event and (C) the Indenture Trustee shall, upon receipt
of written notice of such Insolvency Event from the Owner Trustee or such
Companies, give prompt written notice to the Noteholders of the occurrence of
such event; provided, however, that any failure to give a notice required by
this sentence shall not prevent or delay, in any manner, a termination of the
Trust pursuant to the first sentence of this Section 9.02. Upon a termination
pursuant to this Section, the Owner Trustee shall direct the Indenture Trustee
promptly to sell the assets of the Trust (other than the Trust Accounts and the
Certificate Distribution Account) and, on behalf of the Companies, in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds of such a sale of the assets of the Trust shall be treated as
collections under the Master Servicing Agreement and deposited in the ____
Account.
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
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<PAGE>
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 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.
25
<PAGE>
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, the Rating Agencies
and the Companies. 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:
(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
26
<PAGE>
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, all of the Companies 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 Sales Factory 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,
all of the Companies and the Owner Trustee, with prior written notice to the
Rating Agencies, with the consent of Noteholders [other than the Companies and
their affiliates [other than the Depositors]] owning Voting Interests
aggregating not less than a majority of the aggregate Voting Interests 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
27
<PAGE>
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
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 Noteholder, 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 Companies, 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 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
28
<PAGE>
Office; if to the Depositor, addressed to Equity One ABS, Inc.,
_________________, Delaware, Attention: [______________]; if to the Companies,
addressed to each company at the address set forth on Exhibit G, Attention:
President; 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
Certificateholder 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.
(c) Any notice required or permitted to be given to a Noteholder shall
be given by first-class mail, postage prepaid, at the address of such Noteholder
as shown in the Note Register. Any notice so mailed within the time prescribed
in this Agreement shall be conclusively presumed to been duly given, whether or
not the Noteholder 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 Companies, 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. Covenants of the Companies. Each of the Companies agrees
that it will not at any time institute against the Trust 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, the Trust Agreement or any of the Basic Documents.
SECTION 11.09. No Petition. 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 any of the Companies or the Trust, or join in any
institution against any of the Companies or the Trust or any Trust Fund, of any
bankruptcy or insolvency 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. The
Owner Trustee, by entering this Agreement, covenants and agrees that it will not
at any time institute against the Trust or any Trust Fund, or join in any
institution against the Trust or any Trust Fund, of any bankruptcy or insolvency
proceedings against 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 other Basic Documents without the unanimous prior
29
<PAGE>
approval of all Noteholders and all Certificate Holders [including the Depositor
and each of the Companies] and the delivery to the Owner Trustee by all
Noteholders and all Certificateholders [including the Depositor and all of the
Companies] of a Certificate certifying that each such holder reasonably believes
that the Trust [and each Trust Fund] is insolvent.
SECTION 11.10. 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 Servicer, any of the Companies, 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 11.11. 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 11.12. 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 OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. 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.
* * * * * *
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Trust Agreement to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above written.
EQUITY ONE ABS, INC.,
as Depositor,
by:
-------------------------------
Name:
------------------------
Title:
------------------------
[insert separate signature block for
each of the Companies]
[---------------------],
not in its individual capacity but
solely as Owner Trustee,
by:
-------------------------------
Name:
------------------------
Title:
------------------------
31
<PAGE>
EXHIBIT A
APPLICABLE PERCENTAGES
Company Percentage
------------ -------
------------ -------
------------ -------
------------ -------
------------ -------
------------ -------
------------ -------
------------ -------
Total 100%
A-1
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST OF
EQUITY ONE MORTGAGE LOAN TRUST 199__-__
THIS Certificate of Trust of EQUITY ONE MORTGAGE 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 EQUITY ONE
MORTGAGE 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
as of ____________________ 1, 199_
By: _______________________________
Name:__________________________
Title:_________________________
B-1
<PAGE>
EXHIBIT C
FORM OF TRUST CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANIES, 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. _________
EQUITY ONE MORTGAGE LOAN TRUST 199__-__
[_____]% EQUITY ONE MORTGAGE 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 (i) mortgage loans
secured by first and/or subordinate liens on (a) one-to-four-family residential
properties and (b) mixed commercial/residential use properties, and (ii)
revolving home equity loans or certain balances thereof secured by first and/or
subordinate liens on one-to-four-family residential properties and (iii) home
improvement installment sales contracts and installment loan agreements that are
either unsecured or secured by first and/or subordinate liens on
one-to-four-family residential properties or by purchase money security
interests in the home improvements financed thereby, all as caused to be sold to
the Trust by [_______________].
(This Trust Certificate does not represent an interest in or obligation of
Equity One ABS, Inc., Equity One, Inc. or any of their respective affiliates,
except to the extent described below.)
THIS CERTIFIES THAT [________________________] is the registered owner
of [____________________] DOLLARS nonassessable, fully paid, fractional
undivided interest in EQUITY ONE MORTGAGE LOAN TRUST 199__-__ (the "Trust")
formed by Equity One ABS, Inc., a Delaware corporation (the "Depositor"), [list
all Sellers] [collectively the "Companies"].
C-1
<PAGE>
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: [_____________________________],
as Authenticating Agent
Name:_______________________
Title:______________________
by: _________________________________
Authorized Signatory by: ______________________________
Name:_____________________________
Title:____________________________
Authorized Signatory
C-2
<PAGE>
The Trust was created pursuant to a Trust Agreement, dated as of
________, 199__ (the "Trust Agreement"), among the Depositor, the Companies 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 "Servicer"), as applicable.
This Certificate is one of a duly authorized issue of Equity One
Mortgage 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
(i) mortgage loans secured by first and/or subordinate liens on (a) one-to-
four-family residential properties and (b) mixed commercial/residential
use properties and the (ii) revolving home equity loans or certain balances
thereof secured by and/or subordinate liens one-to-four-family residential
properties and (iii) home improvement installment sales contracts and
installment loan agreements that are either unsecured or secured by first and/or
subordinate liens on one-to-four-family residential properties or by purchase
money security interests in the home improvements financed thereby (the
"Loans"); the collections in respect of the Loans received after the Cut-off
Date; property that secured a 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 Companies, the 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 Companies) will be
treated as partners in that partnership. The Companies and the other
Certificateholders, by acceptance of a Trust Certificate, agree to treat, and to
take
C-3
<PAGE>
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
any of the Companies, or join in any institution against any of the Companies
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
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.
C-4
<PAGE>
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.
EQUITY ONE ABS, INC.
by: [____________________________],
not in its individual capacity
but solely as Owner Trustee
Name:_________________________
Title:________________________
Dated: _____________________ by: _______________________________
Name:__________________________
Title:_________________________
Authorized Signatory
[REVERSE OF TRUST CERTIFICATE]
The Trust Certificates do not represent an obligation of, or an
interest in, the Depositor, the Servicer, any of the Companies, 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 Companies and the rights of the Certificateholders under the
Trust Agreement at any time by the Depositor, the Companies 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
C-5
<PAGE>
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.
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 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.
C-6
<PAGE>
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.
C-7
<PAGE>
EXHIBIT D
INCORPORATION JURISDICTIONS
Company State of Incorporation
------- ----------------------
Equity One, Inc. Delaware
--------------- ----------------
--------------- ----------------
--------------- ----------------
--------------- ----------------
--------------- ----------------
--------------- ----------------
D-1
<PAGE>
EXHIBIT E
INITIAL MINIMUM PURCHASE
OF TRUST CERTIFICATES
Company Initial Certificate Balance
E-1
<PAGE>
EXHIBIT F
CONTINUING MINIMUM HOLDING
OF TRUST CERTIFICATES
Company Minimum Certificate Balance
F-1
<PAGE>
EXHIBIT G
ADDRESSES OF COMPANIES
Company Address
G-1
<PAGE>
EXHIBIT H
[Form of Certificate Depository Agreement]
H-1
<PAGE>
Exhibit 4.3
EQUITY ONE MORTGAGE LOAN TRUST 199__-__,
Issuer
AND
[-----------------]
INDENTURE TRUSTEE
-----------------------------------------
INDENTURE
Dated as of _________, 199_
------------------------------------------
MORTGAGE LOAN ASSET BACKED NOTES
SERIES 199__-__
<PAGE>
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
................................. 7.02(a)
(b) ................................. 7.02(b)
(c) ................................. 7.02(c)
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) ................................. 11.01
................................. 2.02
(d) (1) ................................. 11.01
................................. 8.05
(d) (2) ................................. 11.01
................................. Not Applicable
(d) (3) ................................. 11.01
................................. 2.02
(e) ................................. 11.01
i
<PAGE>
TIA Indenture Section
--- -----------------
Section 315
(a) ................................. 6.01(b)
................................. 6.01(c)(i)
(b) ................................. 6.05
................................. 11.05
(c) ................................. 6.01(a)
(d) ................................. 6.01(c)
(d) (1) ................................. 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
ii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I
Definitions
<S> <C>
1.01. Definitions.............................................................................. 2
1.02. Incorporation by Reference of Trust
Indenture Act..................................................................... 2
1.03. Rules of Construction.................................................................... 2
ARTICLE II
Original Issuance of Notes
2.01. Form .................................................................................. 4
2.02. Execution, Authentication and Delivery................................................... 4
2.03. Opinions of Counsel...................................................................... 5
ARTICLE III
Covenants
3.01. Collection of Payments on Mortgage Loan
Accounts.......................................................................... 6
3.02. Maintenance of Office or Agency.......................................................... 6
3.03. Money for Payments To Be Held in Trust;
Paying Agent; Certificate Paying Agent............................................ 6
3.04. Existence................................................................................ 9
3.05. Payment of Principal and Interest;
Defaulted Interest................................................................ 9
3.06. Protection of Trust Estate............................................................... 12
3.07. Opinions as to Trust Estate.............................................................. 12
3.08. [Reserved]............................................................................... 13
3.09. Performance of Obligations; Master
Servicing Agreement............................................................... 13
3.10. Negative Covenants....................................................................... 15
3.11. Annual Statement as to Compliance........................................................ 16
3.12. Recording of Assignments................................................................. 16
3.13. Representations and Warranties
Concerning the Mortgage Loans..................................................... 16
3.14. Indenture Trustee's Review of Related
Documents......................................................................... 17
3.15. Trust Estate; Related Documents.......................................................... 18
3.16. Amendments to Master Servicing
Agreement......................................................................... 19
3.17. Master Servicer as Agent and Bailee of
Indenture Trustee................................................................. 19
3.18. Investment Company Act................................................................... 20
iii
<PAGE>
3.19. Issuer May Consolidate, etc., Only on
Certain Terms..................................................................... 20
3.20. Successor or Transferee.................................................................. 22
3.21. No Other Business........................................................................ 22
3.22. No Borrowing............................................................................. 23
3.23. Guarantees, Loans, Advances and Other
Liabilities....................................................................... 23
3.24. Capital Expenditures..................................................................... 23
3.25. [Reserved]............................................................................... 23
3.26. Restricted Payments...................................................................... 23
3.27. Notice of Events of Default.............................................................. 23
3.28. Further Instruments and Acts............................................................. 24
3.29. Statements to Noteholders................................................................ 24
3.30. [Grant of the Additional Loans].......................................................... 24
3.31. [Determination of Note Rate and
Certificate Rate]................................................................. 25
3.32. [Payments under the Credit Enhancement
Instrument]....................................................................... 25
3.33. [Replacement Credit Enhancement
Instrument]....................................................................... 26
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. The Notes................................................................................ 28
4.02. Registration of and Limitations on
Transfer and Exchange of Notes;
Appointment of Certificate Registrar.............................................. 28
4.03. Mutilated, Destroyed, Lost or Stolen
Notes............................................................................. 30
4.04. Persons Deemed Owners.................................................................... 31
4.05. Cancellation............................................................................. 31
4.06. Book-Entry Notes......................................................................... 31
4.07. Notices to Depository.................................................................... 32
4.08. Definitive Notes......................................................................... 33
4.09. Tax Treatment............................................................................ 33
4.10. Satisfaction and Discharge of Indenture.................................................. 33
4.11. Application of Trust Money............................................................... 35
4.12. [Subrogation and Cooperation]............................................................ 35
4.13. Repayment of Moneys Held by Paying
Agent............................................................................. 36
ARTICLE V
Remedies
5.01. Events of Default........................................................................ 37
5.02. Acceleration of Maturity; Rescission and
Annulment......................................................................... 37
iv
<PAGE>
5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee.................................................. 38
5.04. Remedies; Priorities..................................................................... 40
5.05. Optional Preservation of the Trust
Estate............................................................................ 43
5.06. Limitation of Suits...................................................................... 43
5.07. Unconditional Rights of Noteholders To
Receive Principal and Interest.................................................... 44
5.08. Restoration of Rights and Remedies....................................................... 44
5.09. Rights and Remedies Cumulative........................................................... 44
5.10. Delay or Omission Not a Waiver........................................................... 44
5.11. Control by Noteholders................................................................... 45
5.12. Waiver of Past Defaults.................................................................. 45
5.13. Undertaking for Costs.................................................................... 46
5.14. Waiver of Stay or Extension Laws......................................................... 46
5.15. Sale of Trust Estate..................................................................... 46
5.16. Action on Notes.......................................................................... 48
5.17. Performance and Enforcement of Certain
Obligations....................................................................... 49
ARTICLE VI
The Indenture Trustee
6.01. Duties of Indenture Trustee.............................................................. 50
6.02. Rights of Indenture Trustee.............................................................. 51
6.03. Individual Rights of Indenture Trustee................................................... 52
6.04. Indenture Trustee's Disclaimer........................................................... 52
6.05. Notice of Event of Default............................................................... 52
6.06. Reports by Indenture Trustee to Holders.................................................. 52
6.07. Compensation and Indemnity............................................................... 52
6.08. Replacement of Indenture Trustee......................................................... 53
6.09. Successor Indenture Trustee by Merger.................................................... 54
6.10. Appointment of Co-Indenture Trustee or
Separate Indenture Trustee........................................................ 55
6.11. Eligibility; Disqualification............................................................ 56
6.12. Preferential Collection of Claims
Against Issuer.................................................................... 57
6.13. Representation and Warranty.............................................................. 57
6.14. Directions to Indenture Trustee.......................................................... 57
6.15. No Consent to Certain Acts of Depositor.................................................. 57
ARTICLE VII
Noteholders' Lists and Reports
7.01. Issuer To Furnish Indenture Trustee
Names and Addresses of Noteholders................................................ 58
7.02. Preservation of Information;
Communications to Noteholders..................................................... 58
v
<PAGE>
7.03. Reports by Issuer........................................................................ 58
7.04. Reports by Indenture Trustee............................................................. 59
ARTICLE VIII
Accounts, Disbursements and Releases
8.01. Collection of Money...................................................................... 60
8.02. Trust Accounts........................................................................... 60
8.03. Opinion of Counsel....................................................................... 62
8.04. Termination Upon Distribution to Note-
holders........................................................................... 62
8.05. Release of Trust Estate.................................................................. 62
8.06. Surrender of Notes Upon Final Payment.................................................... 63
ARTICLE IX
Supplemental Indentures
9.01. Supplemental Indentures Without Consent
of Noteholders.................................................................... 64
9.02. Supplemental Indentures With Consent of
Noteholders....................................................................... 65
9.03. Execution of Supplemental Indentures..................................................... 67
9.04. Effect of Supplemental Indenture......................................................... 67
9.05. Conformity with Trust Indenture Act...................................................... 68
9.06. Reference in Notes to Supplemental
Indentures........................................................................ 68
ARTICLE X
[Reserved]
ARTICLE XI
Miscellaneous
11.01. Compliance Certificates and Opinions,
etc............................................................................... 70
11.02. Form of Documents Delivered to
Indenture Trustee................................................................. 72
11.03. Acts of Noteholders..................................................................... 73
11.04. Notices, etc., to Indenture Trustee,
Issuer, [Credit Enhancer] and Rating
Agencies.......................................................................... 74
11.05. Notices to Noteholders; Waiver.......................................................... 75
11.06. Alternate Payment and Notice Provisions................................................. 75
11.07. Conflict with Trust Indenture Act....................................................... 75
11.08. Effect of Headings...................................................................... 76
vi
<PAGE>
11.09. Successors and Assigns.................................................................. 76
11.10. Separability............................................................................ 76
11.11. Benefits of Indenture................................................................... 76
11.12. Legal Holidays.......................................................................... 76
11.13. GOVERNING LAW........................................................................... 76
11.14. Counterparts............................................................................ 76
11.15. Recording of Indenture.................................................................. 77
11.16. Issuer Obligation....................................................................... 77
11.17. No Petition............................................................................. 77
11.18. Inspection.............................................................................. 78
11.19. Authority of the Administrator.......................................................... 78
Signatures ..................................................................................................... 81
Acknowledgments ................................................................................................ 82
Appendix A - Definitions
EXHIBITS
Exhibit A - Form of Note
</TABLE>
vii
<PAGE>
This Indenture, dated as of ______, 199_, between EQUITY ONE
MORTGAGE 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
Mortgage 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 date 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; and (i) all
present and future claims, demands, causes and choses 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.
<PAGE>
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
Definition
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.
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 Commis-
sion.
"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;
2
<PAGE>
(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.
3
<PAGE>
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 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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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;
(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
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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).
(b) 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;
(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;
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(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 4.01 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 as described in Section 5.01 of
the Trust Agreement;
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 Certifi-
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cates will not be paid until the full amount of interest and principal in
accordance with clauses (i)(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 Holder holds Notes or Certificates other
than the Definitive Trust 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.
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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 this Section 3.06 (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.
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 continu-
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ation 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 con-
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tracted 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 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
Servicer 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 Servicer Termination. If such Event of
Servicer 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 Servicer Termination arises from the failure by the Master
Servicer to comply with requirements imposed upon it under Section ____ 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 ____. So long as any such Event of Servicer
Termination shall be continuing, the Indenture Trustee may exercise its remedies
set forth in Section ____ 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 Servicer 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 ____ 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
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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.
(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
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(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 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.
Section 3.13. Representations and Warranties Concerning the Mortgage
Loans. The Issuer has pledged to the Indenture Trustee all of its right under
the Loan Purchase Agreement and the Indenture Trustee has the benefit of the
representations and
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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 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
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
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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 Loan Purchase Agreement, shall exercise its remedies
in respect of any such defect against the Seller as provided in the 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.
(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 ____ 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.
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(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 ____ of the Master Servicing
Agreement. The Indenture Trustee may, in its discretion, 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 Inden- ture
Trustee. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable
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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 ____ 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 3.15(c),
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 ____ 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 trans-
action, no Event of Default shall have occurred and be continuing;
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(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;
(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
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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 trans-
action, 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).
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
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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 other-wise) 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 1(a)(ii) 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.
Section 3.27. Notice of Events of Default. The Issuer shall give the
Indenture Trustee, [the Credit Enhancer] and the
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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 ____ of the Master Servicing Agreement.
Section 3.30. [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 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 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;
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(iv) the Indenture Trustee shall have received a duly
completed and executed Transfer Certificate in the form of Exhibit ___
to the 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 Loan Purchase Agreement; and
(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 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
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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 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
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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.]
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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 resigns or is removed, 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 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
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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 ____ 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 ____ of the Trust
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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 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
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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
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
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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.
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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 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
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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. above, has irrevocably
deposited 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
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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;
(iii) file or record all Assignments that have not
previously been recorded;
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(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.
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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 (but need not) 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:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
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(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
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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, 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
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(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
Note-holder 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 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 (but need not) do one or more of the following
(subject to Section 5.05):
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(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 has not occurred, any Sale of the
Trust Estate shall be made subject to the continued Servicing of the Mortgage
Loans
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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.
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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.
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,
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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.
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
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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 Note-holders 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
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and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but 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
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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 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
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(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;
(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
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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 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 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 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 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 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.
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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 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.
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(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.
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
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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 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 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 pay, 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 reimburse, or shall cause the Administrator to
reimburse, the Indenture Trustee for all
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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(___) or ___ 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;
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(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.
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.
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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.
(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
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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
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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). 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 the conveyance 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.
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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).
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 and take any other
action required by TIA ss. 314(a);
(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 infor-
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mation, 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.
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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 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)).
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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.
(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
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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
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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 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.
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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
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(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;
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
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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";
(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
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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 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
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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.
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ARTICLE X
[Reserved]
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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;
(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".
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(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
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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.
(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,
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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 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
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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: Equity One Mortgage 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 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.
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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
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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.
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 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.
Section 11.14. Counterparts. This Indenture may be
executed in any number of counterparts, each of which so executed
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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,
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.
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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.
EQUITY ONE MORTGAGE 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:______________________________
Name:____________________
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]
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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 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
Seller to the Issuer after the Closing Date pursuant to Section 2 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.
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[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
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
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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 Cut-off 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), or (g), 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 clause (g) 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
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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 Insurance
Agreement, the Administration Agreement, the Master Servicing
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Agreement, the Custodial Agreement and the other documents and certificates
delivered in connection with any of the above.
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.
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<PAGE>
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.
Certificates: The 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 ___ 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.
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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 ____ of the 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 security bond number [__________],
dated as of the Closing Date, issued by the Credit Enhancer to the Indenture
Trustee for the benefit of the Notehol- ders and to the Certificate Paying Agent
as agent for the Issuer for the benefit of the Certificateholders.]
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[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 permitted 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: Equity One ABS, Inc., a Delaware corporation, or its
successor in interest.
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.
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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.]
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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 paper
issued by Equity One, Inc. or any of its Affiliates or 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 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,
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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 an Eligible 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 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.
ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
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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
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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, 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 ____ 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 ____ 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
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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 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
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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.
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 Loans 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.
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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
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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 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: Equity One Mortgage 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
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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 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.
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Loan Agreement: With respect to any Mortgage Loan, the mortgage loan
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 (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.
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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.
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.
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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
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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.]
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 ____ 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
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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.
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.
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 the Loan Purchase Agreement,
during the related Collection Period, 100% of the Asset Balance of the
Mortgage Loan as of the date of such purchase or repurchase; and
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(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: The Companies and their successors and permitted
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 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
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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 ____ of the Loan Purchase Agreement and any documents
required to be added to such documents pursuant to the Loan Purchase Agreement,
the Trust Agreement or the Master Servicing Agreement.
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.
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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.
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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.
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: The Companies and their successors and permitted 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.
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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.
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
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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.
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