As Filed with the Securities and Exchange Commission on August 20, 1998
Registration No. 333-24599
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective 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
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
Kevin P. Kundra, Esquire
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, 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.|_|
<PAGE>
<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(2)
================================================================================================================
<S> <C> <C> <C> <C>
Asset Backed Notes and Asset Backed
Certificates............................. $325,000,000 100% $325,000,000 $98,484.85
================================================================================================================
</TABLE>
(1) Estimated for the purpose of calculating the registration fee.
(2) The full amount of the registration fee has already been remitted to the
Commission.
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>
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.
<TABLE>
<CAPTION>
==================================================================================================================
Initial Class Pass-Through Rate
Certificate
Balance (1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A- $ %
- ------------------------------------------------------------------------------------------------------------------
Class $ %
- ------------------------------------------------------------------------------------------------------------------
Class PO $ (2)
- ------------------------------------------------------------------------------------------------------------------
Class X (3) (4)
- ------------------------------------------------------------------------------------------------------------------
Class A-R $ %
- ------------------------------------------------------------------------------------------------------------------
Class B- $ %
- ------------------------------------------------------------------------------------------------------------------
Class $ %
- ------------------------------------------------------------------------------------------------------------------
Class $ %
==================================================================================================================
</TABLE>
(1) Subject to the permitted variance described under "Summary of Terms--Offered
Certificates."
(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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<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]
<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-2
<PAGE>
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." 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.
S-3
<PAGE>
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.
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.
S-4
<PAGE>
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 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....................... For so long as the Class __ Certificates
are not Definitive Certificates, the Record
Date for each Distribution Date will be the
last business day of the month preceding
the month of such Distribution Date. While
any Definitive Certificates are
outstanding, the Record Date for each
Distribution Date will be the last Business
Day of the calendar month immediately
preceding 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."
S-5
<PAGE>
A. Interest Distribution
Amount..................... For each interest bearing class of
Certificates, the sum of (i) 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, less the amount of Net
Interest Shortfalls allocated to such
class, 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 to such class as interest on
such Distribution Date and not subsequently
distributed ("Class Unpaid Interest
Amounts").
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
S-6
<PAGE>
only to the extent described under "Credit
Enhancement--Subordination of Certain
Classes."
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."
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
S-7
<PAGE>
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."
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").
S-8
<PAGE>
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.
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 Subject to
Change" 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-9
<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--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.
S-10
<PAGE>
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, of which
____% have an original term of approximately ___ years and provide for monthly
payments based on a _____ 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 ____%. Due
to the limited market 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 Loan-to-Value 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 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 Loan-to-Value Ratios for such Loans,
determined as of the origination date.
S-11
<PAGE>
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
non-owner occupied Mortgaged Properties could be higher than for Loans secured
by the primary residence of the borrower.
Certificate Rating Subject to Change
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 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
S-12
<PAGE>
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 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
S-13
<PAGE>
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 (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 ___%. In general, the Mixed Use Loans had a Loan-to-Value Ratio
at origination of not more than ___%.
The "Loan-to-Value Ratio" of a Loan at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance of
such Loan at the date of origination plus, in the case of a Loan with a
subordinate lien on the related Mortgaged Property, the aggregate outstanding
principal balance of all mortgage loans on the Mortgaged Property with liens
senior to such Loan on the date of origination of
S-14
<PAGE>
such Loan, and the denominator of which is 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 obtained by the originator from an
independent fee appraiser at the time of origination of the related Loan, and
(b) if the Loan was originated either in connection with the acquisition of the
Mortgaged Property by the borrower or within one year after acquisition of the
Mortgaged Property by the borrower, the purchase price paid by such borrower for
the 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-15
<PAGE>
<TABLE>
<CAPTION>
Mortgage Pool Tables
Mortgage Rates(1)
-----------------
Aggregate Principal Percent of Mortgage Pool
Mortgage Rates (%) Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<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-16
<PAGE>
<TABLE>
<CAPTION>
Original Loan-to-Value Ratios(1)
--------------------------------
Original Loan-to-Value Aggregate Principal Percent of Mortgage Pool
Ratios (%) Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<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)
----------------------------------
Aggregate Principal Percent of Mortgage Pool
Current Loan Amounts Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<S> <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-17
<PAGE>
<TABLE>
<CAPTION>
Documentation Program for Loans
-------------------------------
Aggregate Principal Percent of Mortgage Pool
Type of Program (1) Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<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
----------------------------
Aggregate Principal Percent of Mortgage Pool
Property Type Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Single Family................ $ %
Condominium..................
Mixed Use....................
Two- to Four- Family.........
Planned Unit Development.....
-- ----------- ------------
Totals....................... $ 100.00%
-- ----------- ------------
-- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Occupancy Types(1)
------------------
Aggregate Principal Percent of Mortgage Pool
Occupancy Type Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<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-18
<PAGE>
<TABLE>
<CAPTION>
State Distribution of Mortgaged Properties(1)
---------------------------------------------
Aggregate Principal Percent of Mortgage Pool
State Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<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
----------------
Aggregate Principal Percent of Mortgage Pool
Loan Purpose Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <S>
Purchase..................... $ %
Refinance (rate/term)........
Refinance (cash out).........
-- ----------- ------------
Totals....................... $ 100.00%
-- ----------- ------------
-- ----------- ------------
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
Remaining Terms to Maturity(1)
------------------------------
Remaining Term to Maturity Aggregate Principal Percent of Mortgage Pool
(Months) Number of Loans Balance Outstanding
- --------------------------------------------------------------------------------------------------------------------
<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.
S-20
<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 mortgage loans.
Each Seller produces its mortgage loans through its retail origination
network of loan officers and managers. Each Seller also produces mortgage loans
through a wholesale network of mortgage brokers and other entities located
throughout the United States. Prior to the funding of any mortgage loan, each
Seller underwrites the related mortgage 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 mortgage
loan, but also take into consideration the borrower's credit standing and
repayment ability.
S-21
<PAGE>
The Equity One Standards generally allow for the origination and
purchase of mortgage loans under underwriting programs designated as Grade A
Credits, Grade B Credits or Grade C Credits. See "Specific Underwriting
Criteria; Underwriting Programs" and "Summary of Underwriting Requirements by
Program" in the Prospectus. 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.
These underwriting programs and their underwriting criteria may change
from time to time. In addition, on a case-by-case basis, certain loans may be
made to borrowers not strictly qualifying under the specific criteria of an
underwriting program. Deviations from the specific criteria of an underwriting
program are permitted to reflect compensating factors such as local economic
trends, real estate valuations and other credit factors specific to each loan
application and/or each portfolio acquired, 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 to be included in the Mortgage Pool will have been originated based on
such underwriting exceptions. Overall, the goal of the Sellers is to maintain
the integrity of these underwriting programs while simultaneously providing
lending officers and corresponding networks with the flexibility to consider the
specific circumstances of each loan.
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. _____% of the
Loans in the Mortgage Pool will be underwritten pursuant to the Full Doc program
and _____% of such Loans will be underwritten pursuant to the NIV program.
The Equity One Standards require an independent appraisal of each
mortgaged property securing each mortgage loan in excess of $15,000 that
conforms to Federal National Mortgage Corporation ("Fannie Mae") 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. Every independent appraisal
is reviewed by a representative of the related Seller before the mortgage loan
is funded. The maximum loan amount varies depending upon a borrower's credit
grade. Variations in maximum loan amount limits are permitted based on
compensating factors. Maximum loan amounts for mortgage loans underwritten
pursuant to the NIV program generally do not exceed $500,000.
Title insurance has been obtained on all Loans in the Mortgage Pool.
The improvements on each Mortgaged Property securing a Loan in the Mortgage Pool
are covered by hazard insurance with extended coverage in an amount at least
equal to the lesser of (i) the principal balance of the Loan or, if a Loan
secured by a subordinate lien, the aggregate principal balance of such Loan and
any loans secured by senior liens, and (ii) the maximum insurable value of the
improvements on such Mortgaged Property.
S-22
<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.
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.
S-23
<PAGE>
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-24
<PAGE>
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.
[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
S-25
<PAGE>
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.
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
S-26
<PAGE>
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.
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
S-27
<PAGE>
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. 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 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
S-28
<PAGE>
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 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.
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<PAGE>
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, less the amount of
Net Interest Shortfalls allocated to such class, 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
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
S-30
<PAGE>
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 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
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<PAGE>
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.
"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
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<PAGE>
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.
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 ....................................................... %
S-33
<PAGE>
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 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
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<PAGE>
on or prior to the Senior Credit Support Depletion Date will be treated as a
Class PO Deferred Amount. To the extent funds are available on such Distribution
Date or on any future Distribution Date from amounts that would otherwise be
allocable to the Subordinated Principal Distribution Amount, Class PO Deferred
Amounts will be paid on the Class PO Certificates prior to distributions of
principal on the Subordinated Certificates. Any distribution of Available Funds
in respect of unpaid Class PO Deferred Amounts will not further reduce the Class
Certificate Balance of the Class PO Certificates. The Class PO Deferred Amounts
will not bear interest. The Class Certificate Balance of the class of
Subordinated Certificates then outstanding with the highest numerical class
designation will be reduced by the amount of any payments in respect of Class PO
Deferred Amounts. After the Senior Credit Support Depletion Date, no new Class
PO Deferred Amounts will be created.
On each Distribution Date, the applicable Non-PO Percentage of any
Realized Loss, other than any Excess Loss, will be allocated first to the
Subordinated Certificates, in the reverse order of their numerical class
designations (beginning with the class of Subordinated Certificates then
outstanding with the highest numerical class designation), in each case until
the class Certificate Balance of the respective class of Certificates has been
reduced to zero, and then to the Senior Certificates (other than the Notional
Amount Certificates and the Class PO Certificates) pro rata, based upon their
respective Class Certificate Balances.
On each Distribution Date, the applicable Non-PO Percentage of Excess
Losses will be allocated pro rata among the classes of Senior Certificates
(other than the Notional Amount Certificates and the Class PO Certificates) and
the Subordinated Certificates based upon their respective Class Certificate
Balances.
Because principal distributions are paid to certain classes of
Certificates (other than the Class PO Certificates) before other classes of
Certificates, holders of such Certificates that are entitled to receive
principal later bear a greater risk of being allocated Realized Losses on the
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.
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:
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<PAGE>
<TABLE>
<CAPTION>
Original Term to Remaining Term to
Principal Balance Mortgage Rate Net Mortgage Rate Maturity (in Maturity (in
months) 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 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
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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.
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
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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 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
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rate anticipated by the investor during the period immediately following the
issuance of the Offered Certificates may not be offset by a subsequent like
decrease (or increase) in the rate of principal payments.
The tables below indicate the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of certain classes of Certificates to various
constant percentages of SPA. The yields set forth in the tables were calculated
by determining the monthly discount rates that, when applied to the assumed
streams of cash flows to be paid on the applicable classes of Certificates,
would cause the discounted present value of such assumed streams of cash flows
to equal the assumed aggregate purchase prices of such classes and converting
such monthly rates to corporate bond equivalent rates. Such calculations do not
take into account variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as distributions on
such Certificates and consequently do not purport to reflect the return on any
investment in any such class of Certificate when such reinvestment rates are
considered.
Sensitivity of the Interest Only Certificates
As indicated in the table below, the yield to investors in the Class X
Certificates will be sensitive to the rate of principal payments (including
prepayments) of the Non-Discount 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.
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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.
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Sensitivity of the Interest Only Certificates to Prepayments
(Pre-Tax Yields to Maturity)
<TABLE>
<CAPTION>
SPA Prepayment /Assumption
--------------------------
<S> <C> <C> <C> <C> <C> <C>
Class 0% % % % % %
- -------------------- ---------------- --------------- --------------- --------------- --------------- -----------
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.
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)
<TABLE>
<CAPTION>
SPA Prepayment /Assumption
--------------------------
<S> <C> <C> <C> <C> <C> <C>
Class 0% % % % % %
- -------------------- ---------------- --------------- --------------- --------------- --------------- -----------
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
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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 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.
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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) 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.
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<PAGE>
Percent of Initial Class Certificate
Balances Outstanding*
<TABLE>
<CAPTION>
Class A-
--------
<S> <C> <C> <C> <C> <C> <C>
Distribution Date 0% % % % % % %
- --------------------------------- ------------- ------------- ------------- ----------- ----------- -----------
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..........................
-- -- -- -- -- --
</TABLE>
Weighted Average
Life (in years)**..........
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<PAGE>
<TABLE>
<CAPTION>
Class
-----
<S> <C> <C> <C> <C> <C> <C>
Distribution Date 0% % % % % % %
- --------------------------------- ------------- ------------- ------------- ----------- ----------- -----------
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..........................
-- -- -- -- -- --
</TABLE>
Weighted Average
Life (in years)**..........
- ---------
* 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 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
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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.
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,
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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.
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.
S-47
<PAGE>
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 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)(4)(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
S-48
<PAGE>
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. 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
S-49
<PAGE>
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 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, Pennsylvania. Brown & Wood
LLP, New York, New York, will pass upon certain legal matters on behalf of the
Underwriter.
S-50
<PAGE>
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-51
<PAGE>
INDEX OF DEFINED TERMS
Page
----
Advance:........................................7, 26
Agreement:......................................4, 13
Applicable Credit Support Percentage:..............33
Available Funds:...................................29
Bankruptcy Loss Coverage Amount:...................47
Bankruptcy Losses:.................................35
Beneficial Owner:..................................28
Book-Entry Certificates:............................4
Cede:..............................................28
Certificate Account:...............................28
Certificateholders:................................13
Certificates:................................1, 3, 27
Class Certificate Balance:.........................27
Class PO Deferred Amount:..........................30
Class PO Principal Distribution Amount:............34
Class Subordination Percentage:....................33
Code:...............................................8
Corporate Trust Office:.............................2
Cut-off Date Pool Principal Balance:...............14
Debt Service Reduction:............................47
Deficient Valuation:...............................47
Definitive Certificate:............................28
Deleted Loan:......................................21
Depositor:..........................................4
Determination Date:.................................4
Discount Loan:.....................................31
Distribution Account:..............................28
Distribution Date:..............................5, 29
DTC:...............................................27
Due Date:..........................................14
Equity One Standards...............................21
Equity One:.....................................4, 22
ERISA:..........................................8, 49
Excess Losses:.....................................35
Fannie Mae.........................................22
Fixed Rate Certificates:............................4
Fraud Loss Coverage Amount:........................47
Fraud Losses:......................................35
Insurance Proceeds:................................29
Interest Accrual Period:........................6, 30
Interest Distribution Amount:......................30
Interest Only Certificates:.........................4
Last Scheduled Distribution Date:..................45
Liquidated Loan:...................................35
Liquidation Proceeds:..............................29
Loans:.......................................1, 5, 13
Loan-to-Value Ratio:...............................14
Mixed Use Loan:..............................1, 5, 13
Mixed Use Properties:..............................11
Mortgage File:.....................................21
Mortgage Note:.....................................21
Mortgage Pool:...................................1, 4
Mortgage Rate:.....................................30
Mortgage:..........................................21
Net Interest Shortfall:............................30
Net Prepayment Interest Shortfall:.................30
NMR:...............................................31
Non-Discount Loan:.................................27
Non-PO Formula Principal Amount:...................31
Non-PO Percentage:.................................31
Notional Amount Certificates:.......................4
Notional Amount:...................................27
Offered Certificates:........................1, 3, 27
OID:............................................8, 48
Original Applicable Credit Support Percentage:.....33
Original Subordinated Principal Balance:...........33
Permitted Investments:.............................28
Physical Certificates:..............................4
Plan:...........................................8, 49
PO Formula Principal Amount:.......................34
PO Percentage:.....................................31
Pool Principal Balance:............................32
Prepayment Assumption:.............................48
Prepayment Interest Excess:........................26
Prepayment Interest Shortfall:.....................30
Prepayment Period:.................................29
Principal Only Certificates:........................4
Prospectus:.........................................2
PTE 95-60:.........................................50
Rating Agencies:................................9, 51
Realized Loss:.....................................35
Record Date:.......................................29
Regular Certificates:...............................3
Relief Act Reduction:..............................30
REMIC:...........................................2, 8
REO Property:......................................26
Replacement Loan:..................................21
S-52
<PAGE>
Page
----
Residential Loan:............................1, 5, 13
Residual Certificates:..............................3
Restricted Classes:................................33
Scheduled Payments:................................14
Seller:.............................................2
Sellers:.........................................2, 4
Senior Certificates:............................3, 27
Senior Credit Support Depletion Date:..............32
Senior Percentage:.................................32
Senior Prepayment Percentage:......................32
Senior Principal Distribution Amount:..............32
Servicer:...........................................4
Servicing Fee Rate:................................26
SMMEA:..............................................9
SPA:...............................................36
Special Hazard Loan:...............................35
Special Hazard Loss Coverage Amount:...............47
Special Hazard Losses:.............................35
Stated Principal Balance:..........................32
Structuring Assumptions:...........................35
Subordinated Certificates:......................4, 27
Subordinated Percentage:...........................33
Subordinated Prepayment Percentage:................33
Subordinated Principal Distribution Amount:........34
Substitution Adjustment Amount:....................21
Tax Counsel:.......................................48
Trustee:............................................4
Underwriter Exemption:.............................49
Underwriter:........................................1
Unpaid Interest Amounts:...........................30
Variable Rate Certificates:.........................4
S-53
<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_]
____________________
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED [ ], 199[ ]
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________, 199__)
$-------------
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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
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.
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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 pursuant 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 Loans as of such date.
The "Principal Balance" of a Loan (other than a Liquidated Loan)
on any day is equal to its Cut-off Date Principal Balance, plus
(i) any Additional Balances in respect of such 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
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"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 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 " Loan-to-Value Ratio" of each Loan is the
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fraction, expressed as a percentage, the numerator of which is
the principal balance of such Loan at the date of origination
plus, in the case of a Loan with a subordinate lien on the
related Mortgaged Property, the aggregate outstanding principal
balance of all mortgage loans on the Mortgaged Property with
liens senior to such Loan on the date of origination of such
Loan, and the denominator of which is 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 obtained by the originator from an independent
fee appraiser at the time of origination of the related Loan, and
(b) if the Loan was originated either in connection with the
acquisition of the Mortgaged Property by the borrower or within
one year after acquisition of the Mortgaged Property by the
borrower, the purchase price paid by such borrower for the
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. As
of the Cut-off Date the Loan-to-Value Ratios ranged from ____% to
______% and, as of the Cut-off Date, the weighted average
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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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 business day preceding a Distribution Date or, if the
Securities are no longer Book-Entry Securities, the last business
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;
(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;
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(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 Liquidated
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.
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
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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 outstanding Principal Balance and accrued
and unpaid interest thereon at the weighted average of the Loan
Rates through the day preceding the final Distribution Date. See
"Description of the Securities--Optional Termination" herein and
"The Agreements--Termination; Optional Termination" in the
Prospectus.
[Letter of Credit]
[Surety Bond]
Issuer................................... _________________ (the "[Letter of Credit] [Surety Bond]
Issuer"). See "The [Letter of Credit] [Surety Bond] Issuer"
herein.
[Letter of Credit]
[Surety Bond].............................. On the Closing Date, the [Letter of Credit] [Surety Bond] Issuer
will issue a [letter of credit] [surety bond] (the "[Letter of
Credit] [Surety Bond]") in favor of the Owner Trustee on behalf
of the Trust Fund. In the event that, on any Distribution Date,
available amounts on deposit in the Collection Account with
respect to the preceding Collection Period are insufficient to
provide for the payment of the amount required to be distributed
to the holders and the Master Servicer on such Distribution Date,
the Trustee will draw on the [Letter of Credit] [Surety Bond], to
the extent of the
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[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 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
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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 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.
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Risk Factors................................... For a discussion of risks associated with an investmentin the
Securities, see "Risk Factors" on Page [ ] herein and on
Page [ ] in the Prospectus.
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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 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.
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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.
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.
S-14
<PAGE>
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 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 mortgage loans.
S-15
<PAGE>
Each Seller produces its mortgage loans through its retail origination
network of loan officers and managers. Each Seller also produces mortgage loans
through a wholesale network of mortgage brokers and other entities located
throughout the United States. Prior to the funding of any mortgage loan, each
Seller underwrites the related mortgage 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 mortgage
loan, but also take into consideration the borrower's credit standing and
repayment ability.
The Equity One Standards generally allow for the origination and
purchase of mortgage loans under underwriting programs designated as Grade A
Credits, Grade B Credits or Grade C Credits. See "Specific Underwriting
Criteria; Underwriting Programs" and "Summary of Underwriting Requirements by
Program" in the Prospectus. 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.
These underwriting programs and their underwriting criteria may change
from time to time. In addition, on a case-by-case basis, certain loans may be
made to borrowers not strictly qualifying under the specific criteria of an
underwriting program. Deviations from the specific criteria of an underwriting
program are permitted to reflect compensating factors such as local economic
trends, real estate valuations and other credit factors specific to each loan
application and/or each portfolio acquired, 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 to be included in the Mortgage Pool will have been originated based on
such underwriting exceptions. Overall, the goal of the Sellers is to maintain
the integrity of these underwriting programs while simultaneously providing
lending officers and corresponding networks with the flexibility to consider the
specific circumstances of each loan.
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. _____% of the
Loans in the Mortgage Pool will be underwritten pursuant to the Full Doc program
and _____% of such Loans will be underwritten pursuant to the NIV program.
The Equity One Standards require an independent appraisal of each
mortgaged property securing each mortgage loan in excess of $15,000 that
conforms to Federal National Mortgage Corporation ("Fannie Mae") 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. Every independent appraisal
is reviewed by a representative of the related Seller before the mortgage loan
is funded. The maximum loan amount varies depending upon a borrower's credit
grade. Variations in maximum loan amount limits are permitted based on
compensating factors. Maximum loan amounts for mortgage loans underwritten
pursuant to the NIV program generally do not exceed $500,000.
S-16
<PAGE>
Title insurance has been obtained on all Loans in the Mortgage Pool.
The improvements on each Mortgaged Property securing a Loan in the Mortgage Pool
are covered by hazard insurance with extended coverage in an amount at least
equal to the lesser of (i) the principal balance of the Loan or, if a Loan
secured by a subordinate lien, the aggregate principal balance of such Loan and
any loans secured by senior liens, and (ii) the maximum insurable value of the
improvements on such Mortgaged Property.
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.
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.
S-17
<PAGE>
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, 1996 March 31, 1997
------------------------------------------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996
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.
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.
S-19
<PAGE>
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 Loan-to-Value Ratio of the Loans ranged from
_____ % to ______% and the weighted average Loan-to-Value Ratio was __%. The
Loan-to-Value Ratio for a Loan is the fraction, expressed as a percentage, the
numerator of which is the principal balance of such Loan at the date of
origination plus, in the case of a Loan with a subordinate lien on the related
Mortgaged Property, the aggregate outstanding principal balance of all mortgage
loans on the Mortgaged Property with liens senior to such Loan on the date of
origination of such Loan, and the denominator of which is 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 obtained by the
originator from an independent fee appraiser at the time of origination of the
related Loan, and (b) if the Loan was originated either in connection with the
acquisition of the Mortgaged Property by the borrower or within one year after
acquisition of the Mortgaged Property by the borrower, the purchase price paid
by such borrower for the 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. 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) ____ years, in the case of
Residential Loans and (ii) ____ to ____ 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."
S-20
<PAGE>
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.
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 ___%.
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)
-------------
Aggregate Principal
Loan Rates (%) Number of Loans Balance 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 Aggregate Principal
Ratios (%) Number of Loans Balance 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)
----------------------------------
Aggregate Principal
Current Loan Amounts Number of Loans 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 $ .
S-23
<PAGE>
<TABLE>
<CAPTION>
Documentation Program for Loans
-------------------------------
Aggregate Principal
Type of Program (1) Number of Loans Balance Outstanding Percent of Pool
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Full Doc..................... $ %
NIV..........................
-- ----------- ------------
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
----------------------------
Aggregate Principal
Property Type Number of Loans 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)
------------------
Aggregate Principal
Occupancy Type Number of Loans 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)
---------------------------------------------
Aggregate Principal
State Number of Loans 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
----------------
Aggregate Principal
Loan Purpose Number of Loans 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 Aggregate Principal
(Months) Number of Loans Balance 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
S-26
<PAGE>
after the Cut-off Date (exclusive of payments in respect of accrued interest due
on or prior to the Cut-off Date or due in the month of ______). The Owner
Trustee, concurrently with such transfer, will deliver the Securities. Each 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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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
letter from each Rating Agency to the Owner Trustee, without reduction or
withdrawal of their then current ratings of the Securities.
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"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.
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.
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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 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
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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;
(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.
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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.
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
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continuation of any such default for a period of 30 days after notice thereof is
given to the Trust Fund by the Indenture Trustee or to the Trust Fund and the
Indenture Trustee by the holders of at least 25% in principal amount of the
Notes then outstanding; (iv) any representation or warranty made by the Trust
Fund in the Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the time
made, and such breach not having been cured within 30 days after notice thereof
is given to the Trust Fund by the Indenture Trustee or to the Trust Fund and the
Indenture Trustee by the holders of at least 25% in principal amount of Notes
then outstanding; or (v) certain events of bankruptcy, insolvency, receivership
or liquidation of the Trust Fund. [The amount of principal required to be paid
to Noteholders under the Indenture will generally be limited to amounts
available to be deposited in the Collection Account. Therefore, the failure to
pay principal on the Notes generally will not result in the occurrence of an
Event of Default until the final scheduled Distribution Date for such Notes.] If
there is an Event of Default with respect to a Note due to late payment or
nonpayment of interest due on a Note, additional interest will accrue on such
unpaid interest at the interest rate on the Note (to the extent lawful) until
such interest is paid. Such additional interest on unpaid interest shall be due
at the time such interest is paid. If there is an Event of Default due to late
payment or nonpayment of principal on a Note, interest will continue to accrue
on such principal at the interest rate on the Note until such principal is paid.
If an Event of Default should occur and be continuing with respect to the Notes,
the Indenture Trustee or holders of a majority in principal amount of Notes then
outstanding may declare the principal of such Notes to be immediately due and
payable. Such declaration may, under certain circumstances, be rescinded by the
holders of a majority in principal amount of the Notes then outstanding. If the
Notes are due and payable following an Event of Default with respect thereto,
the Indenture Trustee may institute proceedings to collect amounts due or
foreclose on Trust Fund property or exercise remedies as a secured party. If an
Event of Default occurs and is continuing with respect to the Notes, the
Indenture Trustee will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the holders of
the Notes, if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and the holders of a majority in principal
amount of the Notes then outstanding may, in certain cases, waive any default
with respect thereto, except a default in the payment of principal or interest
or a default in respect of a covenant or provision of the Indenture that cannot
be modified without the waiver or consent of all the holders of the outstanding
Notes. No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% in principal amount of the outstanding Notes have
made written request to the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days failed to institute such proceeding and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during the 60-day
period by the holders of a majority in principal amount of the Notes. In
addition, the Indenture Trustee and the Noteholders, by accepting the Notes,
will covenant that they will not at any time institute against the Trust Fund
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law. With respect to the Trust Fund, neither the Indenture
Trustee nor the Owner Trustee in its individual capacity, nor any holder of a
Certificate representing an ownership interest in the Trust Fund nor any of
their respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the Notes or for the agreements of the Trust Fund contained in the
Indenture.
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
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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 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.
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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 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.
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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.
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
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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 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
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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 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
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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 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 IBCA, 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
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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.
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 _____________________________.
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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 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 IBCA, Inc. ("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.
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INDEX OF DEFINED TERMS
Page
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Additional Balances:................................3
Administrator:.....................................34
Agreement:.........................................29
Beneficial Owners:.................................29
BIF:...............................................26
Book-Entry Securities:..........................7, 29
Business Day:.......................................5
Cede:...............................................7
CEDEL:..............................................7
Certificate Insurer:................................1
Certificates:....................................1, 3
Chase:..............................................7
Citibank:...........................................7
Code:..............................................34
Collection Account:.............................6, 26
Collection Period:..............................7, 30
Collections:........................................6
Cut-off Date Pool Principal Balance:............4, 18
Cut-off Date Principal Balance:.....................3
Cut-off Date:.......................................3
DCR:...............................................39
Defective Loans:...................................25
Definitive Security:............................8, 29
Depositor:..........................................1
Determination Date:.............................4, 26
Distribution Date:..................................1
DTC:............................................7, 29
Due Date:.......................................5, 18
Eligible Account:..................................26
Eligible Investments:..............................27
Eligible Substitute Loan:..........................25
Equity One Standards...............................15
Equity One:........................................14
ERISA Counsel:.....................................37
ERISA:.........................................10, 36
Euroclear:..........................................7
European Depositories:.............................29
Events of Default:.................................30
Exemption:.........................................37
Fannie Mae.........................................15
Fitch:.............................................39
Indenture Trustee:...............................1, 4
Indenture:.......................................1, 4
Insolvency Event:..................................33
Interest Accrual Period:........................7, 30
Interest Collections:...............................6
Issuer:.............................................3
Liquidated Loan:....................................4
Liquidation Loss Amount:............................7
Loan Agreements:...................................18
Loan Rate:..........................................5
Loans:.......................................1, 3, 18
Loan-to-Value Ratio:................................4
Master Servicer:....................................4
Mixed Use Loan:..............................1, 3, 18
Moody's:...........................................39
Mortgage Files:....................................25
Net Liquidation Proceeds:..........................27
Note Rate:...................................1, 7, 30
Noteholders:........................................4
Notes:...........................................1, 3
OID:............................................9, 35
Owner Trustee:...................................1, 4
Pass-Through Rate:...........................1, 7, 30
Plan Asset Regulation:.............................36
Plan:..........................................10, 36
Policy:..........................................1, 3
Pool Balance:...................................3, 27
Principal Balance:..................................3
Principal Collections:..........................6, 27
Purchase Agreement:.................................4
Rating Agency:.....................................10
Related Documents:.................................24
Relevant Depository:...............................29
Repurchase Price:..................................25
Residential Loan:............................1, 3, 18
SAIF:..............................................26
Securities:......................................1, 3
Security Account:..................................26
Security Principal Balance:.........................6
Sellers:............................................4
Servicing Fee Rate:................................28
SMMEA:.............................................10
Standard & Poor's:.................................39
Tax Counsel:....................................9, 35
Trust Agreement:.................................1, 4
Trust Fund:......................................1, 3
Underwriter:................................2, 37, 38
Underwriting Agreement:............................38
Voting Interests:..................................34
S-42
<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)
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 20, 1998
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 and
other multi-family residential properties (each, a "Mixed Use Loan" and,
together with the Residential Loans, the "Mortgage Loans") and (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. 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 or the Loans
underlying such Series of Securities. 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.
__________, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
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 Seller, 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
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
2
<PAGE>
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 certificate 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 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 97 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 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").
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
4
<PAGE>
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 25% of the initial aggregate principal
amount of the Certificates and/or Notes of
the related Series of Securities. The
Pre-Funded Amount will be used to purchase
Loans ("Subsequent Loans") in a period from
the related Closing Date to a date not more
than 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 and other multi-family residential
properties (each, a "Mixed Use Loan" and,
together with the Residential Loans, the
"Mortgage Loans") and (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. 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 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.
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.
5
<PAGE>
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 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
6
<PAGE>
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.
The Securities will have an aggregate
original principal balance and will bear
interest at such interest rate as may be
specified in the related Prospectus
Supplement.
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 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;
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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
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
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<PAGE>
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.
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,
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<PAGE>
following the date on which the related
Mortgaged 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 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 5% 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 average 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(a)(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
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<PAGE>
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.
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 the 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
Notes are issued by such Trust Fund, such
Notes will be treated as indebtedness for
federal income tax purposes. The holders of
the
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<PAGE>
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 the 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.
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<PAGE>
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.
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 Subject to Change" and
"Rating."
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<PAGE>
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 Mortgaged Properties such that the
outstanding balance of the related Loans, together with any senior financing on
the Mortgaged Properties, if applicable, would equal or exceed the value of the
Mortgaged Properties. Among the factors that could adversely affect the value of
the Mortgaged Properties are an overall decline in the real estate market in the
areas in which the Mortgaged Properties are located or a decline in the general
condition of the Mortgaged Properties as a result of failure of borrowers to
maintain adequately the Mortgaged 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 Mortgaged 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 Mortgaged 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 Mortgaged 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 Mortgaged 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 Mortgaged 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
14
<PAGE>
and may therefore be prevented from foreclosing on the related Mortgaged
Property. See "Certain Legal Aspects of the Loans--Junior Mortgages; Rights of
Senior Mortgagees."
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."
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
Mortgaged 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 Mortgaged 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 Accounts 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 25% of the initial aggregate principal
amount of the Certificates and/or Notes of the related Series of Securities. The
Pre-Funded Amount will be used to purchase Loans ("Subsequent Loans") in a
period from the earliest to occur of: (i) the date the amount on deposit in the
Pre-Funding Account is less than the minimum dollar amount specified in the
related Agreement; (ii) the date on which an Event of Default occurs under the
related Agreement; or (iii) the date which is the later of three months or 90
days after the related 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.
Limits on 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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Market Value of Trust Fund Assets May Fluctuate
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. 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.
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."
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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 non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
loans. In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
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."
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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 Subject to Change
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 either originated or acquired by affiliates of the Depositor 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." 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,
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.
- ----------
* 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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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 and other multi-family residential
properties (each, a "Mixed Use Loan" and, together with the Residential Loans,
the "Mortgage Loans") and (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. 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 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 Mortgaged 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
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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 Mortgaged 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." The 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.
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 other 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.
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 the
underlying Mortgaged 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 Mortgaged
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.
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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 Mortgaged 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 at any given time is the fraction,
expressed as a percentage, the numerator of which is the sum of (i) the
principal balance of such Loan at the date of origination (or, in the case of a
Revolving Credit Line Loan, the maximum amount thereof available) plus (ii) 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, and the denominator of which is the Collateral Value of the related
Mortgaged Property. The "Collateral Value" of the 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 of such Mortgaged Property based on an appraisal obtained by the
originator at origination of such Loan and (b) if the Loan was originated either
in connection with the acquisition of the Mortgaged Property by the borrower or
within one year after acquisition of the mortgaged property by the borrower, the
purchase price paid by such borrower for the Mortgaged Property. In the case of
Refinance Loans, the "Collateral Value" of the related Mortgaged Property is the
appraised value thereof determined in an appraisal obtained at the time of
refinancing.
No assurance can be given that values of the Mortgaged 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
Mortgaged Properties, as applicable, in a particular Pool become equal to or
greater than the value of the Mortgaged 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."
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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. 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. The Loans so purchased by the Depositor
will have been either originated or acquired by the Sellers in accordance with
the underwriting criteria specified below under "Underwriting Standards,"
"Specific Underwriting Criteria; Underwriting Programs" and "Summary of
Underwriting Requirements by Program."
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"). 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 Mortgaged 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, to the
extent specified in the related Prospectus Supplement, have been verified by the
related Seller. In addition, to the extent specified in the related Prospectus
Supplement, each Seller, as part of its quality control system, will have
reverified 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
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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 Ratio
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 a low Loan-to-Value Ratio 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.
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 all 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.
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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 50% 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 that has been discharged for a minimum of five
years is acceptable if the borrower has since established a payment history,
notwithstanding such bankruptcy, consistent with this underwriting program. 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.
Unpaid charge-offs, collections, liens or judgments may not exceed $500 in the
aggregate. 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
(consecutive 30 day delinquencies are treated as one 30 day account), (ii) three
major credit cards with a maximum of one 30 day delinquency or (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.
3. Loan-to-Value Ratios and Debt-to-Income Ratios must conform to the
following criteria: (exception: credit insurance premiums may increase the
Loan-to-Value Ratio to a maximum of 95%):
Maximum Maximum Debt-
Property Type Loan-to-Value Ratio to-Income Ratio
------------- ------------------- ---------------
Owner occupied one- to four-
family dwellings, townhouses,
condominiums, true second homes 90% 45%
or
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
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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
two 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 or (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.
3. Loan-to-Value Ratios and Debt-to-Income Ratios must conform to the
following criteria (exception: credit insurance premiums may increase the
Loan-to-Value Ratio to a maximum of 95%):
Maximum Maximum Debt-
Property Type Loan-to-Value Ratio to-Income Ratio
------------- ------------------- ---------------
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
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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. Loan-to-Value Ratios and Debt-to-Income Ratios must conform to the
following criteria (exception: credit insurance premiums may increase the
Loan-to-Value Ratio to a maximum of 95%):
Maximum Maximum Debt-
Property Type Loan-to-Value Ratio to-Income Ratio
------------- ------------------- ---------------
Owner occupied single family
dwellings, townhouses 80% 50%
Owner occupied two- to four-
family dwellings, townhouses,
condominiums 75% 50%
Owner occupied condominiums 70% 50%
True Second Homes 75% 50%
Non-owner occupied one- to four-
family dwellings 70% 50%
Qualifications of Sellers
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
Mortgaged 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 insurance
(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
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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 Mortgaged 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 Mortgaged Property was free from damage and was in acceptable condition;
(iv) that there were no delinquent tax or assessment liens against the Mortgaged
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. 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, 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 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
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<PAGE>
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
The Securities of each Series will be issued in book-entry or fully
registered form as specified in the related Prospectus Supplement, in the
authorized denominations specified in the related Prospectus Supplement, and
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. 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.
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.
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<PAGE>
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." 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 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.
"Pass-Through Rate" means a rate equal
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<PAGE>
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. To the extent funds are available therefor, interest
accrued during each such specified period on each class of Securities entitled
to interest (other than a class of Securities that provides for interest that
accrues, but is not currently payable, referred to hereafter as "Accrual
Securities") will be distributable on the Distribution Dates specified in the
related Prospectus Supplement until the aggregate Class Security Balance of the
Securities of such class has been distributed in full or, in the case of
Securities entitled only to distributions allocable to interest, until the
aggregate notional amount of such Securities is reduced to zero or for the
period of time designated in the related Prospectus Supplement. The original
Class Security Balance of each Security will equal the aggregate distributions
allocable to principal to which such Security is entitled. Distributions
allocable to interest on each Security that is not entitled to distributions
allocable to principal will be calculated based on the notional amount of such
Security. The notional amount of a Security will not evidence an interest in or
entitlement to distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for certain other
purposes.
Interest payable on the Securities of a Series on a Distribution Date will
include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to Securityholders
will be reduced from the yield that would otherwise be obtainable if interest
payable on the Security were to accrue through the day immediately preceding
such Distribution Date, and the effective yield (at par) to Securityholders will
be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date will be added to the aggregate Class Security Balance
of such class of Securities on that Distribution Date. Distributions of interest
on any class of Accrual Securities will commence only after the occurrence of
the events specified in such Prospectus Supplement. Prior to such time, the
beneficial ownership interest in the Trust Fund or the principal balance, as
applicable, of such class of 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,
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
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<PAGE>
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. 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. 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 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.
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;
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<PAGE>
(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;
(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
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<PAGE>
categories. The Prospectus Supplement for a series of Securities may identify
the classes which comprise such Series by reference to the following categories.
<TABLE>
<CAPTION>
Categories of Classes Definition
PRINCIPAL TYPES
<S> <C>
Accretion Directed Class......................... A class that receives principal payments from the accreted
interest from specified Accrual Classes. An Accretion
Directed Class also may receive principal payments from
principal paid on the 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 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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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.
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.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
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
continue until some specified event has occurred or until
such Accrual Class is retired.
</TABLE>
Indices Applicable to Floating Rate and Inverse Floating Rate Classes
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. 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:
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<PAGE>
(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 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. 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. 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
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<PAGE>
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. 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. 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 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).
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<PAGE>
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.
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 Participants 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 by DTC in
accordance with the Rules on behalf of CEDEL or Euroclear, as the case may be,
by the Relevant Depository. However, such cross-market transactions will require
delivery of instructions to CEDEL or Euroclear, as the case may be, by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). If the transaction meets its
settlement requirements, CEDEL or Euroclear, as the case may be, will 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 laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations ("DTC Participants") and facilitate the clearance and the
settlement of securities transactions between DTC
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Participants through electronic book-entry changes in DTC Participants'
accounts, thereby eliminating the need for physical movement of certificates.
DTC Participants include securities brokers and dealers (who may include the
underwriters of any Series), banks, trust companies and clearing corporations
and may in the future include certain other organizations. Indirect 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 and may include the underwriters of any Series. 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 27 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York ("Morgan" and, in such capacity, the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Belgian Cooperative"). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve 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
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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 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.
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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. To the extent described 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 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
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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.
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.
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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 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. 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.
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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. 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.
The Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in effect
for the defaulted Loan and a claim thereunder has been submitted and settled;
(ii) hazard insurance on the related Mortgaged 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 Mortgaged 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 Mortgaged 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 Mortgaged Property, in either
case net of certain amounts paid or assumed to have been paid under the related
Primary Mortgage Insurance Policy. If any Mortgaged 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 Mortgaged 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 Mortgaged 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 Mortgaged Property or proceeds of the related Pool
Insurance Policy or any related Primary Mortgage Insurance Policy.
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 Mortgaged Property in accordance with plans
and specifications. A failure of coverage attributable to one of the foregoing
events might result in a breach of the related Seller's representations
described above, and, in such events might give rise to an obligation on the
part of such Seller to repurchase the defaulted Loan if the breach cannot be
cured by such Seller. No Pool Insurance Policy will cover (and many Primary
Mortgage Insurance Policies do not cover) a claim in respect of a defaulted Loan
occurring when the servicer of such Loan, at the time of default or thereafter,
was not approved by the applicable insurer.
The original amount of coverage under each Pool Insurance Policy 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
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claim. 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 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.
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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.
To the extent specified in the related Prospectus Supplement, 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 Mortgaged 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 Mortgaged 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 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. Prepayments will be passed through or paid as described
in the related Prospectus Supplement.
Even assuming that the Mortgaged 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
Mortgaged 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 Mortgaged 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
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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 in each month, 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 Ratio at
origination and certain other information.
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
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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 Mortgaged
Properties and (v) such other security documents, including those relating to
any senior interests in the Mortgaged 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. 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 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. 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. 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
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in the Trust Fund (the "Security Account") which 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 Agency. The collateral eligible to
secure amounts in the Security Account is limited to Permitted Investments. A
Security Account may be maintained as an interest bearing account or the funds
held therein may be invested pending each succeeding Distribution Date in
Permitted Investments. The 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 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.
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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;
(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, 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 25% 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 the earliest to occur of: (i) the date the amount on deposit in the
Pre-Funding Account is less than the minimum dollar amount specified in the
related
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Agreement; (ii) the date on which an Event of Default occurs under the related
Agreement; or (iii) the date which is the later of three months or 90 days 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.
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 Sub-Servicer, 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
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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 standard form of
fire insurance policy with extended coverage customary for the type of Mortgaged
Property in the state in which such Mortgaged Property is located. Except as
otherwise specified in the related Prospectus Supplement, such coverage will be
in an amount equal to at least the lesser of (i) the sum of the original
principal balance of such Loan and the original principal balance of any other
loan on such Mortgaged Property having lien priority over such Loan, if any, and
(ii) the greater of (x) the maximum insurable value of the improvements on such
Mortgaged Property and (y) 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 Mortgaged
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 Mortgaged 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 Mortgaged 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 Mortgaged Property securing a defaulted Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged Mortgaged Property, the Servicer is not required to expend
its own funds to restore the damaged Mortgaged Property unless it determines (i)
that such restoration will increase the proceeds to Securityholders on
liquidation of the Loan after reimbursement of the
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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 Mortgaged 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 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 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
Mortgaged 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 Mortgaged 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 a portion of the
mortgage financing for the purchase or refinancing of a dwelling to be used as
the veteran's home at interest rates permitted by the VA. Loans made under the
program cannot exceed the reasonable value of the property or certain lower
limits in
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the case of refinancing loans. The program requires no down payment from the
purchaser and permits the guaranty of mortgage loans of up to 30 years'
duration. 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 3703, 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 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 Sub-Servicer will retain all
prepayment charges, assumption fees and late payment charges, to the extent
collected from borrowers, and any benefit that may accrue as a result of the
investment of funds in the applicable Security Account.
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 the
Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"), 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 FHLMC,
or the Uniform Single Attestation Program for Mortgage Bankers, it is required
to report. In rendering its statement such firm may rely, as to matters relating
to the direct servicing of Loans by Sub-Servicers, upon comparable statements
for examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC (rendered within one year of such statement) of firms of
independent public accountants with respect to the related Sub-Servicer.
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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.
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
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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.
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
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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 the principal of and accrued interest, due and unpaid,
on the outstanding Notes of such Series at the date of such sale or (c) the
Trustee determines that such collateral would not be sufficient on an ongoing
basis to make all payments on such Notes as such payments would have become due
if such Notes had not been declared due and payable, and the Trustee obtains the
consent of the holders of 66% 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
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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 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 5% 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(a)(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
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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.
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
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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 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."
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Environmental Risks
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 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
Mortgaged Property, even though the environmental damage or threat was caused by
a prior or current owner or operator. CERCLA imposes liability for such costs on
any and all "responsible parties," including owners or operators. However,
CERCLA (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 Mortgaged
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,
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however, Subtitle I of the RCRA also contains a liability exclusion analogous to
the Secured Creditor Exclusion. 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.
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 Mortgaged 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
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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,
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
To the extent specified in the related Prospectus Supplement, conventional
Loans will contain due-on-sale clauses which will generally provide that if the
mortgagor or obligor sells, transfers or conveys the Mortgaged 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 Mortgaged 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 Mortgaged 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.
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Equitable Limitations on Remedies
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.
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 Mortgaged 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,
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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, as amended (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 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
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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 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 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
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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 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,
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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.
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, the Homeowners Protection 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; the Fair Credit Reporting Act regulates the use
and reporting of information related to the borrower's credit experience; and
the Homeowners Protection Act requires the cancellation of private mortgage
insurance once certain equity levels are reached. 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
represents the opinion 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
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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 is of
the opinion 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 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)(4)(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.
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The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the related Closing Date, the issue price for such class will be
treated as the fair market value of such class on such Closing Date. The issue
price of a Debt Security also includes the amount paid by an initial Debt
Security holder for accrued interest that relates to a period prior to the issue
date of the Debt Security. The stated redemption price at maturity of a Debt
Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if such distributions
constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as described
below) provided that such interest payments are unconditionally payable at
intervals of one year or less during the entire term of the Debt Security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Certain Debt Securities may provide for default
remedies in the event of late payment or nonpayment of interest. The interest on
such Debt Securities will be unconditionally payable and constitute qualified
stated interest, not OID. However, absent clarification of the OID Regulations,
where Debt Securities do not provide for default remedies, the interest payments
will be included in the Debt Security's stated redemption price at maturity and
taxed as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on Debt Securities with respect to which deferred
interest will accrue, will not constitute qualified stated interest payments, in
which case the stated redemption price at maturity of such Debt Securities
includes all distributions of interest as well as principal thereon. Where the
interval between the issue date and the first Distribution Date on a Debt
Security is either longer or shorter than the interval between subsequent
Distribution Dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the shorter
interval, will be included in the stated redemption price at maturity and tested
under the de minimis rule described below. In the case of a Debt Security with a
long first period which has non-de minimis OID, all stated interest in excess of
interest payable at the effective interest rate for the long first period will
be included in the stated redemption price at maturity and the Debt Security
will generally have OID. Holders of Debt Securities should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered to be
zero if such OID is less than 0.25% of the stated redemption price at maturity
of the Debt Security multiplied by the weighted average maturity of the Debt
Security. For this purpose, the weighted average maturity of the Debt Security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the Debt
Security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Debt Security
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a qualified
variable rate and not as contingent interest if, generally, (i) such interest is
unconditionally payable at least annually, (ii) the issue price of the debt
instrument does not exceed the total noncontingent principal payments and (iii)
interest is based on a "qualified floating rate," an "objective rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such Debt Security. In
the case of 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") has 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
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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, 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
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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 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.
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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.
The IRS recently issued final regulations (the "Amortizable Bond Premium
Regulations") dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code Section
1272(a)(6) such as the Securities. Absent further guidance from the IRS, the
Trustee intends to account for amortizable bond premium in the manner described
above. Prospective purchasers of the Securities should consult their tax
advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method for Debt Securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a Debt Security with market discount, the holder of the Debt Security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the Debt Security acquires during the year of the election or
thereafter. Similarly, a holder of a Debt Security that makes this election for
a Debt Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Debt Security is irrevocable.
Taxation of the REMIC and its Holders
General. 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)(5)(B), and income with respect
to the Securities will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the REMIC's
assets consist of assets described 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.
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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. 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
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REMIC that acquires loans at a market discount must include such market discount
in income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before such date, it is possible that
such premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be subject to
a 100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions include
(i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC pursuant
to the Code; or (iv) the receipt of any fees or other compensation for services
rendered by the REMIC. It is anticipated that a REMIC will not engage in any
prohibited transactions in which it would recognize a material amount of net
income. In addition, subject to a number of exceptions, a tax is imposed at the
rate of 100% on amounts contributed to a REMIC after the close of the
three-month period beginning on the startup day. The holders of Residual
Interest Securities will generally be responsible for the payment of any such
taxes imposed on the REMIC. To the extent not paid by such holders or otherwise,
however, such taxes will be paid out of the Trust Fund and will be allocated pro
rata to all outstanding classes of Securities of such REMIC.
Taxation of Holders of Residual Interest Securities
The holder of a Security representing a residual interest (a "Residual
Interest Security") will take into account the "daily portion" of the taxable
income or net loss of the REMIC for each day during the taxable year on which
such holder held the Residual Interest Security. The daily portion is determined
by allocating to 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
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disallowed loss may be carried forward indefinitely, but may be used only to
offset income of the REMIC generated by the same REMIC. The ability of holders
of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of a
Residual Interest Security consisting of "excess inclusion" income may not be
offset by other deductions or losses, including net operating losses, on such
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511 (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.
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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-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.
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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 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. 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."
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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
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. 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
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(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.
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%. For taxable years
beginning after December 31, 1997, the maximum tax rate on long-term capital
gains for such taxpayers is generally 20%. 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.
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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 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."
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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.
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
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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"
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.
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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.
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
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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 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.
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
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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 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
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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.
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
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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 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
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payments due to property damage or defaults in loan payments in an amount not
less than the greater of one percent of the aggregate principal balance of all
covered pooled mortgage loans or the principal balance of the largest covered
pooled mortgage loan; (ii) the existence of a pool trustee who is not an
affiliate of the pool sponsor; and (iii) a limitation on the amount of the
payment retained by the pool sponsor, together with other funds inuring to its
benefit, to not more than adequate consideration for selling the mortgage loans
plus reasonable compensation for services provided by the pool sponsor to the
Pool. The Depositor believes that the first general condition referred to above
will be satisfied with respect to the Securities in a Series 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 IBCA, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group as defined below;
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(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
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
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companies and pension funds) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and Puerto
Rico) whose authorized investments are subject to state regulations to the same
extent as, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any such entities. Under SMMEA,
if a state enacts legislation prior to October 4, 1991 specifically limiting the
legal investment authority of any such entities with respect to "mortgage
related securities," securities will constitute legal investments for entities
subject to such legislation only to the extent provided therein. Approximately
twenty-one states adopted such legislation prior to the October 4, 1991
deadline. SMMEA 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;
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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.
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
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withdrawn among other reasons, because of an adverse change in the financial or
other condition of a credit enhancement provider or a change in the rating of
such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit enhancement required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Loans. No assurance can be given that values of any 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 the
Securities of the related Series.
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INDEX OF DEFINED TERMS
Term Page
- ---- ----
Accretion Directed Class:..........................35
Accrual Class:.....................................38
Accrual Securities:................................32
Act:................................................2
Advance:............................................9
Advances:..........................................34
Agreement:.........................................21
Amortizable Bond Premium Regulations:..............75
APR:...........................................24, 50
Available Funds:...................................32
Balloon Payment:................................5, 23
Bank:...........................................4, 25
Bankruptcy Code:....................................8
Belgian Cooperative:...............................42
Beneficial Owners:...........................3, 6, 40
BIF:...............................................51
Book-Entry Securities:.............................40
Calculation Agent:.................................38
Capitalized Interest Account:......................53
Cash Flow Bond Method:.............................82
Cede:............................................3, 6
CEDEL Participants:................................41
CEDEL:.............................................40
CERCLA:........................................20, 63
Certificateholders:................................15
Certificates:................................1, 4, 30
Claimable Amount:..................................70
Class Security Balance:............................32
Closing Date:......................................15
Code:..........................................11, 71
Collateral Value:..................................24
Commission:.........................................2
Companion Class:...................................37
Component Class:...................................36
Contingent Regulations:............................73
Cut-off Date Principal Balance:....................31
Cut-off Date:...................................4, 21
DCR:...............................................92
Debt Securities:...................................72
Debt-to-Income Ratio:..............................26
Definitive Security:...............................40
Depositor:......................................1, 25
Detailed Description:..............................22
Disqualified Organization:.........................79
Distribution Date:..................................6
DOL:...............................................90
DTC Participants:..............................18, 41
DTC:.....................................3, 6, 18, 40
EPA:...............................................63
Equity One Standards:..............................25
Equity One:.....................................4, 25
ERISA:.............................................12
Euroclear Operator:................................42
Euroclear Participants:............................42
Euroclear:.........................................40
European Depositaries:.............................40
Events of Default:.................................58
Excess Servicing:..................................81
Exchange Act:.......................................2
Fannie Mae:........................................58
FDIC:..............................................25
Federal Reserve:...................................25
FHA:................................................9
FHLMC:.............................................57
Financial Intermediary:............................40
Fitch:.............................................92
Fixed Rate Class:..................................37
Floating Rate Class:...............................37
FNMA:..............................................58
Foreign Person:....................................83
Freddie Mac:.......................................57
Full Doc:..........................................26
Funding Period:.................................5, 15
Garn-St Germain Act:...............................65
HUD:...............................................68
Indenture:.........................................30
Insurance Proceeds:................................52
Insured Expenses:..................................52
Interest Only Class:...............................37
Interest Weighted Securities:......................74
Inverse Floating Rate Class:.......................37
IRS:...............................................73
L/C Bank:.......................................8, 44
L/C Percentage:.................................8, 44
Liquidation Expenses:..............................52
Liquidation Proceeds:..............................52
Loan Indices:......................................40
Loan Rate:.....................................22, 32
Loans:..............................................1
Loan-to-Value Ratio:...............................24
Lockout Periods:...................................23
Mark-to-Market Regulations:........................80
Master Servicing Agreement:........................21
Mixed Use Loan:..............................1, 5, 22
Moody's:...........................................92
Morgan:............................................42
Mortgage Loans:..............................1, 5, 22
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Mortgage:..........................................50
Mortgaged Properties:..............................23
NCUA:..............................................93
NIV:...............................................26
Noteholders:.......................................15
Notes:.......................................1, 4, 30
Notional Amount Class:.............................36
OID Regulations:...................................72
OID:...............................................72
OTS:...............................................25
PAC:...............................................36
Partial Accrual Class:.............................38
Parties in Interest:...............................90
Pass-Through Certificates:.........................80
Pass-Through Rate:.................................32
Pay-Through Security:..............................73
Percentage Interests:..............................58
Permitted Investments:.............................45
Planned Principal Class:...........................36
Plans:.............................................90
Policy Statement:..................................94
Pool Insurance Policy:.............................46
Pool Insurer:......................................46
Pool:...........................................4, 21
Pooling and Servicing Agreement:...................30
Popular:........................................4, 25
Pre-Funded Amount:..............................5, 15
Pre-Funding Account:............................4, 15
Prepayment Assumption:.............................73
Primary Mortgage Insurance Policy:.................23
Prime Rate:........................................39
Principal Only Class:..............................38
Principal Prepayments:.............................33
Property Improvement Loans:........................68
PTE 83-1:..........................................90
Purchase Agreement:................................21
Purchase Price:....................................30
Rating Agency:.....................................95
Ratio Strip Securities:............................81
RCRA:..............................................64
Record Date:.......................................31
Reference Banks:...................................38
Refinance Loan:....................................24
Regular Interest Securities:.......................72
Relevant Depositary:...............................40
Relief Act:........................................67
REMIC:..........................................1, 71
Reserve Account:................................8, 32
Reserve Interest Rate:.............................38
Residential Loan:............................1, 5, 22
Residual Interest Security:........................78
Restricted Group:..................................93
Retained Interest:.................................31
Revolving Credit Line Loans:.................1, 5, 22
Riegle Act:........................................19
Rules:.............................................40
S&P:...............................................92
SAIF:..............................................51
Scheduled Principal Class:.........................36
Secured Creditor Exclusion:........................63
Securities Act:.....................................2
Securities Index:..................................40
Securities:..................................1, 4, 30
Security Account:..................................51
Security Register:.................................31
Securityholders:................................1, 40
Seller:.............................................1
Sellers:...........................................21
Senior Securities:..............................5, 43
Sequential Pay Class:..............................36
Series:.............................................1
Servicer:...........................................4
Servicing Fee:.................................56, 80
Short-Term Note:...................................85
Single Family Properties:..........................23
Single Family Securities:..........................91
SMMEA:.........................................10, 93
Strip Class:.......................................37
Stripped Securities:...............................80
Subordinated Securities:............................5
Subsequent Loans:...............................5, 15
Sub-Servicer:.......................................9
Sub-Servicers:.....................................21
Sub-Servicing Agreement:...........................53
Support Class:.....................................37
TAC:...............................................37
Targeted Principal Class:..........................37
Terms and Conditions:..............................42
Thrift Institutions:...............................79
TIN:...............................................83
Title I Loans:.....................................68
Title I Program:...................................68
Title V:...........................................66
Treasury Index:....................................39
Treasury:..........................................12
Trust Agreement:...............................21, 30
Trust Fund Assets:...........................1, 4, 21
Trust Fund:..................................1, 4, 30
Trustee:........................................4, 30
Underwriter Exemptions:............................92
United States Person:..............................83
VA Guaranty:.......................................56
VA:.................................................9
Variable Rate Class:...............................37
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Securities being registered under this
Registration Statement, other than underwriting discounts and commissions
SEC Registration Fee................................................$ 98,484.85
Printing and Engraving Expenses..................................... 35,000.00
Legal Fees and Expenses............................................. 140,000.00
Trustee Fees and Expenses .......................................... 40,000.00
Accounting Fees and Expenses........................................ 45,000.00
Blue Sky Fees and Expenses.......................................... 10,000.00
Rating Agency Fees.................................................. 66,000.00
Miscellaneous....................................................... 2,500.00
Total...............................................................$436,984.85
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* 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 $100,000,000.00 of Securities registered hereby.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. In the case
of an action by or in the right of the corporation, no indemnification may be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
The Certificate of Incorporation 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 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
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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 Restated Certificate of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (2)
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Trust Agreement (3)
4.3 Form of Indenture (3)
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to legality of the
Securities (4)
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 (2)
- --------------------------
(1) Previously filed with Form 8-K originally filed July 2, 1997 and
incorporated herein by reference.
(2) Previously filed with Registration Statement on Form S-3 (File No.
333-24599) originally filed April 4, 1997 and incorporated herein by
reference.
(3) Previously filed with Amendment No. 1 to Registration Statement on Form S-3
(File No. 333-24599) originally filed May 28, 1997 and incorporated herein
by reference.
(4) Previously filed with Amendment No. 3 to Registration Statement on Form S-3
(File No. 333-24599) originally filed June 13, 1997 and incorporated herein
by reference.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
hereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high and
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this Registration Statement or any material change to
such information in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
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<PAGE>
(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.
(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 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 Post-Effective
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, Delaware on
the 18th day of August, 1998.
Equity One ABS, Inc.
By /s/ Thomas J. Fitzpatrick
-------------------------
Thomas J. Fitzpatrick
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Thomas J. Fitzpatrick Director and President (Chief Executive August 18, 1998
- ------------------------------------ Officer)
Thomas J. Fitzpatrick
/s/Dennis Kildea* Director, Vice President, Treasurer and August 18, 1998
- ------------------------------------ Assistant Secretary (Chief Financial/
Dennis Kildea Accounting Officer)
/s/John N. Martella* Director, Vice President, Secretary and August 18, 1998
- ------------------------------------ Assistant Treasurer
John N. Martella
/s/George P. Warren, Jr.* Director, Vice President and Assistant August 18, 1998
- ------------------------------------ Secretary
George P. Warren, Jr.
/s/Joseph Corvaia* Director, Vice President and Assistant August 18, 1998
- ------------------------------------ Secretary
Joseph Corvaia
*By /s/ Thomas J. Fitzpatrick August 18, 1998
--------------------------------
Thomas J. Fitzpatrick,
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description of Exhibit Number
--- ---------------------- ------
** 3.1 -- Restated Certificate of Incorporation of the Registrant (1)
** 3.2 -- Bylaws of the Registrant (2)
** 4.1 -- Form of Pooling and Servicing Agreement
** 4.2 -- Form of Trust Agreement(3)
** 4.3 -- Form of Indenture(3)
** 5.1 -- Opinion of Stradley, Ronon, Stevens & Young, LLP as to legality of
the Securities(4)
** 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 (2)
- ----------
(1) Previously filed with Form 8-K originally filed July 2, 1997 and
incorporated herein by reference.
(2) Previously filed with Registration Statement on Form S-3 (File No.
333-24599) originally filed April 4, 1997 and incorporated herein by
reference.
(3) Previously filed with Amendment No. 1 to Registration Statement on Form S-3
(File No. 333-24599) originally filed May 28, 1997 and incorporated herein
by reference.
(4) Previously filed with Amendment No. 3 to Registration Statement on Form S-3
(File No. 333-24599) originally filed June 13, 1997 and incorporated herein
by reference.
================================================================================
Equity One ABS, Inc.
Depositor
Equity One, Inc. (DE)
A Seller and the Servicer
Equity One, Incorporated (PA), Equity One Mortgage Company (NC),
Equity One Mortgage, Inc. (DE), Equity One, Inc. (MN), Equity One Consumer
Loan Company, Inc. (NH), Equity One of West Virginia, Inc. (WV)
and Equity One Mortgage, Inc. (NY)
Sellers
and
The Chase Manhattan Bank
Trustee
-----------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of August 31, 1998
----------------------------------
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
PRELIMINARY STATEMENT.........................................................1
ARTICLE I.....................................................................3
DEFINITIONS...................................................................3
Adjusted Mortgage Rate...................................................3
Adjusted Net Mortgage Rate...............................................3
Advance..................................................................3
Agreement................................................................3
Amount Held for Future Distribution......................................3
Available Funds..........................................................3
Bankruptcy Code..........................................................3
Beneficial Owner.........................................................4
Book-Entry Certificates..................................................4
Business Day.............................................................4
Call Option Date.........................................................4
Certificates.............................................................4
Certificate Account......................................................4
Certificate Balance......................................................4
Certificate Formula Principal Amount.....................................4
Certificate Register.....................................................4
Certificate Registrar....................................................5
Certificateholder or Holder..............................................5
Class....................................................................5
Class A Certificates.....................................................5
Class R Certificates.....................................................5
Class Certificate Balance................................................5
Class Interest Shortfall.................................................5
Class Unpaid Interest Amounts............................................5
Closing Date.............................................................5
Closing Place............................................................5
Code.....................................................................6
Corporate Trust Office...................................................6
Custodial Agreement......................................................6
i
<PAGE>
Custodian................................................................6
Cut-off Date.............................................................6
Cut-off Date Pool Principal Balance......................................6
Cut-off Date Principal Balance...........................................6
Defective Loan...........................................................6
Definitive Certificates..................................................6
Deleted Loan.............................................................6
Denomination.............................................................6
Depositor................................................................6
Depository...............................................................6
Depository Participant...................................................7
Determination Date.......................................................7
Distributable Funds......................................................7
Distribution Account.....................................................7
Distribution Account Deposit Date........................................7
Distribution Date........................................................7
Due Date.................................................................7
Eligible Account.........................................................7
Equity One-Delaware......................................................8
Equity One-Florida.......................................................8
Equity One-Minnesota.....................................................8
Equity One-New Hampshire.................................................8
Equity One-New York......................................................8
Equity One-North Carolina................................................8
Equity One-Pennsylvania..................................................8
Equity One-West Virginia.................................................8
ERISA....................................................................8
Event of Default.........................................................8
Excess Proceeds..........................................................8
Expense Rate.............................................................8
FDIC.....................................................................9
FHLMC....................................................................9
FIRREA...................................................................9
FNMA.....................................................................9
I&I Payments.............................................................9
Indirect Participant.....................................................9
Insurance Agreement......................................................9
Insurance Policy.........................................................9
Insurance Proceeds.......................................................9
Insured Amount...........................................................9
Insured Expenses.........................................................9
ii
<PAGE>
Insurer..................................................................9
Insurer Default..........................................................9
Insurer's Monthly Premium...............................................10
Interest Accrual Period.................................................10
Interest Distribution Amount............................................10
Investment Letter.......................................................10
Latest Possible Maturity Date...........................................10
Liquidated Loan.........................................................10
Liquidation Proceeds....................................................10
Loan Losses.............................................................10
Loan-to-Value Ratio.....................................................10
Loans...................................................................11
Loan Schedule...........................................................11
Majority in Interest....................................................11
Monthly Spread Account Deposit Amount...................................11
Monthly Statement.......................................................11
Moody's.................................................................11
Mortgage................................................................12
Mortgage File...........................................................12
Mortgage Note...........................................................12
Mortgage Rate...........................................................12
Mortgaged Property......................................................12
Mortgagor...............................................................12
Net Available Funds.....................................................12
Net Prepayment Interest Shortfalls......................................12
Nonrecoverable Advance..................................................12
Notice..................................................................12
Notice of Final Distribution............................................12
Officer's Certificate...................................................13
Opinion of Counsel......................................................13
Optional Termination....................................................13
Original Loan...........................................................13
OTS.....................................................................13
Outstanding.............................................................13
Outstanding Loan........................................................13
Ownership Interest......................................................13
Pass-Through Rate.......................................................13
Paying Agent............................................................14
Percentage Interest.....................................................14
Permitted Investments...................................................14
Permitted Transferee....................................................15
iii
<PAGE>
Person..................................................................15
Policy..................................................................15
Pool Principal Balance..................................................16
Preference Claim........................................................16
Prepayment Interest Excess..............................................16
Prepayment Interest Shortfall...........................................16
Prepayment Period.......................................................16
Primary Mortgage Insurance Policy.......................................16
Principal Prepayment....................................................16
Principal Prepayment in Full............................................16
Prospectus Supplement...................................................16
Purchase Price..........................................................16
PTCE 95-60..............................................................17
Qualified Insurer.......................................................17
Rating Agency...........................................................17
Record Date.............................................................17
Refinance Loan..........................................................17
Relief Act..............................................................17
Relief Act Reductions...................................................17
REMIC...................................................................18
REMIC Change of Law.....................................................18
REMIC Provisions........................................................18
Remittance Amount.......................................................18
REO Property............................................................18
Request for Release.....................................................18
Required Insurance Policy...............................................18
Responsible Officer.....................................................18
Rule 144A Letter........................................................18
Scheduled Payment.......................................................18
Securities Act..........................................................18
Sellers.................................................................18
Servicer................................................................19
Servicer Advance Date...................................................19
Servicing Advances......................................................19
Servicing Amount........................................................19
Servicing Fee...........................................................19
Servicing Fee Rate......................................................19
Servicing Officer.......................................................19
S&P.....................................................................19
Specified Spread Account Requirement....................................19
Spread Account..........................................................20
iv
<PAGE>
Spread Account Deposit Amount...........................................20
Spread Account Draw.....................................................20
Spread Account Excess...................................................20
Startup Day.............................................................20
Stated Principal Balance................................................20
Step-down Date..........................................................20
Streamlined Documentation Loan..........................................21
Subservicer.............................................................21
Substitute Loan.........................................................21
Substitution Adjustment Amount..........................................21
Tax Matters Person......................................................21
Tax Matters Person Certificate..........................................21
Transfer................................................................21
Transfer Affidavit......................................................21
Transferor Certificate..................................................21
Trustee.................................................................21
Trustee Fee.............................................................21
Trustee Fee Rate........................................................21
Trust Fund..............................................................22
Voting Rights...........................................................22
Weighted Average Adjusted Net Mortgage Rate.............................22
ARTICLE II CONVEYANCE OF LOANS; REPRESENTATIONS AND WARRANTIES..............22
SECTION 2.01. Conveyance of Loans......................................22
SECTION 2.02. Acceptance by Trustee of the Loans.......................25
SECTION 2.03. Representations, Warranties and Covenants of
the Sellers and the Servicer.............................27
SECTION 2.03A. Additional Obligations of Equity One-Delaware............29
SECTION 2.04. Representations and Warranties of the
Depositor as to the Loans ...............................30
SECTION 2.05. Delivery of Opinion of Counsel in Connection
with Substitutions ......................................30
SECTION 2.06. Execution and Delivery of Certificates...................31
SECTION 2.07. REMIC Matters............................................31
SECTION 2.08. Covenants of the Servicer................................31
ARTICLE III ADMINISTRATION AND SERVICING OF LOANS...........................32
SECTION 3.01. Servicer to Service Loans................................32
SECTION 3.02. Subservicing; Enforcement of the Obligations
of Servicers.............................................33
SECTION 3.03. Rights of the Depositor and the Trustee in
Respect of the Servicer..................................34
SECTION 3.04. Trustee to Act as Servicer...............................34
SECTION 3.05. Collection of Loan Payments; Certificate Account;
v
<PAGE>
Distribution Account; Spread Account.....................35
SECTION 3.06. Payment of Taxes, Assessments, Hazard Insurance
Premiums and Similar Items...............................37
SECTION 3.07. Access to Certain Documentation and Information
Regarding the Loans......................................38
SECTION 3.08. Permitted Withdrawals from the Certificate
Account and Distribution Account.........................39
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance
of Primary Insurance Policies............................40
SECTION 3.10. Enforcement of Due-on-Sale Clauses;
Assumption Agreements....................................41
SECTION 3.11. Realization Upon Defaulted Loans;
Repurchase of Certain Loans..............................42
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files..........44
SECTION 3.13. Documents Records and Funds in Possession of
Servicer to be Held for the Trustee......................45
SECTION 3.14. Servicing Compensation...................................46
SECTION 3.15. Access to Certain Documentation..........................46
SECTION 3.16. Annual Statement as to Compliance........................46
SECTION 3.17. Annual Independent Public Accountants' Servicing
Statement; Financial Statements..........................47
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds...........47
SECTION 3.19. Optional Removal of Servicer by the Insurer..............47
ARTICLE IIIA SPREAD ACCOUNT; POLICY.........................................48
SECTION 3A.01 Establishment of Spread Account; Deposits in Spread
Account; Permitted Withdrawals from Spread Account.......48
SECTION 3A.02 Policy...................................................50
ADVANCES BY THE SERVICER.....................................................51
SECTION 4.01. Advances.................................................51
SECTION 4.02. Priorities of Distribution...............................52
SECTION 4.03. Monthly Statements to Certificateholders.................53
ARTICLE V THE CERTIFICATES..................................................54
SECTION 5.01. The Certificates.........................................54
SECTION 5.02. Certificate Register; Registration of Transfer
and Exchange of Certificates.............................55
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates........60
SECTION 5.04. Persons Deemed Owners....................................60
SECTION 5.05. Access to List of Certificateholders' Names
and Addresses............................................60
SECTION 5.06. Maintenance of Office or Agency..........................61
ARTICLE VI THE DEPOSITOR AND THE SERVICER...................................61
vi
<PAGE>
SECTION 6.01. Respective Liabilities of the Depositor
and the Servicer................................. .......61
SECTION 6.02. Merger or Consolidation of the Depositor
or the Servicer..........................................61
SECTION 6.03. Limitation on Liability of the Depositor,
the Sellers, the Servicer and Others.....................62
SECTION 6.04. Limitation on Resignation of Servicer....................62
SECTION 6.05. Indemnification..........................................63
ARTICLE VII DEFAULT.........................................................63
SECTION 7.01. Events of Default........................................63
SECTION 7.02. Trustee to Act; Appointment of Successor.................65
SECTION 7.03. Notification to Certificateholders.......................66
ARTICLE VIII CONCERNING THE TRUSTEE........................................67
SECTION 8.01. Duties of Trustee........................................67
SECTION 8.02 Certain Matters Affecting the Trustee....................68
SECTION 8.03. Trustee Not Liable for Certificates or Loans.............70
SECTION 8.04. Trustee May Own Certificates.............................70
SECTION 8.05. Trustee's Fees and Expenses..............................70
SECTION 8.06. Eligibility Requirements for Trustee.....................71
SECTION 8.07. Resignation and Removal of Trustee.......................71
SECTION 8.08. Successor Trustee........................................72
SECTION 8.09. Merger or Consolidation of Trustee.......................73
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee............73
SECTION 8.11. Tax Matters..............................................74
SECTION 8.12. Periodic Filings.........................................76
SECTION 8.13. Appointment of Custodians................................77
SECTION 8.14. Trustee May Enforce Claims Without Possession of
Certificates............................ ................77
SECTION 8.15. Suits for Enforcement....................................77
ARTICLE IX TERMINATION......................................................77
SECTION 9.01. Termination upon Liquidation or Purchase
of all Loans.................................... ........77
SECTION 9.02. Final Distribution on the Certificates...................78
SECTION 9.03. Additional Termination Requirements......................79
ARTICLE X MISCELLANEOUS PROVISIONS..........................................80
SECTION 10.01. Amendment...............................................80
SECTION 10.02. Recordation of Agreement; Counterparts..................81
SECTION 10.03. Governing Law...........................................82
SECTION 10.04. Intention of Parties....................................82
SECTION 10.05. Notices.................................................84
SECTION 10.06. Severability of Provisions..............................86
vii
<PAGE>
SECTION 10.07. Assignment..............................................86
SECTION 10.08. Limitation on Rights of Certificateholders..............86
SECTION 10.09. Inspection and Audit Rights.............................87
SECTION 10.10. Certificates Nonassessable and Fully Paid...............87
SECTION 10.11. The Closing.............................................87
SECTION 10.12. Interpretation..........................................87
SECTION 10.13. Rights of the Insurer...................................88
SECTION 10.14. No Partnership..........................................88
viii
<PAGE>
SCHEDULES
SCHEDULE I.................................................................S-I-1
SCHEDULE IIA.............................................................S-IIA-1
SCHEDULE IIB.............................................................S-IIB-1
SCHEDULE IIC.............................................................S-IIC-1
SCHEDULE IID.............................................................S-IID-1
SCHEDULE IIE.............................................................S-IIE-1
SCHEDULE IIF.............................................................S-IIF-1
SCHEDULE IIG.............................................................S-IIG-1
SCHEDULE IIH.............................................................S-IIH-1
SCHEDULE IIX.............................................................S-IIX-1
SCHEDULE IIIA...........................................................S-IIIA-1
SCHEDULE IIIB...........................................................S-IIIB-1
SCHEDULE IIIC...........................................................S-IIIC-1
SCHEDULE IIID...........................................................S-IIID-1
SCHEDULE IIIE..........................................................S-III-E-1
SCHEDULE IIIF..........................................................S-III-F-1
SCHEDULE IIIG..........................................................S-III-G-1
SCHEDULE IIIH..........................................................S-III-H-1
SCHEDULE IV...............................................................S-IV-1
SCHEDULE V.................................................................S-V-1
EXHIBITS
EXHIBIT A....................................................................A-1
EXHIBIT B....................................................................B-1
EXHIBIT C....................................................................C-1
ix
<PAGE>
EXHIBIT D....................................................................D-1
EXHIBIT E....................................................................E-1
EXHIBIT F....................................................................F-1
EXHIBIT G....................................................................G-1
EXHIBIT H....................................................................H-1
EXHIBIT I....................................................................I-1
EXHIBIT J....................................................................J-1
EXHIBIT K....................................................................K-1
x
<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of August 31, 1998, by and
among Equity One ABS, Inc., a Delaware corporation, as depositor (the
"Depositor"), Equity One, Inc., a Delaware corporation, as a seller (in such
capacity, "Equity One-Delaware") and as servicer (in such capacity, the
"Servicer"), Equity One, Incorporated, a Pennsylvania corporation ("Equity
One-Pennsylvania"), Equity One Mortgage Company, a North Carolina corporation
("Equity One-North Carolina"), Equity One Mortgage, Inc., a Delaware corporation
("Equity One-Florida"), Equity One, Inc., a Minnesota corporation ("Equity
One-Minnesota"), Equity One Consumer Loan Company, Inc., a New Hampshire
corporation ("Equity One-New Hampshire"), Equity One of West Virginia, Inc., a
West Virginia corporation ("Equity One-West Virginia"), Equity One Mortgage,
Inc., a New York corporation ("Equity One-New York and, together with Equity
One-Delaware, Equity One-Pennsylvania, Equity One-North Carolina, Equity
One-Florida, Equity One-Minnesota, Equity One-New Hampshire and Equity One-West
Virginia, the "Sellers") and The Chase Manhattan Bank, a New York banking
corporation organized under the laws of the State of New York, as trustee (the
"Trustee").
WITNESSETH THAT
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby conveyed to the
Trustee in return for the Certificates. The Trust Fund for federal income tax
purposes will consist of a single REMIC. The Certificates will represent the
entire beneficial ownership interest in the Trust Fund. The Class A Certificates
will represent the "regular interests" in the Trust Fund and the Class R
Certificates will represent the single "residual interest" in the Trust Fund.
The "latest possible maturity date" for federal income tax purposes of all
interests created hereby will be the Latest Possible Maturity Date.
The following table sets forth characteristics of the Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes shall be issuable (except that one Certificate of each
Class of Certificates may be issued in a different amount and, in addition, one
Class R Certificate representing the Tax Matters Person Certificate may be
issued in a different amount):
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
Integral
Initial Class Multiples
Certificate Pass-Through Minimum in Excess of
Balance Rate Denomination Minimum
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1
- --------------------------------------------------------------------------------------------------------
Class A-2
- --------------------------------------------------------------------------------------------------------
Class A-3
- --------------------------------------------------------------------------------------------------------
Class A-4
- --------------------------------------------------------------------------------------------------------
Class A-5
- --------------------------------------------------------------------------------------------------------
Class R $ 0 N/A N/A
========================================================================================================
</TABLE>
(1) On any Distribution Date following the Call Option Date, the Pass-Through
Rate for the Class A-5 Certificates shall be [ %]
All interest rates set forth in this Agreement are calculated based on a
year consisting of twelve 30-day months (30/360).
2
<PAGE>
ARTICLE
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Adjusted Mortgage Rate: As to each Loan, and at any time, the per annum
rate equal to the Mortgage Rate less the Servicing Fee Rate.
Adjusted Net Mortgage Rate: As to each Loan, and at any time, the per annum
rate equal to the Mortgage Rate less the related Expense Rate.
Advance: The payment required to be made by the Servicer with respect to
any Distribution Date pursuant to Section 4.01, the amount of any such payment
being equal to the aggregate of payments of principal and interest (net of the
Servicing Fee) on the Loans that were due on such Loans' respective Due Dates in
the calendar month preceding the month of such Distribution Date and not
received as of the close of business on the Determination Date in the month of
such Distribution Date, less the aggregate amount of any such delinquent
payments that the Servicer, in its good faith judgment, has determined would not
be recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise.
Agreement: This Pooling and Servicing Agreement, together with all of the
exhibits and schedules hereto, and all amendments or supplements of any of the
foregoing.
Amount Held for Future Distribution: As to any Distribution Date, the
aggregate amount held in the Certificate Account at the close of business on the
related Determination Date on account of (i) Principal Prepayments received
after the Prepayment Period corresponding to such Distribution Date and
Liquidation Proceeds received in the month of such Distribution Date and (ii)
all Scheduled Payments due after the Loans' respective Due Dates in the calendar
month preceding the month of such Distribution Date.
Available Funds: As to any Distribution Date, the sum of (a) the aggregate
amount held in the Certificate Account at the close of business on the related
Determination Date net of the Amount Held for Future Distribution and net of
amounts permitted to be withdrawn from the Certificate Account pursuant to
clauses (i)-(viii), inclusive, of Section 3.08(a) and amounts permitted to be
withdrawn from the Distribution Account pursuant to clauses (i)-(iii) inclusive
of Section 3.08(b), (b) the amount of the related Advance and (c) in connection
with Defective Loans, as applicable, the aggregate of the Purchase Prices and
Substitution Adjustment Amounts deposited in the Distribution Account on the
related Distribution Account Deposit Date.
Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as
amended, and related rules promulgated thereunder.
Beneficial Owner: With respect to any Book-Entry Certificate, the Person
who is the beneficial owner of such Book-Entry Certificate.
3
<PAGE>
Book-Entry Certificates: The Class A Certificates.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in New York City, or in the city where the chief
executive office of the Servicer is located, are authorized or obligated by law
or executive order to be closed.
Call Option Date: The first Distribution Date following the date on which
the Optional Termination may be exercised by the Servicer.
Certificates: The Class A Certificates and the Class R Certificates in
substantially the forms attached hereto as Exhibits A and B.
Certificate Account: The separate Eligible Account created and maintained
by the Servicer pursuant to Section 3.05 with a depository institution in the
name of the Servicer for the benefit of the Trustee on behalf of
Certificateholders and the Insurer and designated "Certificate Account, Equity
One, Inc., as trustee for the registered holders of Equity One ABS, Inc.,
Mortgage Pass-Through Certificates Series 1998-1."
Certificate Balance: With respect to any Class A Certificate at any time,
the maximum dollar amount of principal to which the Holder thereof is then
entitled hereunder, such amount being equal to the Denomination thereof minus
all distributions of principal previously made with respect thereto.
Certificate Formula Principal Amount: As to any Distribution Date, the sum
of (a) the principal portion of each Scheduled Payment due on each Loan on each
Loan's Due Date in the calendar month preceding the month of such Distribution
Date, (b) the Stated Principal Balance of each Loan that was repurchased by the
Seller or the Servicer pursuant to this 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 during the
calendar month preceding the month of such Distribution Date with respect to
such Loan, (f) all Principal Prepayments received during the related Prepayment
Period and (g) the principal portion of any Loan Losses incurred during the
calendar month preceding the month of such Distribution Date.
Certificate Register: The register maintained pursuant to Section 5.02.
4
<PAGE>
Certificate Registrar: The Chase Manhattan Bank and its successors and, if
a successor certificate registrar is appointed hereunder, such successor.
Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or any affiliate of the Depositor shall be deemed not to
be Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person (including the Depositor) owns 100% of the Percentage Interests
evidenced by a Class of Certificates, such Certificates shall be deemed to be
Outstanding for purposes of any provision hereof that requires the consent of
the Holders of Certificates of a particular Class as a condition to the taking
of any action hereunder. The Trustee is entitled to rely conclusively on a
certification of the Depositor or any affiliate of the Depositor in determining
which Certificates are registered in the name of an affiliate of the Depositor.
Class: All Certificates bearing the same class designation as set forth in
the Preliminary Statement.
Class A Certificates: The certificates representing the "regular interests"
in the Trust Fund, which are designated as the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates.
Class R Certificates: The certificates representing the single "residual
interest" in the Trust Fund.
Class Certificate Balance: With respect to any Class of Class A
Certificates and as to any Distribution Date, the aggregate of the Certificate
Balances of all Certificates of such Class as of such date. The Class
Certificate Balance of the Class R Certificates shall be zero.
Class Interest Shortfall: As to any Distribution Date and Class of Class A
Certificates, the amount by which the amount described in clause (i) of the
definition of Interest Distribution Amount for such Class exceeds the amount of
interest actually distributed on such Class on such Distribution Date pursuant
to such clause (i).
Class Unpaid Interest Amounts: As to any Distribution Date and any Class of
Class A Certificates, the amount by which the aggregate Class Interest
Shortfalls for such Class on prior Distribution Dates exceeds the amount
distributed on such Class on prior Distribution Dates pursuant to clause (ii) of
the definition of Interest Distribution Amount.
Closing Date: September ___, 1998.
Closing Place: The offices of Messrs. Stradley, Ronon, Stevens and Young,
LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103.
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Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
Corporate Trust Office: The designated office of the Trustee in the State
of New York at which at any particular time its corporate trust business with
respect to this Agreement shall be administered, which office at the date of the
execution of this Agreement is located at 450 West 33rd Street, 15th Floor, New
York, New York 10001 (Attention: Structured Finance Services (ABS), facsimile
number: 212-946-8191) and which is the address to which notices to and
correspondence with the Trustee should be directed.
Custodial Agreement: As defined in Section 8.12.
Custodian: As defined in Section 8.12.
Cut-off Date: August 31, 1998.
Cut-off Date Pool Principal Balance: $[ ].
Cut-off Date Principal Balance: As to any Loan, the Stated Principal
Balance thereof as of the close of business on the Cut-off Date.
Defective Loan: Any Loan which is required to be repurchased pursuant to
Section 2.02 or 2.03.
Definitive Certificates: Any Certificate issued in lieu of a Book-Entry
Certificate pursuant to Section 5.02(e).
Deleted Loan: As defined in Section 2.03(c).
Denomination: With respect to each Class A Certificate, the amount set
forth on the face thereof as the "Initial Certificate Balance of this
Certificate" or the Percentage Interest appearing on the face thereof.
Depositor: Equity One ABS, Inc., a Delaware corporation, or its successor
in interest.
Depository: The initial Depository shall be The Depository Trust Company,
the nominee of which is CEDE & Co., as the registered Holder of the Book-Entry
Certificates. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York.
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Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Distribution Date, the 21st day of each month
or, if such day is not a Business Day, the next preceding Business Day;
provided, however, that the Determination Date in each month will be at least
two Business Days preceding the related Distribution Date.
Distributable Funds: The sum of (i) Available Funds, (ii) the Spread
Account Draw and (iii) any Insured Amounts.
Distribution Account: The separate Eligible Account created and maintained
by the Trustee pursuant to Section 3.05 in the name of the Trustee for the
benefit of the Certificateholders and the Insurer and designated "Distribution
Account, The Chase Manhattan Bank, as trustee for the registered holders of
Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series 1998-1." Funds
in the Distribution Account shall be held uninvested in trust for the
Certificateholders and the Insurer for the uses and purposes set forth in this
Agreement.
Distribution Account Deposit Date: As to any Distribution Date, 9:00 a.m.
New York City Time on the Business Day immediately preceding such Distribution
Date.
Distribution Date: The 25th day of each calendar month after the initial
issuance of the Certificates, or if such day is not a Business Day, the next
succeeding Business Day, commencing in [October], 1998.
Due Date: With respect to any Loan, the date on which scheduled payments of
interest and/or principal are due thereon, which date is a set day, but not
necessarily the first day, of each month.
Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company, the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest
short-term ratings of each Rating Agency at the time any amounts are held on
deposit therein, or (ii) an account or accounts in a depository institution or
trust company in which such accounts are insured by the FDIC (to the limits
established by the FDIC) and the uninsured deposits in which accounts are
otherwise secured such that, as evidenced by an Opinion of Counsel delivered to
the Trustee and to each Rating Agency, the Certificateholders have a claim with
respect to the funds in such account or a perfected first priority security
interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, or (iii) a trust account or accounts maintained with
(a) the trust department of a federal or state chartered depository institution
or (b) a trust company,
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acting in its fiduciary capacity or (iv) any other account acceptable to
each Rating Agency and the Insurer, as evidenced by a letter from such Rating
Agency and Insurer to the Trustee, without reduction or withdrawal of the then
current ratings of the Certificates. Eligible Accounts may bear interest, and
may include, if otherwise qualified under this definition, accounts maintained
with the Trustee.
Equity One-Delaware: Equity One, Inc., a Delaware corporation.
Equity One-Florida: Equity One Mortgage, Inc., a Delaware corporation.
Equity One-Minnesota: Equity One, Inc., a Minnesota corporation.
Equity One-New Hampshire: Equity One Consumer Loan Company, Inc., a New
Hampshire corporation.
Equity One-New York: Equity One Mortgage, Inc., a New York corporation.
Equity One-North Carolina: Equity One Mortgage Company, a North Carolina
corporation.
Equity One-Pennsylvania: Equity One, Incorporated, a Pennsylvania
corporation.
Equity One-West Virginia: Equity One of West Virginia, Inc., a West
Virginia corporation.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Escrow Account: The Eligible Account or Eligible Accounts established and
maintained by the Servicer pursuant to Section 3.06(a).
Event of Default: As defined in Section 7.01.
Excess Proceeds: With respect to any Liquidated Loan, the amount, if any,
by which the sum of any Liquidation Proceeds of such Loan received in the
calendar month in which such Loan became a Liquidated Loan, net of any amounts
previously reimbursed to the Servicer as Nonrecoverable Advance(s) with respect
to such Loan pursuant to Section 3.08(a)(iii), exceeds (i) the unpaid principal
balance of such Liquidated Loan as of the Due Date in the calendar month in
which such Loan became a Liquidated Loan plus (ii) accrued interest at the
Mortgage Rate from the Due Date as to which interest was last paid or advanced
(and not reimbursed) to Certificateholders up to the Due Date in the calendar
month in which such Loan became a Liquidated Loan.
Expense Rate: As to each Loan, the sum of the related Servicing Fee Rate,
the Trustee Fee Rate and the rate at which the Insurer's Monthly Premium
accrues.
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FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FIRREA: The Financial Institutions Reform, Recovery, and Enforcement Act
of 1989.
FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.
I&I Payments: Any payments due and owing to the Insurer under the Insurance
Agreement other than the Insurer's Monthly Premium.
Indirect Participant: A broker, dealer, bank or other financial
institution or other Person that clears through or maintains a custodial
relationship with a Depository Participant.
Insurance Agreement: The Insurance and Indemnity Agreement dated as of
September [ ], 1998 among the Depositor, Equity One-Delaware (in its capacity as
both a Seller and the Servicer), the Trustee and the Insurer, including any
amendments and supplements thereto.
Insurance Policy: With respect to any Loan included in the Trust Fund, any
insurance policy, including all riders and endorsements thereto in effect,
including any replacement policy or policies for any Insurance Policies.
Insurance Proceeds: Proceeds paid by an insurer (other than the Insurer)
pursuant to any Insurance Policy, in each case other than any amount included in
such Insurance Proceeds in respect of Insured Expenses.
Insured Amount: A payment by the Insurer under the Policy.
Insured Expenses: Expenses covered by an Insurance Policy.
Insurer: AMBAC Indemnity Corporation, a stock insurance company organized
and created under the laws of the State of Wisconsin, and any successor thereto.
Insurer Default: Either (i) a continuance of any failure by the Insurer to
make a required payment under the Policy or (ii) the existence of a proceeding
in bankruptcy by or against the Insurer.
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Insurer's Monthly Premium: The premium payable to the Insurer on each
Distribution Date in an amount equal to one-twelfth of the product of the per
annum rate specified in the Insurance Agreement and the aggregate Certificate
Balance of the Class A Certificates on each Distribution Date (after giving
effect to any distributions of principal to be made on the Certificates on such
Distribution Date).
Interest Accrual Period: With respect to the Class A Certificates and any
Distribution Date, the calendar month prior to the month of such Distribution
Date.
Interest Distribution Amount: With respect to any Distribution Date and any
Class of Class A Certificates, the sum of (i) interest accrued during the
related Interest Accrual Period at the Pass-Through Rate for such Class on the
related Class Certificate Balance and (ii) any Class Unpaid Interest Amounts for
such Class.
Investment Letter: As defined in Section 5.02(b).
Latest Possible Maturity Date: The Distribution Date following the third
anniversary of the scheduled maturity date of the Loan having the latest
scheduled maturity date as of the Cut-off Date.
Liquidated Loan: With respect to any Distribution Date, a defaulted Loan
(including any REO Property) which was liquidated in a calendar month preceding
the month of such Distribution Date and as to which the Servicer has determined
(in accordance with this Agreement) that it has received all amounts it expects
to receive in connection with the liquidation of such Loan, including the final
disposition of an REO Property.
Liquidation Proceeds: Amounts, including Insurance Proceeds, received in
connection with the partial or complete liquidation of defaulted Loans, whether
through trustee's sale, foreclosure sale or otherwise or amounts received in
connection with any condemnation or partial release of a Mortgaged Property and
any other proceeds received in connection with an REO Property, less the
Servicing Amount.
Loan Losses: The aggregate sum of the amount, if any, by which (i) the
outstanding principal balance of each Loan that became a Liquidated Loan during
the calendar month preceding the month of the related Distribution Date (such
principal balance determined immediately before such Loan became a Liquidated
Loan) exceeds (ii) the Liquidation Proceeds received during the calendar month
preceding the month of the related Distribution Date in connection with the
liquidation of such Loan which have not theretofore been used to reduce the
Stated Principal Balance of such Loan.
Loan-to-Value Ratio: With respect to any Loan and as to any date of
determination, (i) the principal balance of such Loan at the date of origination
divided by (ii) the appraised value of the related Mortgaged Property based on
an appraisal made for the related Seller by an independent fee appraiser at the
time of the origination of the related Loan.
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Loans: The mortgage loans identified on the Loan Schedule.
Loan Schedule: The list of Loans (as from time to time amended by the
Servicer to reflect the addition of Substitute Loans and the deletion of Deleted
Loans pursuant to the provisions of this Agreement) transferred to the Trustee
as part of the Trust Fund and from time to time subject to this Agreement,
attached hereto as Schedule I, setting forth the following information with
respect to each Loan:
(i) the loan number;
(ii) the Mortgagor's name and the state in which the Mortgaged Property is
located, including the zip code;
(iii) the maturity date;
(iv) the Cut-off Date Principal Balance;
(v) the first payment date of the Loan;
(vi) lien position (either first or second);
(vii) the Scheduled Payment in effect as of the Cut-off Date; and
(viii) the Mortgage Rate.
Such schedule shall also set forth the total of the amounts described under
(iv) above for all of the Loans.
Majority in Interest: As to any Class of Class A Certificates, the Holders
of Certificates of such Class evidencing, in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.
Monthly Spread Account Deposit Amount: On any Distribution Date, the amount
equal to the product of (i) 100% and (ii) the amount of the Spread Account
Deposit Amount as of such Distribution Date; provided, however, that the
percentage set forth in clause (i) above may be reduced, solely at the
discretion of the Insurer, at which time written notice shall be sent to each
Seller, the Trustee, the Servicer, S&P and Moody's.
Monthly Statement: The statement delivered to the Certificateholders
pursuant to Section 4.03.
Moody's: Moody's Investors Service, Inc., or any successor thereto. For
purposes of Section 10.05(b) the address for notices to Moody's shall be Moody's
Investors
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Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Mortgage Monitoring Department, or such other address as Moody's may
hereafter furnish to the Depositor or the Servicer.
Mortgage: The mortgage, deed of trust or other instrument creating a first
or subordinate lien on an estate in fee simple or leasehold interest in real
property securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01 hereof
pertaining to a particular Loan and any additional documents delivered to the
Trustee to be added to the Mortgage File pursuant to this Agreement.
Mortgage Note: The original executed note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Loan, together with any
amendment or modification thereto.
Mortgage Rate: The annual rate of interest borne by a Mortgage Note as set
forth therein.
Mortgaged Property: The underlying property securing a Loan.
Mortgagor: The obligor(s) on a Mortgage Note.
Net Available Funds: As to any Distribution Date, the amount equal to
Available Funds less the amounts required to be distributed on such Distribution
Date pursuant to Section 4.02(a)(i)-(iii).
Net Prepayment Interest Shortfalls: As to any Distribution Date, the amount
by which the aggregate of Prepayment Interest Shortfalls during the calendar
month preceding the month of such Distribution Date exceeds an amount equal to
the aggregate Servicing Fee for such Distribution Date before reduction of the
Servicing Fee in respect of such Prepayment Interest Shortfalls.
Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Servicer that, in the good faith judgment of the
Servicer, will not be ultimately recoverable by the Servicer from the related
Mortgagor, related Liquidation Proceeds or otherwise.
Notice: As defined in Section 3A.02.
Notice of Final Distribution: The notice to be provided pursuant to Section
9.02 to the effect that final distribution on any of the Certificates shall be
made only upon presentation and surrender thereof.
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Officer's Certificate: A certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Servicer, or (ii), if provided for in this
Agreement, signed by a Servicing Officer, as the case may be, and delivered to
the Depositor and the Trustee, as the case may be, as required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor or the Servicer, including, in-house counsel, reasonably
acceptable to the Trustee and the Insurer; provided, however, that with respect
to the interpretation or application of the REMIC Provisions, such counsel must
(i) in fact be independent of the Depositor and the Servicer, (ii) not have any
direct financial interest in the Depositor or the Servicer or in any affiliate
of either, and (iii) not be connected with the Depositor or the Servicer as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
Optional Termination: The termination of the trust created hereunder in
connection with the purchase of the Loans pursuant to Section 9.01(a) hereof.
Original Loan: The mortgage loan refinanced in connection with the
origination of a Refinance Loan.
OTS: The Office of Thrift Supervision.
Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or delivered to the
Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which other
Certificates have been executed and delivered by the Trustee pursuant to
this Agreement.
Outstanding Loan: As of any Due Date, a Loan with a Stated Principal
Balance greater than zero, which was not the subject of a Principal Prepayment
in Full prior to such Due Date and which did not become a Liquidated Loan prior
to such Due Date.
Ownership Interest: As to any Class R Certificate, any ownership interest
in such Certificate including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.
Pass-Through Rate: For the Class A Certificates, the per annum rates set
forth or calculated in the manner described in the Preliminary Statement.
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Paying Agent: The Chase Manhattan Bank and its successors and, if a
successor paying agent is appointed hereunder, such successor.
Percentage Interest: As to any Class A Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the face thereof or equal to the
percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.
Permitted Investments: (i) obligations of the United States or any agency
thereof, provided such obligations are backed by the full faith and credit of
the United States; (ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving the highest
long-term debt rating of each Rating Agency rating the Class A Certificates, or
such lower rating as will not result in the downgrading or withdrawal of the
ratings then assigned to the Class A Certificates, without taking into account
the Policy, 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 Class A
Certificates, without taking into account the Policy, 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 Class A Certificates, without
taking into account the Policy, 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 Class A Certificates, without
taking into account the Policy, 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 Class A Certificates, without
taking into account the
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Policy, 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 and the Insurer as will not result in the downgrading or
withdrawal of the rating then assigned to the Class A Certificates by any such
Rating Agency, as evidenced by a signed writing to such effect delivered by each
such Rating Agency and the Insurer; provided that no such instrument shall be a
Permitted Investment if such instrument evidences the right to receive interest
only payments with respect to the obligations underlying such instrument.
Permitted Transferee: Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in section 521 of the Code)
which is exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any Class R Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) a Person that is not a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate whose income from sources without
the United States is includible in gross income for United States federal income
tax purposes regardless of its connection with the conduct of a trade or
business within the United States, or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have authority to control all
substantial decisions of the trust, unless such Person has furnished the
transferor and the Trustee with a duly completed Internal Revenue Service Form
4224 and (vi) any other Person so designated by the Depositor based upon an
Opinion of Counsel that the Transfer of an Ownership Interest in a Class R
Certificate to such Person may cause the REMIC hereunder to fail to qualify as a
REMIC at any time that the Certificates are outstanding. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in section 7701 of the Code or successor provisions. A corporation will
not be treated as an instrumentality of the United States or of any State or
political subdivision thereof for these purposes if all of its activities are
subject to tax and, with the exception of the Federal Home Loan Mortgage
Corporation, a majority of its board of directors is not selected by such
government unit.
Person: Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government, or any agency or political subdivision thereof.
Policy: The Certificate Guaranty Insurance Policy (No. ________) with
respect to the Class A Certificates, and all endorsements thereto dated the
Closing Date, issued by the Insurer for the benefit of the Holders of each Class
of Class A Certificates, a copy of which is attached hereto as Exhibit K.
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Pool Principal Balance: As to any Distribution Date, the aggregate of the
Stated Principal Balances of the Loans which were Outstanding Loans on their Due
Dates in the calendar month preceding the month of such Distribution Date.
Preference Claim: As defined in Section 3A.02(e).
Prepayment Interest Excess: As to any Principal Prepayment received by the
Servicer from the first day through the fifteenth day of any calendar month
beginning in [October], 1998, all amounts paid by the related Mortgagor in
respect of interest on such Principal Prepayment. All Prepayment Interest Excess
shall be paid to the Servicer as additional servicing compensation
Prepayment Interest Shortfall: As to any Distribution Date and any
Principal Prepayment received on or after the sixteenth day of the month
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, on or after the Cut-off Date) and on or before the last day
of the month preceding the month of such Distribution Date, the amount, if any,
by which one month's interest at the related Mortgage Rate on such Principal
Prepayment, net of the Servicing Fee Rate, exceeds the amount of interest paid
in connection with such Principal Prepayment.
Prepayment Period: As to any Distribution Date, the period from the 16th
day of the calendar month preceding the month of such Distribution Date (or, in
the case of the first Distribution Date, from the Cut-off Date) through the 15th
day of the month of such Distribution Date.
Primary Mortgage Insurance Policy: Each policy of primary mortgage guaranty
insurance or any replacement policy therefor with respect to any Loan.
Principal Prepayment: Any payment of principal by a Mortgagor on a Loan
that is received in advance of its scheduled Due Date and is not accompanied by
an amount representing scheduled interest due on any date or dates in any month
or months subsequent to the month of prepayment. Partial Principal Prepayments
shall be applied by the Servicer in accordance with the terms of the related
Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Loan.
Prospectus Supplement: The Prospectus Supplement dated [________________],
1998 relating to the Class A Certificates.
Purchase Price: With respect to any Loan required to be repurchased by a
Seller pursuant to Section 2.02 or 2.03 hereof or purchased at the option of the
Servicer pursuant to Section 3.11 hereof, an amount equal to the sum of (i) 100%
of the Stated Principal Balance of the Loan on the date of such purchase, and
(ii) accrued interest thereon at the applicable
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Mortgage Rate (or at the applicable Adjusted Mortgage Rate if (x) the
purchaser is the Servicer or (y) the purchaser is a Seller and Equity
One-Delaware is the Servicer) from the date through which interest was last paid
by the Mortgagor or advanced (and not reimbursed) by the Servicer to the
Determination Date in the month in which the Purchase Price is to be distributed
to Certificateholders.
PTCE 95-60: As defined in Section 5.02(b).
Qualified Insurer: A mortgage guaranty insurance company duly qualified as
such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in such states and to write the
insurance provided by the insurance policy issued by it, approved as a
FNMA-approved mortgage insurer and having a claims paying ability rating of at
least "AA" or equivalent rating by a nationally recognized statistical rating
organization. Any replacement insurer with respect to a Loan must have at least
as high a claims paying ability rating as the insurer it replaces had on the
Closing Date
Rating Agency: Moody's and S&P. If either organization or a successor
thereof is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization, or other comparable Person, as is
designated by the Depositor with the consent of the Insurer, notice of which
designation shall be given to the Trustee. References herein to a given rating
category of a Rating Agency shall mean such rating category without giving
effect to any modifiers.
Record Date: With respect to any Distribution Date for so long as the Class
A Certificates are not Definitive Certificates, the close of business on the
Business Day immediately preceding such Distribution Date. With respect to any
Distribution Date on which any Definitive Certificates are outstanding, the last
Business Day of the calendar month immediately preceding such Distribution Date.
Refinance Loan: Any Loan originated in connection with the refinancing of
an existing mortgage loan.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Reductions: With respect to any Distribution Date and any Loan
as to which there has been a reduction in the amount of interest collectible
thereon for the most recently ended calendar month as a result of the
application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Loan for the most recently ended calendar month is less than
(ii) interest accrued thereon for such month pursuant to the Mortgage Note
without taking into account the application of the Relief Act.
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REMIC: A "real estate mortgage investment conduit" within the meaning of
section 860D of the Code.
REMIC Change of Law: Any proposed, temporary or final regulation, revenue
ruling, revenue procedure or other official announcement or interpretation
relating to REMICs and the REMIC Provisions issued after the Closing Date.
REMIC Provisions: Provisions of the federal income tax law relating to real
estate mortgage investment conduits, which appear at sections 860A through 860G
of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from time
to time, as well as provisions of applicable state laws.
Remittance Amount: As to any Distribution Date, the sum of the Interest
Distribution Amount and Certificate Formula Principal Amount for such
Distribution Date.
REO Property: A Mortgaged Property acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted Loan.
Request for Release: The Request for Release submitted by the Servicer to
the Trustee, substantially in the form of Exhibit J.
Required Insurance Policy: With respect to any Loan, any insurance policy
that is required to be maintained from time to time under this Agreement.
Responsible Officer: When used with respect to the Trustee, any officer
assigned to the Corporate Trust Division of the Trustee (or any successor
thereto), including any Vice President, any Assistant Vice President, the
Secretary, any Assistant Secretary, any Trust Officer or any other officer of
the Trustee customarily performing functions similar to those performed by any
of the above designated officers and having direct responsibility for the
administration of this Agreement.
Rule 144A Letter: As defined in Section 5.02(b).
Scheduled Payment: The scheduled monthly payment on a Loan due on any Due
Date allocable to principal and/or interest on such Loan.
Securities Act: The Securities Act of 1933, as amended.
Sellers: Collectively, the following corporations, their successors and
assigns, each in its capacity as a Seller of the Loans to the Depositor: Equity
One-Delaware; Equity One-Florida; Equity One-Minnesota; Equity One-New
Hampshire; Equity One-New York; Equity One-Pennsylvania; Equity One-North
Carolina; and Equity One-West Virginia.
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Servicer: Equity One, Inc., a Delaware corporation, and its successors and
assigns, in its capacity as servicer hereunder.
Servicer Advance Date: As to any Distribution Date, the third Business Day
following the end of the related Prepayment Period.
Servicing Advances: All customary, reasonable and necessary "out of pocket"
costs and expenses incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of a Mortgaged Property, (ii) the foreclosure,
trustee's sale, or other liquidation of any Mortgage or Mortgaged Property,
(iii) any expenses reimbursable to the Servicer pursuant to Section 3.11 and any
enforcement or judicial proceedings, including foreclosures, (iv) the management
and liquidation of any REO Property, (v) compliance with the obligations
described in Section 3.06 and (vi) any payments made by the Servicer pursuant to
Section 3.09.
Servicing Amount: The sum of (i) the Servicing Fee (ii) unreimbursed
Advances and (iii) unreimbursed Servicing Advances.
Servicing Fee: As to each Loan and any Distribution Date, an amount payable
out of each full payment of interest received on such Loan and equal to
one-twelfth of the Servicing Fee Rate multiplied by the Stated Principal Balance
of such Loan as of the Due Date in the month of such Distribution Date (prior to
giving effect to any Scheduled Payments due on such Loan on such Due Date),
subject to reduction as provided in Section 3.14.
Servicing Fee Rate: With respect to each Loan, 0.5% per annum.
Servicing Officer: Any officer of the Servicer involved in, or responsible
for, the administration and servicing of the Loans whose name and facsimile
signature appear on a list of servicing officers furnished to the Trustee (with
a copy to the Insurer) by the Servicer on the Closing Date pursuant to this
Agreement, as such list may from time to time be amended.
S&P: Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. For purposes of Section 10.05(b) the address for notices to S&P
shall be Standard & Poor's Ratings Group, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance, or such other address
as S&P may hereafter furnish to the Depositor and the Servicer.
Specified Spread Account Requirement: As of:
(x) any date on or prior to the Step-Down Date, the greatest of (a)
[$______________ (2.50% times the Cut-off Date Pool Principal Balance)]; (b) the
greater of (1) the sum of the principal balances of the three largest Loans as
of such date and (2) 0.50% times the Cut-off Date Pool Principal Balance; and
(c) two times the excess of (i) one-half the aggregate principal balance of the
Loans which are 90 or more days delinquent (including Loans in foreclosure and
REO
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Properties) over (ii) five times the Monthly Spread Account Deposit Amount
as of such Distribution Date; and
(y) any date after the Step-Down Date, the greatest of (a) the lesser of (A)
[$______________ (2.50% times the Cut-off Date Pool Principal Balance)] and (B)
5.00% times the outstanding Pool Principal Balance as of such date; (b) the
greater of (1) the sum of the principal balances of the three largest Loans as
of such date and (2) 0.50% times the Cut-off Date Pool Principal Balance; and
(c) two times the excess of (i) one-half the aggregate principal balance of the
Loans which are 90 or more days delinquent (including Loans in foreclosure and
REO Properties) over (ii) five times the Monthly Spread Account Deposit Amount
as of such Distribution Date.
Spread Account: The separate Eligible Account or Accounts created and
maintained by the Trustee pursuant to Section 3A.01 in the name of the Trustee
for the benefit of the Insurer and the Certificateholders and designated "Spread
Account, The Chase Manhattan Bank, as trustee for the registered holders of
Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series 1998-1." Funds
in the Spread Account shall be held in trust for the Insurer and the
Certificateholders for the uses and purposes set forth in this Agreement.
Spread Account Deposit Amount: As to any Distribution Date, the amount by
which (A) Distributable Funds exceeds (B) the sum of (i) the Insurer's Monthly
Premium, (ii) the Trustee Fee, (iii) the Servicing Amount, (iv) the aggregate
Interest Distribution Amount for all Classes of the Class A Certificates, (v)
the aggregate Certificate Formula Principal Amount for all Classes of the Class
A Certificates, and (vi) any I&I Payments due to the Insurer.
Spread Account Draw: As defined in Section 3A.01(b)(i).
Spread Account Excess: As to any Distribution Date, any amount in the
Spread Account in excess of the Specified Spread Account Requirement.
Startup Day: The Closing Date.
Stated Principal Balance: 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 Principal Prepayments and
Liquidation Proceeds allocable to principal (other than with respect to any
Liquidated Loan) and to the payment of principal due on such Due Date and
irrespective of any delinquency in payment by the related Mortgagor.
Step-down Date: The Distribution Date occurring on the later of (a) the
thirtieth Distribution Date or (b) the date upon which the outstanding Pool
Principal Balance is less than 50% of the Cut-off Date Pool Principal Balance.
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Streamlined Documentation Loan: Any Loan originated pursuant to the
Seller's no income verification loan documentation program.
Subservicer: Any person to whom the Servicer has contracted for the
servicing of all or a portion of the Loans pursuant to Section 3.02.
Substitute Loan: A Loan substituted by a Seller for a Deleted Loan(s) which
must, on the date of such substitution, as confirmed in a Request for Release,
substantially in the form of Exhibit J, (i) have a Stated Principal Balance,
after deduction of the principal portion of the Scheduled Payment due in the
month of substitution, not in excess of, and not more than 10% less than, the
Stated Principal Balance(s) of the Deleted Loans; (ii) be accruing interest at a
rate no lower than the rate of the Deleted Loan(s) and not more than 1% per
annum higher than the rate of the Deleted Loan(s); (iii) have a Loan-to-Value
Ratio no higher than that of the Deleted Loan(s); (iv) have a remaining term to
maturity no greater than (and not more than one year less than that of) the
Deleted Loan(s); and (v) comply as of the date of substitution with each
representation and warranty set forth or referred to in Section 2.03.
Substitution Adjustment Amount: The meaning ascribed to such term pursuant
to Section 2.03.
Tax Matters Person: The person designated as "tax matters person" in the
manner provided under Treasury regulation ss.1.860F-4(d) and temporary Treasury
regulation ss.301.6231(a)(7)1T. Initially, the Tax Matters Person shall be the
Trustee.
Tax Matters Person Certificate: The Class R Certificate with a Denomination
of .00001%.
Transfer: Any direct or indirect transfer or sale of any Ownership Interest
in a Class R Certificate.
Transfer Affidavit: As defined in Section 5.02(c).
Transferor Certificate: As defined in Section 5.02(b).
Trustee: The Chase Manhattan Bank and its successors and, if a successor
trustee is appointed hereunder, such successor.
Trustee Fee: As to any Distribution Date, an amount equal to one-twelfth of
the Trustee Fee Rate multiplied by the Pool Principal Balance with respect to
such Distribution Date.
Trustee Fee Rate: With respect to each Loan, the per annum rate agreed upon
in writing on or prior to the Closing Date by the Trustee and the Depositor.
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Trust Fund: The corpus of the trust created hereunder consisting of (i) the
Loans and all interest and principal received, or receivable, on or with respect
thereto after the Cut-off Date to the extent not applied in computing the
Cut-off Date Principal Balance thereof and all interest and principal payments
on such Loans received prior to the Cut-off Date in respect of installments of
interest and principal due thereafter; (ii) the Certificate Account, the
Distribution Account, the Spread Account, and all amounts deposited therein
pursuant to the applicable provisions of this Agreement; (iii) property that
secured a Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure
or otherwise; (iv) the Policy; and (v) all proceeds of the conversion, voluntary
or involuntary, of any of the foregoing.
Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate. As of any date of determination, the
percentage of all the Voting Rights allocated to each Class of Certificates
shall be the fraction, expressed as a percentage, the numerator of which is the
Class Certificate Balance of such Class then outstanding and the denominator of
which is the aggregate stated Principal Balance of the Loans then outstanding.
The Voting Rights allocated to each Class of Certificates shall be allocated
among all Holders of each such Class in proportion to the outstanding
Certificate Balances of their respective Certificates on such date.
Weighted Average Adjusted Net Mortgage Rate: As to any Distribution Date,
the weighted average of the Adjusted Net Mortgage Rates of the Outstanding
Loans, such weighted average to be calculated based on the Stated Principal
Balances of such Outstanding Loans on such Distribution Date.
ARTICLE II
CONVEYANCE OF LOANS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Conveyance of Loans.
(a) Each Seller, concurrently with the execution and delivery hereof,
hereby sells, transfers, grants, bargains, assigns, sets over and otherwise
conveys to the Depositor, without recourse, all the right, title and interest of
such Seller in and to that portion of the Loans listed on the Loan Schedule that
pertains to such Seller, including all interest and principal received or
receivable by such Seller on or with respect to such Loans after the Cut-off
Date and all interest and principal payments on such Loans received prior to the
Cut-off Date in respect of installments of interest and principal due
thereafter, but not including payments of principal and interest due and payable
on such Loans on or before the Cut-off Date. On or prior to the Closing Date,
each Seller shall deliver to the Depositor or, at the Depositor's direction, to
the Trustee or other designee of the Depositor, the Mortgage File for each Loan
listed in that portion of the Loan Schedule that pertains to such Seller. Such
delivery of the Mortgage Files shall be made against payment by the Depositor of
the purchase price, previously agreed to by such Seller and
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the Depositor, for the Loans listed on the Loan Schedule that pertains to
such Seller. With respect to any Loan that does not require the first payment of
principal or interest thereon to be made on or before such Loan's Due Date in
the month of the first Distribution Date, such Seller shall deposit into the
Distribution Account on or before the Distribution Account Deposit Date relating
to the first Distribution Date, an amount equal to one month's interest at the
related Adjusted Mortgage Rate on the Cut-off Date Principal Balance of such
Loan. In addition, on or prior to the Closing Date, the Depositor shall cause
the Insurer to deliver the Policy to the Trustee.
(b) The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, grants, bargains, assigns, sets over and otherwise
conveys to the Trustee for the benefit of the Insurer and the
Certificateholders, without recourse, all the right, title and interest of the
Depositor in and to the Trust Fund together with the Depositor's right to
require the Sellers to cure any breach of a representation or warranty made
herein by the Sellers or to repurchase or substitute for any affected Loan in
accordance herewith.
(c) In connection with the sale, transfer and assignment set forth in
clause (b) above, the Depositor has delivered or caused to be delivered to the
Trustee or a Custodian for the Trustee on or before the Closing Date or shall
deliver or cause to be delivered to the Trustee or a Custodian for the Trustee
on or before such later date as is set forth below, for the benefit of the
Insurer and the Certificateholders the following documents or instruments with
respect to each Loan so sold, transferred and assigned:
(i) the original Mortgage Note endorsed (by manual or facsimile
signature) as follows: "Pay to the order of The Chase Manhattan Bank as
trustee for the benefit of the Certificateholders of Equity One ABS, Inc.
Mortgage Pass-Through Certificates Series 1998-1 without recourse," with
all intervening endorsements and all riders and modifications showing a
complete chain of endorsement from the originator to the Person endorsing
it to the Trustee (each such endorsement being sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or
assignee thereof, in and to that Mortgage Note);
(ii) except as provided below, the original recorded Mortgage;
(iii) an original recorded assignment of the Mortgage (which may be
included in a blanket assignment or assignments), duly executed by the
appropriate Seller and the Depositor, which assignment will not be
delivered on or before the Closing Date but shall be delivered within the
time period set forth in this Section 2.01, together with, except as
provided below, all interim recorded assignments of such Mortgage, if any,
all riders or modifications to such Mortgage, if any, (each such assignment
to be in recordable form and sufficient to effect the assignment of and
transfer to the assignee thereof, under the Mortgage to which the
assignment relates, with the original to be recorded by the Servicer
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as follows: the Servicer shall promptly send such assignments for
recording, and shall return the original recorded assignment to the Trustee
once returned as recorded by the applicable recording office);
(iv) the original of each assumption, modification, written assurance
or substitution agreement, if any; and
(v) except as provided below, the original or duplicate original
lender's title policy and all riders thereto.
In the event that in connection with any Loan the Depositor
cannot deliver (a) the original recorded Mortgage, (b) all interim recorded
assignments or (c) the lender's title policy (together with all riders thereto)
satisfying the requirements of clause (ii), (iii) or (v) above, respectively,
concurrently with the execution and delivery hereof because such document or
documents have not been returned from the applicable public recording office in
the case of clause (ii) or (iii) above, or because the title policy has not been
delivered to either the Servicer or the Depositor by the applicable title
insurer in the case of clause (v) above, and, in the case of the assignments of
the Mortgage to the Trustee as required under (iii) above, the Depositor shall
promptly deliver to the Trustee, in the case of clause (ii) or (iii) above, such
original Mortgage or such assignment, as the case may be, with evidence of
recording indicated thereon upon receipt thereof from the public recording
office, or a copy thereof, certified, if appropriate, by the relevant recording
office, but in no event shall any such delivery of the original Mortgage and
each such assignment or a copy thereof, certified, if appropriate, by the
relevant recording office, and each title policy as required by clause (v) above
be made later than one year following the Closing Date; provided, however, in
the event the Depositor is unable to deliver by such date each Mortgage, and
each such assignment or each such title policy by reason of the fact that any
such documents have not been returned by the appropriate recording office, or,
in the case of each such assignment, because the related Mortgage or any related
interim assignment have not been returned by the appropriate recording office
or, in the case of each title policy, because the title insurer has not received
the recording information from the appropriate recording office for such
mortgage or assignment, has not been returned by the appropriate recording
office, the Depositor shall deliver such documents to the Trustee as promptly as
possible upon receipt thereof and, in any event, within 720 days following the
Closing Date. The Depositor shall forward or cause to be forwarded to the
Trustee (a) from time to time additional original documents evidencing an
assumption or modification of a Loan and (b) any other documents required to be
delivered by the Depositor or the Servicer to the Trustee. In the event that the
original Mortgage is not delivered and in connection with the payment in full of
the related Loan and the public recording office requires the presentation of a
"lost instruments affidavit and indemnity" or any equivalent document, because
only a copy of the Mortgage can be delivered with the instrument of satisfaction
or reconveyance, the Servicer shall execute and deliver or cause to be executed
and delivered such a document to the public recording office. In the case where
a public recording office retains the original recorded Mortgage or in the case
where a Mortgage is lost after recordation in a public recording office, the
appropriate Seller shall deliver
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to the Trustee a copy of such Mortgage certified by such public recording
office to be a true and complete copy of the original recorded Mortgage.
As promptly as practicable subsequent to such transfer and assignment, and
in any event, within thirty (30) days thereafter, the Servicer shall (i) affix
the Trustee's name to each assignment of Mortgage, as the assignee thereof as
Trustee for the benefit of the Certificateholders, (ii) cause such assignment to
be in proper form for recording in the appropriate public office for real
property records and (iii) cause to be delivered for recording in the
appropriate public office for real property records the assignments of the
Mortgages to the Trustee, except that, with respect to any assignments of
Mortgages as to which the information required to prepare such assignment in
recordable form has not yet been received, the Servicer's obligation to do so
and to deliver the same for such recording shall be as soon as practicable after
receipt of such information and in any event within thirty (30) days after
receipt thereof.
In the case of Loans that have been prepaid in full as of the Closing Date,
the Depositor, in lieu of delivering the above documents to the Trustee, will
deposit in the Certificate Account the portion of such payment that is required
to be deposited in the Certificate Account pursuant to Section 3.05 hereof.
SECTION 2.02. Acceptance by Trustee of the Loans.
The Trustee acknowledges receipt of the documents identified in the initial
certification in the form annexed hereto as Exhibit D and declares that it holds
and will hold such documents and the other documents delivered to it
constituting the Mortgage Files, and that it holds or will hold such other
assets as are included in the Trust Fund, in trust for the exclusive use and
benefit of all present and future Certificateholders and the Insurer. The
Trustee acknowledges that it will maintain possession of the Mortgage Notes in
the State of New York, unless otherwise permitted by the Rating Agencies and the
Insurer. In the event that the Trustee desires to maintain possession of the
Mortgage Notes in a state constituting one of the United States of America, the
Trustee shall, at least thirty (30) days prior to discontinuing possession of
the Mortgage Notes in the State of New York, provide (i) a Notice of such
intention to the Rating Agencies, the Insurer and the Sellers and (ii) an
Opinion of Counsel stating that such relocation of the Mortgage Notes and the
possession by the Trustee of the Mortgage Notes in such other state will not
destroy or impair the perfection by the Trustee of the security interests
assigned and granted to the Trustee pursuant to the provisions of Section 10.04.
The Trustee agrees to execute and deliver on the Closing Date to the
Depositor, the Insurer, the Servicer and the Sellers an initial certification in
the form annexed hereto as Exhibit D. Based on its review and examination, and
only as to the documents identified in such initial certification, the Trustee
shall acknowledge that such documents appear regular on their face and relate to
the Loans listed in the Loan Schedule or shall indicate any noted deviations.
The Trustee, at the time of delivery of the initial certification, shall be
under no duty or obligation (i) to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the same are
genuine, enforceable or appropriate for the represented
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purpose or that they have actually been recorded in the real estate records
or that they are other than what they purport to be on their face or (ii) to
determine whether the Mortgage File shall include any of the documents listed in
Section 2.01(c), except for the Mortgage Note. Should there be any exceptions to
the Trustee's initial certification, the appropriate Seller shall have thirty
(30) days from the Closing Date to cure such exception or deliver a Mortgage
File or Mortgage Files for a Substitute Loan or Substitute Loans in accordance
with Section 2.03(c).
Not later than 90 days after the Closing Date, the Trustee shall deliver to
the Depositor, the Servicer and the Sellers a final certification in the form
annexed hereto as Exhibit E, with any applicable exceptions noted thereon.
If the Trustee or the Insurer finds any document constituting a part of a
Mortgage File which does not meet the requirements of Section 2.01, the Trustee
shall list such as an exception in the final certification; provided, however
that the Trustee shall not make any determination as to whether (i) any
endorsement is sufficient to transfer all right, title and interest of the party
so endorsing, as noteholder or assignee thereof, in and to that Mortgage Note or
(ii) any assignment is in recordable form or is sufficient to effect the
assignment of and transfer to the assignee thereof under the mortgage to which
the assignment relates. In performing any such review, the Trustee may
conclusively rely on the Depositor as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
Trustee's review of the Mortgage Files is limited solely to confirming that the
documents listed in Section 2.01(c) have been received and further confirming
that any and all documents delivered pursuant to Section 2.01(c) have been
executed and relate to the Loans identified in the Loan Schedule. The Trustee
shall have no responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction. The appropriate Seller shall promptly
correct or cure such defect within 90 days from the date it was so notified of
such defect and, if such Seller does not correct or cure such defect within such
period, such Seller shall either (a) substitute for the related Loan a
Substitute Loan, which substitution shall be accomplished in the manner and
subject to the conditions set forth in Section 2.03, or (b) purchase such Loan
from the Trustee within 90 days from the date such Seller was notified of such
defect in writing at the Purchase Price of such Loan; provided, however, that in
no event shall such substitution or purchase occur more than 540 days from the
Closing Date, except that if the substitution or purchase of a Loan pursuant to
this provision is required by reason of a delay in delivery of any comments by
the appropriate recording office, and there is a dispute between either the
Servicer or such Seller and the Trustee over the location or status of the
recorded document, then such substitution or purchase shall occur within 720
days from the Closing Date. The Trustee shall deliver a report to each Rating
Agency and the Insurer within 720 days from the Closing Date indicating a list
of all documents in each Mortgage File in the possession of the Trustee. Any
such substitution pursuant to (a) above or purchase pursuant to (b) above shall
not be effected prior to the delivery to the Trustee of the Opinion of Counsel
required by Section 2.05 hereof, if any, and any substitution pursuant to (a)
above shall not be effected prior to the additional delivery to the Trustee of a
Request for Release
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substantially in the form of Exhibit J. No substitution is permitted to be
made in any calendar month after the Determination Date for such month. The
Purchase Price for any such Loan shall be deposited by such Seller in the
Certificate Account on or prior to the Distribution Account Deposit Date for the
Distribution Date in the month following the month of repurchase and, upon
receipt of such deposit and certification with respect thereto in the form of
Exhibit J, the Trustee shall release the related Mortgage File to such Seller
and shall execute and deliver at such Seller's request such instruments of
transfer or assignment prepared by such Seller, in each case without recourse,
as shall be necessary to vest in such Seller, or a designee, the Trustee's
interest in any Loan released pursuant hereto.
The Trustee shall retain possession and custody of each Mortgage File in
accordance with and subject to the terms and conditions set forth herein. The
Servicer shall promptly deliver to the Trustee, upon the execution or receipt
thereof, the originals of such other documents or instruments constituting the
Mortgage File as come into the possession of the Servicer from time to time.
It is understood and agreed that the obligation of the appropriate Seller
to substitute for or to purchase any Loan which does not meet the requirements
of Section 2.01 above shall constitute the sole and exclusive remedy respecting
such defect available to the Trustee, the Depositor and any Certificateholder
against any Seller.
SECTION 2.03. Representations, Warranties and Covenants of the Sellers and
the Servicer.
(a) (i) Equity One-Delaware, Equity One-Florida, Equity One-Minnesota,
Equity One-New Hampshire, Equity One-New York, Equity One-Pennsylvania,
Equity One-North Carolina and Equity One-West Virginia, in their capacities
as Sellers, hereby make the representations and warranties set forth in
Schedules IIA-H respectively, and by this reference incorporated herein, to
the Depositor, the Insurer and the Trustee, as of the Closing Date, or if
so specified therein, as of the Cut-off Date; and
(ii) Equity One-Delaware, in its capacity as Servicer, hereby makes
the representations and warranties set forth in Schedule IIX, and by this
reference incorporated herein, to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified therein, as of the
Cut-Off Date.
(b) Equity One-Delaware, Equity One-Florida, Equity One-Minnesota, Equity
One-New Hampshire, Equity One-New York, Equity One-Pennsylvania, Equity
One-North Carolina and Equity One-West Virginia, in their capacities as Sellers,
hereby make the representations and warranties set forth in Schedule IIIA-H
respectively, and by this reference incorporated herein, to the Depositor, the
Insurer and the Trustee, as of the Closing Date, or if so specified therein, as
of the Cut-off Date.
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(c) Upon discovery by any of the parties hereto or the Insurer of a breach
of a representation or warranty made pursuant to Section 2.03(b) that materially
and adversely affects the interests of the Certificateholders or the Insurer in
any Loan, the party discovering such breach shall give prompt notice thereof to
the other parties. Each Seller, for itself and not jointly and severally for all
other Sellers, hereby covenants that within 90 days of the earlier of its
discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.03(b) which materially and
adversely affects the interests of the Certificateholders or the Insurer in any
Loan listed on the Loan Schedule that pertains to such Seller, such Seller shall
cure such breach in all material respects, and if such breach is not so cured,
shall, (i) if such 90-day period expires prior to the second anniversary of the
Closing Date, remove such Loan (a "Deleted Loan") from the Trust Fund and
substitute in its place a Substitute Loan, in the manner and subject to the
conditions set forth in this Section or (ii) repurchase the affected Loan or
Loans from the Trustee at the Purchase Price in the manner set forth below;
provided, however, that any such substitution pursuant to (i) above shall not be
effected prior to the delivery to the Trustee of the Opinion of Counsel required
by Section 2.05 hereof, if any, and any such substitution pursuant to (i) above
shall not be effected prior to the additional delivery to the Trustee of a
Request for Release substantially in the form of Exhibit J and the Mortgage File
for any such Substitute Loan. The appropriate Seller shall promptly reimburse
the Servicer and the Trustee for any expenses reasonably incurred by the
Servicer or the Trustee in respect of enforcing the remedies for such breach.
With respect to the representations and warranties described in this Section
which are made to the best of a Seller's knowledge, if it is discovered by
either the Depositor, the appropriate Seller or the Trustee that the substance
of such representation and warranty is inaccurate and such inaccuracy materially
and adversely affects the value of the related Loan or the interests of the
Certificateholders or the Insurer therein, notwithstanding such Seller's lack of
knowledge with respect to the substance of such representation or warranty, such
inaccuracy shall be deemed a breach by such Seller of the applicable
representation or warranty.
With respect to any Substitute Loan or Loans, such Seller shall deliver to
the Trustee for the benefit of the Certificateholders and the Insurer the
Mortgage Note, the Mortgage, the related assignment of the Mortgage, and such
other documents and agreements as are required by Section 2.01, with the
Mortgage Note endorsed and the Mortgage assigned as required by Section 2.01. No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. Scheduled Payments due with respect to
Substitute Loans in the month of substitution shall not be part of the Trust
Fund and will be retained by the appropriate Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Loan for
such month and thereafter the appropriate Seller shall be entitled to retain all
amounts received in respect of such Deleted Loan. The Servicer shall amend the
Loan Schedule for the benefit of the Certificateholders and the Insurer to
reflect the removal of such Deleted Loan and the substitution of the Substitute
Loan or Loans and the Servicer shall deliver the amended Loan Schedule to the
Trustee. Upon such substitution, the Substitute Loan or Loans shall be subject
to the terms of this Agreement in all respects, and the appropriate Seller shall
be deemed to have made with respect to such Substitute Loan or Loans, as of the
date of substitution, the
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representations and warranties made pursuant to Section 2.03(b). Upon any
such substitution and the deposit to the Certificate Account of the amount
required to be deposited therein in connection with such substitution as
described in the following paragraph, the Trustee shall release the Mortgage
File held for the benefit of the Certificateholders and the Insurer relating to
such Deleted Loan to the appropriate Seller and shall execute and deliver at the
appropriate Seller's direction such instruments of transfer or assignment
prepared by such Seller, in each case without recourse, as shall be necessary to
vest title in such Seller, or its designee, with respect to the Trustee's
interest in any Deleted Loan substituted for pursuant to this Section 2.03.
For any month in which the appropriate Seller substitutes one or more
Substitute Loans for one or more Deleted Loans, the Servicer will determine the
amount (if any) by which the aggregate principal balance of all such Substitute
Loans as of the date of substitution is less than the aggregate Stated Principal
Balance of all such Deleted Loans (after application of the scheduled principal
portion of the monthly payments due in the month of substitution). The amount of
such shortage (the "Substitution Adjustment Amount") plus an amount equal to the
aggregate of any unreimbursed Advances with respect to such Deleted Loans shall
be deposited in the Certificate Account by such Seller on or before the
Distribution Account Deposit Date for the Distribution Date in the month
succeeding the calendar month during which the related Loan became required to
be purchased or replaced hereunder.
In the event that the appropriate Seller shall have repurchased a Loan, the
Purchase Price therefor shall be deposited in the Certificate Account pursuant
to Section 3.05 on or before the Distribution Account Deposit Date for the
Distribution Date in the month following the month during which such Seller
became obligated hereunder to repurchase or replace such Loan and upon such
deposit of the Purchase Price, the delivery of the Opinion of Counsel required
by Section 2.05 and receipt of a Request for Release in the form of Exhibit J,
the Trustee shall release the related Mortgage File held for the benefit of the
Certificateholders and the Insurer to such Seller, and the Trustee shall execute
and deliver at such Seller's direction such instruments of transfer or
assignment prepared by such Seller, in each case without recourse, as shall be
necessary to transfer title from the Trustee. It is understood and agreed that
the obligation under this Agreement of any Seller to cure, repurchase or replace
any Loan as to which a breach of a representation or warranty has occurred and
is continuing shall constitute the sole and exclusive remedy against such
Sellers respecting such breach of a representation and warranty available to
Certificateholders, the Depositor or the Trustee on their behalf.
The representations and warranties made pursuant to this Section 2.03 shall
survive delivery of the respective Mortgage Files to the Trustee for the benefit
of the Certificateholders and the Insurer.
Section 2.03A. Additional Obligations of Equity One-Delaware.
(a) In addition to the representations and warranties made by Equity
One-Delaware in its capacity as a Seller, as described in Section 2.03 and set
forth in Schedules IIA and IIIA, Equity One-Delaware hereby represents and
warrants to the Depositor, the Insurer and
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the Trustee that all of the representations and warranties of the other
Sellers described in Section 2.03 and set forth in Schedules IIB-H and IIIB-H
are true and accurate in all respects.
(b) Equity One-Delaware hereby covenants that it shall comply with the
repurchase and substitution obligations described in Section 2.02 and 2.03 in
the event that (i) a breach of any of the representations and warranties set
forth in Schedules IIIB-H occurs and (ii) the related Seller defaults on its
repurchase and substitution obligations under Sections 2.02 and 2.03.
SECTION 2.04. Representations and Warranties of the Depositor as to the
Loans.
The Depositor hereby represents and warrants to the Trustee and the Insurer
with respect to each Loan that as of the Closing Date, and following the
transfer of the Loans to it by the Sellers, the Depositor had good title to the
Loans and the Mortgage Notes were subject to no offsets, defenses or
counterclaims.
The Depositor, concurrently with the execution and delivery hereof, hereby
sells, transfers, assigns, sets over, grants, bargains and otherwise conveys to
the Trustee for the benefit of the Certificateholders and the Insurer, without
recourse, all of its rights, title and interest with respect to the Loans
including, without limitation, the representations and warranties of the Sellers
made pursuant to Sections 2.03(a) and 2.03(b) hereof, together with all rights
of the Depositor to require any applicable Seller to cure any breach thereof or
to repurchase or substitute for any affected Loan in accordance with this
Agreement.
It is understood and agreed that the representations and warranties set
forth in this Section 2.04 shall survive delivery of the Mortgage Files to the
Trustee. Upon discovery by the Depositor, the Insurer or the Trustee of a breach
of any of the foregoing representations and warranties set forth in this Section
2.04, which breach materially and adversely affects the interest of the
Certificateholders or the Insurer, the party discovering such breach shall give
prompt written notice to the other parties and to each Rating Agency.
SECTION 2.05. Delivery of Opinion of Counsel in Connection with
Substitutions.
(a) Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.02 or Section 2.03 shall be made more than 90
days after the Closing Date unless the appropriate Seller delivers to the
Trustee and the Insurer an Opinion of Counsel, which Opinion of Counsel shall
not be at the expense of either the Trustee or the Trust Fund, addressed to the
Trustee, to the effect that such substitution will not (i) result in the
imposition of the tax on "prohibited transactions" on the Trust Fund or
contributions after the Startup Day, as defined in Sections 860F(a)(2) and
860G(d) of the Code, respectively, or (ii) cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding.
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(b) Upon discovery by the Depositor, the appropriate Seller, the Servicer,
the Insurer or the Trustee that any Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the appropriate Seller, at such
Seller's option, to either (i) substitute, if the conditions in Section 2.03(c)
with respect to substitutions are satisfied, a Substitute Loan for the affected
Loan or (ii) repurchase the affected Loan within 90 days of such discovery in
the same manner as it would repurchase a Loan for a breach of representation or
warranty made pursuant to Section 2.03. The Trustee shall reconvey to such
Seller the Loan to be released pursuant hereto in the same manner, and on the
same terms and conditions, as it would release a Loan repurchased for breach of
a representation or warranty contained in Section 2.03.
SECTION 2.06. Execution and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of the Trust
Fund and, concurrently with such transfer and assignment and in payment
therefor, has executed and delivered to or upon the order of the Depositor, the
Certificates in authorized denominations evidencing directly or indirectly the
entire ownership of the Trust Fund. The Trustee agrees to hold the Trust Fund
and exercise the rights referred to above for the benefit of all present and
future Certificateholders and to perform the duties set forth in this Agreement
to the best of its ability, to the end that the interests of the
Certificateholders may be adequately and effectively protected.
SECTION 2.07. REMIC Matters.
The Preliminary Statement sets forth the designations and "latest possible
maturity date" for federal income tax purposes of all interests created hereby.
The "Startup Day" for purposes of the REMIC Provisions shall be the Closing
Date. The "tax matters person" with respect to the Trust Fund shall be the
Trustee and the Trustee shall hold the Tax Matters Person Certificate. The Trust
Fund's fiscal year shall be the calendar year.
SECTION 2.08. Covenants of the Servicer.
The Servicer hereby covenants to the Depositor, the Insurer and the Trustee
as follows:
(a) the Servicer shall comply in the performance of its obligations under
this Agreement with all reasonable rules and requirements of the insurer under
each Required Insurance Policy; and
(b) no written information, certificate of an officer, statement furnished
in writing or written report delivered to the Depositor, any affiliate of the
Depositor, the Insurer or the Trustee and prepared by the Servicer pursuant to
this Agreement will contain any untrue
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statement of a material fact or omit to state a material fact necessary to
make such information, certificate, statement or report not misleading.
ARTICLE III
ADMINISTRATION AND SERVICING
OF LOANS
SECTION 3.01. Servicer to Service Loans.
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For and on behalf of the Certificateholders and the Insurer, the Servicer
shall service and administer the Loans in accordance with the terms of this
Agreement and customary and usual standards of practice of prudent mortgage loan
servicers. In connection with such servicing and administration, the Servicer
shall have full power and authority, acting alone and/or through Subservicers as
provided in Section 3.02 hereof, to do or cause to be done any and all things
that it may deem necessary or desirable in connection with such servicing and
administration, including but not limited to, the power and authority, subject
to the terms hereof, (i) to execute and deliver, on behalf of the
Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any Loan;
provided that the Servicer shall not take any action that is inconsistent with
or prejudices the interests of the Trust Fund, the Insurer or the
Certificateholders in any Loan or the rights and interests of the Depositor, the
Insurer, the Trustee and the Certificateholders under this Agreement. The
Servicer shall represent and protect the interests of the Trust Fund in the same
manner as it protects its own interests in mortgage loans in its own portfolio
in any claim, proceeding or litigation regarding a Loan, and shall not make or
permit any modification, waiver or amendment of any Loan which would cause the
Trust Fund to fail to qualify as a REMIC or result in the imposition of any tax
under Section 860F(a) or Section 860G(d) of the Code. Without limiting the
generality of the foregoing, the Servicer, in its own name or in the name of the
Depositor and the Trustee, is hereby authorized and empowered by the Depositor
and the Trustee, when the Servicer believes it appropriate in its reasonable
judgment, to execute and deliver, on behalf of the Trustee, the Depositor, the
Certificateholders or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Loans, and with respect to the
Mortgaged Properties held for the benefit of the Certificateholders. The
Servicer shall prepare and deliver to the Depositor and/or the Trustee such
documents requiring execution and delivery by either or both of them as are
necessary or appropriate to enable the Servicer to service and administer the
Loans to the extent that the Servicer is not permitted to execute and deliver
such documents pursuant to the preceding sentence. Upon receipt of such
documents, the Depositor and/or the Trustee shall execute such documents and
deliver them to the Servicer.
SECTION 3.02. Subservicing; Enforcement of the Obligations of Servicers.
(a) The Servicer may arrange for the subservicing of any Loan
by a Subservicer pursuant to a subservicing agreement; provided, however, that
such subservicing arrangement and the terms of the related subservicing
agreement must provide for the servicing of such Loans in a manner consistent
with the servicing arrangements contemplated hereunder. Unless the context
otherwise requires, references in this Agreement to actions taken or to be taken
by the Servicer in servicing the Loans include actions taken or to be taken by a
Subservicer on behalf of the Servicer. Notwithstanding the provisions of any
subservicing agreement, any of
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the provisions of this Agreement relating to agreements or arrangements
between the Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Servicer shall remain obligated and liable to the
Depositor, the Trustee, the Insurer and the Certificateholders for the servicing
and administration of the Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
subservicing agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Loans. All actions of
each Subservicer performed pursuant to the related subservicing agreement shall
be performed as an agent of the Servicer with the same force and effect as if
performed directly by the Servicer.
(b) For purposes of this Agreement, the Servicer shall be deemed to have
received any collections, recoveries or payments with respect to the Loans that
are received by a Subservicer regardless of whether such payments are remitted
by the Subservicer to the Servicer.
SECTION 3.03. Rights of the Depositor and the Trustee in Respect of the
Servicer.
The Depositor may, but is not obligated to, enforce the obligations of the
Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Servicer hereunder and in
connection with any such defaulted obligation to exercise the related rights of
the Servicer hereunder; provided that the Servicer shall not be relieved of any
of its obligations hereunder by virtue of such performance by the Depositor or
its designee. Neither the Trustee nor the Depositor shall have any
responsibility or liability for any action or failure to act by the Servicer nor
shall the Trustee or the Depositor be obligated to supervise the performance of
the Servicer hereunder or otherwise.
SECTION 3.04. Trustee to Act as Servicer.
In the event that the Servicer shall for any reason no longer be the
Servicer hereunder (including by reason of an Event of Default), the Trustee or
its successor shall thereupon assume all of the rights and obligations of the
Servicer hereunder arising thereafter (except that the Trustee shall not be (i)
liable for losses of the Servicer pursuant to Section 3.09 hereof or any acts or
omissions of the predecessor Servicer hereunder, (ii) obligated to make Advances
if it is prohibited from doing so by applicable law, (iii) obligated to
effectuate repurchases or substitutions of Loans hereunder including, but not
limited to, repurchases or substitutions of Loans pursuant to Section 2.02 or
2.03 hereof, (iv) responsible for expenses of the Servicer pursuant to Section
2.03 or (v) deemed to have made any representations and warranties of the
Servicer hereunder). Any such assumption shall be subject to Section 7.02
hereof. If the Servicer shall for any reason no longer be the Servicer
(including by reason of any Event of Default), the Trustee or its successor
shall succeed to any rights and obligations of the Servicer under each
subservicing agreement.
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The Servicer shall, upon request of the Trustee, but at the expense of the
Servicer, deliver to the assuming party all documents and records relating to
each subservicing agreement or substitute subservicing agreement and the Loans
then being serviced thereunder and an accounting of amounts collected or held by
it and otherwise use its best efforts to effect the orderly and efficient
transfer of the substitute subservicing agreement to the assuming party.
SECTION 3.05. Collection of Loan Payments; Certificate Account; Distribution
Account; Spread Account.
(a) The Servicer shall make reasonable efforts in accordance with the
customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Loans to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any related Required Insurance Policy. Consistent with the
foregoing, the Servicer may in its discretion (i) waive any late payment charge
or any prepayment charge or penalty interest in connection with the prepayment
of a Loan and (ii) extend the due dates for payments due on a Mortgage Note for
a period not greater than 180 days; provided, however, that the Servicer cannot
extend the maturity of any such Loan past the date on which the final payment is
due on the latest maturing Loan as of the Cut-off Date. In the event of any such
arrangement, the Servicer shall make Advances on the related Loan in accordance
with the provisions of Section 4.01 during the scheduled period in accordance
with the amortization schedule of such Loan without modification thereof by
reason of such arrangements. The Servicer shall not be required to institute or
join in litigation with respect to collection of any payment (whether under a
Mortgage, Mortgage Note or otherwise or against any public or governmental
authority with respect to a taking or condemnation) if it reasonably believes
that enforcing the provision of the Mortgage or other instrument pursuant to
which such payment is required is prohibited by applicable law.
(b) The Servicer shall establish and maintain a Certificate Account into
which the Servicer shall deposit or cause to be deposited within one Business
Day of receipt, except as otherwise specifically provided herein, the following
payments and collections remitted by Subservicers or received by it in respect
of the Loans subsequent to the Cut-off Date (other than in respect of principal
and interest due on the Loans on or before the Cut-off Date) and the following
amounts required to be deposited hereunder:
(i) all payments on account of principal on the Loans, including
Principal Prepayments;
(ii) all payments on account of interest on the Loans, net of the
related Servicing Fee;
(iii) all Insurance Proceeds and Liquidation Proceeds, other than
proceeds to be applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the Servicer's
normal servicing procedures;
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(iv) any amount required to be deposited by the Servicer pursuant to
Section 3.05(d) in connection with any losses on Permitted Investments;
(v) any amounts required to be deposited by the Servicer pursuant to
Section 3.09(c) and, in respect of net monthly rental income from REO
Property, pursuant to Section 3.11 hereof;
(vi) all Substitution Adjustment Amounts;
(vii) all Advances made by the Servicer pursuant to Section 4.01; and
(viii) any other amounts required to be deposited hereunder.
The foregoing requirements for remittance by the Servicer shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment penalties, late payment
charges or assumption fees, if collected, need not be remitted by the Servicer.
In the event that the Servicer shall remit any amount not required to be
remitted, it may at any time withdraw or direct the institution maintaining the
Certificate Account to withdraw such amount from the Certificate Account, any
provision herein to the contrary notwithstanding. Such withdrawal or direction
may be accomplished by delivering written notice thereof to the Trustee or such
other institution maintaining the Certificate Account which describes the
amounts deposited in error in the Certificate Account. The Servicer shall
maintain adequate records with respect to all withdrawals made pursuant to this
Section. All funds deposited in the Certificate Account shall be held in trust
for the Certificateholders and the Insurer until withdrawn in accordance with
Section 3.08.
(c) The Trustee shall establish and maintain, on behalf of the
Certificateholders and the Insurer, the Distribution Account. The Trustee shall,
promptly upon receipt, deposit in the Distribution Account and retain therein
the following:
(i) the aggregate amount remitted by the Servicer to the Trustee
pursuant to Section 3.08(a)(ix); and
(ii) any other amounts deposited hereunder which are required to be
deposited in the Distribution Account.
In the event that the Servicer shall remit any amount not required to be
remitted, it may at any time direct the Trustee to withdraw such amount from the
Distribution Account, any provision herein to the contrary notwithstanding. Such
direction may be accomplished by delivering an Officer's Certificate to the
Trustee which describes the amounts deposited in error in the Distribution
Account. All funds deposited in the Distribution Account shall be held by the
Trustee uninvested in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.08. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Servicer.
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(d) Each institution at which the Certificate Account and the Spread
Account is maintained shall invest the funds therein as directed in writing by
the Servicer in Permitted Investments, which shall mature not later than, in the
case of the Certificate Account, the second Business Day preceding each
Distribution Account Deposit Date (except that if such Permitted Investment is
an obligation of the institution that maintains such account, then such
Permitted Investment shall mature not later than the Business Day next preceding
such Distribution Account Deposit Date) and shall not be sold or disposed of
prior to its maturity. All such Permitted Investments shall be made in the name
of the Trustee, for the benefit of the Certificateholders and the Insurer. So
long as no Event of Default shall have occurred and be continuing, all income
and gain net of any losses realized from any such investment of funds on deposit
in the Certificate Account shall be for the benefit of the Servicer as servicing
compensation and shall be remitted to it monthly as provided herein. All income
and gain net of any losses realized from Permitted Investments made with funds
on deposit in the Spread Account and, if an Event of Default shall have occurred
and be continuing, from all other Permitted Investments shall be deposited into
the Spread Account. The amount of any realized losses in the Certificate Account
or the Spread Account incurred in any such account in respect of any such
investments shall promptly be deposited by the Servicer in the Certificate
Account or remitted to the Trustee for deposit into the Spread Account, as
applicable. The Trustee in its fiduciary capacity shall not be liable for the
amount of any loss incurred in respect of any investment or lack of investment
of funds held in the Certificate Account or Spread Account and made in
accordance with this Section 3.05.
(e) The Servicer shall give notice to the Trustee, the Insurer, each
Seller, each Rating Agency and the Depositor of any proposed change of the
location of the Certificate Account prior to any change thereof. The Trustee
shall give notice to the Servicer, each Seller, each Rating Agency and the
Depositor of any proposed change of the location of the Distribution Account
prior to any change thereof.
(f) Amounts on deposit in the Spread Account may be invested in Permitted
Investments which shall mature no later than the Business Day immediately
preceding the next Distribution Date; provided, however, that amounts on deposit
in the Spread Account may mature at a later date than that set forth above, upon
receipt by the Trustee of the Insurer's consent and confirmation in writing from
each Rating Agency that such investment's maturity shall not result in a
downgrade of the Class A Certificates.
SECTION 3.06. Payment of Taxes, Assessments, Hazard Insurance Premiums and
Similar Items; Escrow Accounts.
(a) The Servicer shall require Mortgagors to pay all taxes, assessments,
hazard insurance premiums, flood insurance premiums, condominium association
dues or comparable items for the account of the Mortgagors. To the extent
required by the Seller at the time the related Loan was originated and not
violative of current law, the Servicer shall establish and maintain one or more
accounts (each, an "Escrow Account") and deposit and retain therein
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all collections from the Mortgagors (or advances by the Servicer) for the
payment of taxes, assessments, hazard insurance premiums, condominium
association dues or comparable items for the account of the Mortgagors. Nothing
herein shall require the Servicer to compel a Mortgagor to establish an Escrow
Account in violation of applicable law or if the Seller of the related Loan did
not require the establishment of an Escrow Account at the time the Loan was
originated.
Withdrawals of amounts so collected from the Escrow Accounts may be made
only to effect timely payment of taxes, assessments, hazard insurance premiums,
condominium association dues, or comparable items, to reimburse the Servicer out
of related collections for any payments made pursuant to Sections 3.01 hereof
(with respect to taxes and assessments and insurance premiums) and 3.09 hereof
(with respect to hazard insurance), to refund to any Mortgagors any sums
determined to be overages, to pay interest, if required by law or the terms of
the related Mortgage or Mortgage Note, to Mortgagors on balances in the Escrow
Account or to clear and terminate the Escrow Account at the termination of this
Agreement in accordance with Section 9.01 hereof. The Escrow Accounts shall not
be a part of the Trust Fund.
(b) The Servicer shall advance any payments referred to in Section 3.06(a)
that are not timely paid by the Mortgagors on the date when the tax, premium or
other cost for which such payment is intended is due, but the Servicer shall be
required so to advance only to the extent that such advances, in the good faith
judgment of the Servicer, are required to be made to protect the lien of the
Mortgage and will be recoverable by the Servicer out of Insurance Proceeds,
Liquidation Proceeds or otherwise. The amount of any such advances made by the
Servicer for the purpose of maintaining any hazard or flood insurance shall not,
for the purpose of calculating monthly distributions to the Certificateholders
or remittances to the Trustee for their benefit, be added to the principal
balance of the related Loan, notwithstanding that the terms of the Loan so
permit. Any advance made by the Servicer pursuant to this Section 3.06 shall be
recoverable as a Servicing Advance to the extent permitted by Section 3.08.
SECTION 3.07. Access to Certain Documentation and Information Regarding the
Loans.
The Servicer shall afford the Depositor, the Insurer, the Trustee and each
Rating Agency reasonable access to all records and documentation regarding the
Loans and all accounts, insurance information and other matters relating to this
Agreement, such access being afforded without charge, but only upon reasonable
request and during normal business hours at the office designated by the
Servicer.
Upon reasonable advance notice in writing, the Servicer will provide to
each Certificateholder which is a savings and loan association, bank or
insurance company certain reports and reasonable access to information and
documentation regarding the Loans sufficient to permit such Certificateholder to
comply with applicable regulations of the OTS or other regulatory authorities
with respect to investment in the Certificates; provided that the Servicer
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shall be entitled to be reimbursed by each such Certificateholder for
actual expenses incurred by the Servicer in providing such reports and access.
SECTION 3.08. Permitted Withdrawals from the Certificate Account and
Distribution Account.
(a) The Servicer may from time to time make withdrawals from the
Certificate Account for the following purposes:
(i) to pay to the Servicer (to the extent not previously retained by
the Servicer) the servicing compensation to which it is entitled pursuant
to Section 3.14, and, subject to Section 3.05(d), to pay to the Servicer,
as additional servicing compensation, or to the Spread Account, as the case
may be, earnings on or investment income with respect to funds in or
credited to the Certificate Account;
(ii) to reimburse the Servicer for unreimbursed Advances made by it,
such right of reimbursement pursuant to this subclause (ii) being limited
to amounts received on the Loan(s) in respect of which any such Advance was
made;
(iii) to reimburse the Servicer for any Nonrecoverable Advance
previously made;
(iv) to reimburse the Servicer for Insured Expenses from the related
Insurance Proceeds;
(v) to reimburse the Servicer for (a) unreimbursed Servicing Advances,
the Servicer's right to reimbursement pursuant to this clause (a) with
respect to any Loan being limited to amounts received on such Loan(s) which
represent late recoveries of the payments for which such Servicing Advances
were made pursuant to Section 3.01 or Section 3.06 and (b) for unpaid
Servicing Fees as provided in Section 3.11 hereof;
(vi) to pay to the purchaser, with respect to each Loan or property
acquired in respect thereof that has been purchased pursuant to Section
2.02, 2.03 or 3.11, all amounts received thereon after the date of such
purchase;
(vii) to reimburse the Sellers, the Servicer or the Depositor for
expenses incurred by any of them and reimbursable pursuant to Section 6.03
hereof;
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein;
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(ix) on or prior to the Distribution Account Deposit Date, to withdraw
an amount equal to the related Available Funds for such Distribution Date
and remit such amount to the Trustee for deposit in the Distribution
Account; and
(x) to clear and terminate the Certificate Account upon termination of
this Agreement pursuant to Section 9.01 hereof.
The Servicer shall keep and maintain separate accounting, on a Loan by Loan
basis, for the purpose of justifying any withdrawal from the Certificate Account
pursuant to such subclauses (i), (ii), (iv), (v) and (vi). Prior to making any
withdrawal from the Certificate Account pursuant to subclause (iii), the
Servicer shall deliver to the Trustee an Officer's Certificate of a Servicing
Officer indicating the amount of any previous Advance determined by the Servicer
to be a Nonrecoverable Advance and identifying the related Loans(s), and their
respective portions of such Nonrecoverable Advance.
(b) The Trustee shall withdraw funds from the Distribution Account for
distributions to Certificateholders in the manner specified in this Agreement
(and to withhold from the amounts so withdrawn, the amount of any taxes that it
is authorized to withhold pursuant to the last paragraph of Section 8.11). In
addition, the Trustee may from time to time make withdrawals from the
Distribution Account for the following purposes:
(i) to pay to itself the Trustee Fee and certain expenses for the
related Distribution Date;
(ii) to withdraw and return to the Servicer any amount deposited in
the Distribution Account and not required to be deposited therein; and
(iii) to clear and terminate the Distribution Account upon termination
of the Agreement pursuant to Section 9.01 hereof.
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance of Primary Insurance
Policies.
(a) The Servicer shall require Mortgagors to maintain, for each Loan,
hazard insurance with extended coverage (i) in the case of a Loan secured by a
Mortgage creating a first lien on the related Mortgaged Property, in an amount
that is at least equal to the original principal balance of such Loan or the
maximum insurable value of the improvements on such Mortgaged Property,
whichever is less, and (ii) in the case of a Loan which is subject to a prior
loan or prior loans, in an amount equal to the lesser of the combined principal
balances of such Loan and the prior loan(s) or the maximum insurable value of
the improvements on the related Mortgaged Property. Each such policy of standard
hazard insurance shall contain, or have an accompanying endorsement that
contains, a standard mortgagee clause. Any amounts collected by the Servicer
under any such policies (other than the amounts to be applied to the restoration
or repair of the improvements on the related Mortgaged Property or amounts
released to the
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Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Certificate Account. It is understood and agreed that
no earthquake or other additional insurance is to be required of any Mortgagor
or maintained on property acquired in respect of a Mortgage other than pursuant
to such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance. If the Mortgaged Property is located at
the time of origination of the Loan in a federally designated special flood
hazard area and such area is participating in the national flood insurance
program, the Servicer shall require the related Mortgagor to maintain flood
insurance with respect to such Loan. Such flood insurance shall be in an amount
equal to the original principal balance of the related Loan.
(b) The Servicer shall not be required to have Mortgagors maintain any
Primary Mortgage Insurance Policy with respect to any Loan, but may do so. The
Servicer shall not take any action which would result in non-coverage under any
applicable Primary Mortgage Insurance Policy of any loss which, but for the
actions of the Servicer, would have been covered thereunder. If any Mortgagor
fails to pay the premiums for its Primary Mortgage Insurance Policy, if any, the
Servicer may, but shall not be required to, pay such premiums. Any payment made
by the Servicer pursuant to this Section 3.09(b) shall be recoverable as a
Servicing Advance to the extent permitted by Section 3.08.
(c) In connection with its activities as Servicer of the Loans, the
Servicer agrees to present on behalf of itself, the Trustee, the Insurer and
Certificateholders, claims to the insurer under any Primary Mortgage Insurance
Policies and, in this regard, to take such reasonable action as shall be
necessary to permit recovery under any Primary Mortgage Insurance Policies
respecting defaulted Loans. Any amounts collected by the Servicer under any
Primary Mortgage Insurance Policies shall be deposited in the Certificate
Account.
SECTION 3.10. Enforcement of Due-on-Sale Clauses; Assumption Agreements.
(a) When any property subject to a Mortgage has been conveyed by the
Mortgagor, the Servicer, to the extent that it has knowledge of such conveyance,
may, at its discretion, but is not required to, enforce any due-on-sale clause
contained in any Mortgage Note or Mortgage, to the extent permitted under
applicable law and governmental regulations, but only to the extent that such
enforcement will not adversely affect or jeopardize coverage under any Required
Insurance Policy. The Servicer is authorized, subject to Section 3.10(b), to
take or enter into an assumption and modification agreement from or with the
Person to whom such property has been or is about to be conveyed, pursuant to
which such Person becomes liable under the Mortgage Note and, unless prohibited
by applicable state law, the Mortgagor remains liable thereon, provided that the
Loan shall continue to be covered (if so covered before the Servicer enters such
agreement) by the applicable Required Insurance Policies. The Servicer, subject
to Section 3.10(b), is also authorized with the prior approval of the insurers
under any Required Insurance Policies to enter into a substitution of liability
agreement with such Person, pursuant to which the original Mortgagor is released
from liability and such Person is substituted as Mortgagor and becomes liable
under the Mortgage Note. Notwithstanding the foregoing, the Servicer shall not
be deemed to be in default under this Section by reason of any transfer or
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assumption which the Servicer reasonably believes it is restricted by law from
preventing, for any reason whatsoever.
(b) In any case in which a Mortgaged Property has been conveyed to a Person
by a Mortgagor, and such Person is to enter into an assumption agreement or
modification agreement or supplement to the Mortgage Note or Mortgage that
requires the signature of the Trustee, or if an instrument of release signed by
the Trustee is required releasing the Mortgagor from liability on the Loan, the
Servicer shall prepare and deliver or cause to be prepared and delivered to the
Trustee for signature and shall direct, in writing, the Trustee to execute the
assumption agreement with the Person to whom the Mortgaged Property is to be
conveyed and such modification agreement or supplement to the Mortgage Note or
Mortgage or other instruments as are reasonable or necessary to carry out the
terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term of the
Mortgage Note may be changed. In addition, the substitute Mortgagor and the
Mortgaged Property must be acceptable to the Servicer in accordance with its
underwriting standards as then in effect. Together with each such substitution,
assumption or other agreement or instrument delivered to the Trustee for
execution by it, the Servicer shall deliver an Officer's Certificate signed by a
Servicing Officer stating that the requirements of this subsection have been met
in connection therewith. The Servicer shall notify the Trustee that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution or assumption agreement, which in the
case of the original shall be added to the related Mortgage File and shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof. Any fee
collected by the Servicer for entering into an assumption or substitution of
liability agreement will be retained by the Servicer as additional servicing
compensation.
SECTION 3.11. Realization Upon Defaulted Loans; Repurchase of Certain
Loans.
The Servicer shall use reasonable efforts to foreclose upon or otherwise
comparably convert the ownership of properties securing such of the Loans as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection with such
foreclosure or other conversion, the Servicer shall follow such practices and
procedures as it shall deem necessary or advisable and as shall be normal and
usual in its general mortgage servicing activities and meet the requirements of
the insurer under any Required Insurance Policy; provided, however, that the
Servicer shall not be required to expend its own funds in connection with any
foreclosure or towards the restoration of any property unless it shall determine
(i) that such restoration and/or foreclosure will increase the proceeds of
liquidation of the Loan after reimbursement to itself of such expenses and (ii)
that such expenses will be recoverable to it through Liquidation Proceeds
(respecting which it shall have priority for purposes of withdrawals from the
Certificate Account). The Servicer shall be responsible for all other costs and
expenses incurred by it in any such proceedings; provided, however, that it
shall be entitled to reimbursement thereof from the liquidation proceeds with
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respect to the related Mortgaged Property, as provided in the definition of
Liquidation Proceeds. If the Servicer has knowledge that a Mortgaged Property
which the Servicer is contemplating acquiring in foreclosure or by deed in lieu
of foreclosure is located within a one mile radius of any site with
environmental or hazardous waste risks known to the Servicer, the Servicer will,
prior to acquiring the Mortgaged Property, (i) consider such risks and only take
action in accordance with its established environmental review procedures and
(ii) consult with the Insurer and obtain the Insurer's consent to such action.
With respect to any REO Property, the deed or certificate of sale shall be
taken in the name of the Trustee for the benefit of the Certificateholders, or
its nominee, on behalf of the Certificateholders. The Trustee's name shall be
placed on the title to such REO Property solely as the Trustee hereunder and not
in its individual capacity. The Servicer shall ensure that the title to such REO
Property references this Agreement and the Trustee's capacity thereunder.
Pursuant to its efforts to sell such REO Property, the Servicer shall either
itself or through an agent selected by the Servicer protect and conserve such
REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Certificateholders, rent the
same, or any part thereof, as the Servicer deems to be in the best interest of
the Certificateholders for the period prior to the sale of such REO Property.
The Servicer shall prepare for and deliver to the Trustee a statement with
respect to each REO Property that has been rented showing the aggregate rental
income received and all expenses incurred in connection with the management and
maintenance of such REO Property at such times as is necessary to enable the
Trustee to comply with the reporting requirements of the REMIC Provisions. The
net monthly income, if any, from such REO Property shall be deposited in the
Certificate Account no later than the close of business on each Determination
Date. The Servicer shall perform the tax reporting and withholding required by
Sections 1445 and 6050J of the Code with respect to foreclosures and
abandonments, the tax reporting required by Section 6050H of the Code with
respect to the receipt of mortgage interest from individuals and any tax
reporting required by Section 6050P of the Code with respect to the cancellation
of indebtedness by certain financial entities, by preparing such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.
In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Loan, the Servicer shall dispose of such Mortgaged Property prior to three years
after its acquisition by the Trust Fund unless the Trustee shall have been
supplied with an Opinion of Counsel (which Opinion of Counsel shall not be at
the expense of the Trustee) to the effect that the holding by the Trust Fund of
such Mortgaged Property subsequent to such three-year period will not result in
the imposition of taxes on "prohibited transactions" of the REMIC hereunder as
defined in section 860F of the Code or cause the REMIC to fail to qualify as a
REMIC at any time that any Certificates are outstanding, in which case the Trust
Fund may continue to hold such Mortgaged Property (subject to any conditions
contained in such Opinion of Counsel). Notwithstanding any other provision of
this Agreement, no Mortgaged Property acquired by the Trust Fund shall be rented
(or allowed to continue to be rented) or otherwise used for the production of
income by or on
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behalf of the Trust Fund in such a manner or pursuant to any terms that
would (i) cause such Mortgaged Property to fail to qualify as "foreclosure
property" within the meaning of section 860G(a)(8) of the Code or (ii) subject
the REMIC to the imposition of any federal, state or local income taxes on the
income earned from such Mortgaged Property under Section 860G(c) of the Code or
otherwise, unless the Servicer has agreed to indemnify and hold harmless the
Trust Fund with respect to the imposition of any such taxes.
The decision of the Servicer to foreclose on a defaulted Loan shall be
subject to a determination by the Servicer that the proceeds of such foreclosure
would exceed the costs and expenses of bringing such a proceeding.
The proceeds from any liquidation of a Loan, as well as any income from an
REO Property, will be applied in the following order of priority: first, to
reimburse the Servicer for any related unreimbursed Servicing Advances and
Servicing Fees related to such Liquidated Loan; second, to reimburse the
Servicer for any unreimbursed Advances; third, to accrued and unpaid interest
(to the extent no Advance has been made for such amount or any such Advance has
been reimbursed) on the Loan or related REO Property, at the Adjusted Net
Mortgage Rate to the Due Date occurring in the calendar month preceding the
month in which such amounts are required to be distributed; and fourth, as a
recovery of principal of the Loan. Excess Proceeds, if any, from the liquidation
of a Liquidated Loan will be retained by the Servicer as additional servicing
compensation pursuant to Section 3.14.
The Servicer, in its sole discretion, shall have the right to purchase for
its own account or for resale as set forth herein from the Trust Fund any Loan
which is 91 days or more delinquent at a price equal to the Purchase Price. The
Purchase Price for any Loan purchased hereunder shall be deposited in the
Certificate Account and the Trustee, upon receipt of a Request for Release from
the Servicer substantially in the form of Exhibit J, shall release or cause to
be released to the Servicer the related Mortgage File and shall execute and
deliver such instruments of transfer or assignment prepared by the purchaser of
such Loan, in each case without recourse, as shall be necessary to vest in the
Servicer any Loan released pursuant hereto and the Servicer shall succeed to all
the Trustee's right, title and interest in and to such Loan and all security and
documents related thereto. Such assignment shall be a sale and assignment
outright and not for security. The Servicer shall thereupon own such Loan, and
all security and documents, free of any further obligation to the Trustee or the
Certificateholders with respect thereto.
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer will immediately notify the Trustee by delivering,
or causing to be delivered, a Request for Release substantially in the form of
Exhibit J. Upon receipt of such request, the Trustee shall promptly release the
related Mortgage File to the Servicer, and the Trustee shall at the Servicer's
direction execute and deliver to the Servicer the request for reconveyance, deed
of reconveyance
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or release or satisfaction of mortgage or such instrument releasing the
lien of the Mortgage in each case provided by the Servicer. Expenses incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the related Mortgagor. From time to time and as shall be
appropriate for the servicing or foreclosure of any Loan, including for such
purpose, collection under any policy of flood insurance, any fidelity bond or
errors or omissions policy, or for the purposes of effecting a partial release
of any Mortgaged Property from the lien of the Mortgage or the making of any
corrections to the Mortgage Note or the Mortgage or any of the other documents
included in the Mortgage File, the Trustee shall, upon delivery to the Trustee
of a Request for Release substantially in the form of Exhibit J signed by a
Servicing Officer, release the Mortgage File to the Servicer. Subject to the
further limitations set forth below, the Servicer shall cause the Mortgage File
or documents so released to be returned to the Trustee when the need therefor by
the Servicer no longer exists, unless the Loan is liquidated and the proceeds
thereof are deposited in the Certificate Account, in which case the Servicer
shall deliver to the Trustee a Request for Release substantially in the form of
Exhibit J, signed by a Servicing Officer.
If the Servicer at any time seeks to initiate a foreclosure proceeding in
respect of any Mortgaged Property as authorized by this Agreement, the Servicer
shall deliver or cause to be delivered to the Trustee, for signature, as
appropriate, any court pleadings, requests for trustee's sale or other documents
necessary to effectuate such foreclosure or any legal action brought to obtain
judgment against the Mortgagor on the Mortgage Note or the Mortgage or to obtain
a deficiency judgment or to enforce any other remedies or rights provided by the
Mortgage Note or the Mortgage or otherwise available at law or in equity.
SECTION 3.13. Documents Records and Funds in Possession of Servicer to be
Held for the Trustee.
Notwithstanding any other provisions of this Agreement, the Servicer shall
transmit to the Trustee as required by this Agreement all documents and
instruments in respect of a Loan coming into the possession of the Servicer from
time to time and shall account fully to the Trustee for any funds received by
the Servicer or which otherwise are collected by the Servicer as Liquidation
Proceeds or Insurance Proceeds in respect of any Loan. All Mortgage Files and
funds collected or held by, or under the control of, the Servicer in respect of
any Loans, whether from the collection of principal and interest payments or
from Liquidation Proceeds, including but not limited to, any funds on deposit in
the Certificate Account, shall be held by the Servicer for and on behalf of the
Trustee and shall be and remain the sole and exclusive property of the Trustee,
subject to the applicable provisions of this Agreement. The Servicer also agrees
that it shall not create, incur or subject any Mortgage File or any funds that
are deposited in the Certificate Account, Distribution Account, or any funds
that otherwise are or may become due or payable to the Trustee for the benefit
of the Certificateholders or the Insurer, to any claim, lien, security interest,
judgment, levy, writ of attachment or other encumbrance, or assert by legal
action or otherwise any claim or right of setoff against any Mortgage File or
any funds collected on, or in connection with, a Loan, except, however, that the
Servicer shall be entitled to set off
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against and deduct from any such funds any amounts that are properly due
and payable to the Servicer under this Agreement.
SECTION 3.14. Servicing Compensation.
As compensation for its activities hereunder, the Servicer shall be
entitled to retain or withdraw from the Certificate Account an amount equal to
the Servicing Fee for each Loan, provided that the aggregate Servicing Fee with
respect to any Distribution Date shall be reduced (i) by an amount equal to the
aggregate of the Prepayment Interest Shortfalls, if any, with respect to such
Distribution Date, up to the full amount of the aggregate Servicing Fee, and
(ii) with respect to the first Distribution Date, an amount equal to any amount
to be deposited into the Distribution Account by the Depositor pursuant to
Section 2.01(a) and not so deposited. Notwithstanding the preceding sentence,
the Servicer shall, on each Distribution Date after the Call Option Date, reduce
its Servicing Fee to the extent necessary to maintain the Weighted Average
Adjusted Net Mortgage Rate at a rate no less than [_____%].
Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, late payment
charges and all income and gain net of any losses realized from Permitted
Investments made with funds on deposit in the Certificate Account shall be
retained by the Servicer to the extent not required to be deposited in the
Certificate Account pursuant to Section 3.05 hereof. The Servicer shall be
required to pay all expenses incurred by it in connection with its servicing
activities hereunder and shall not be entitled to reimbursement therefor except
as specifically provided in this Agreement.
SECTION 3.15. Access to Certain Documentation.
The Servicer shall provide to the OTS and the FDIC and to comparable
regulatory authorities supervising certain Certificateholders and the examiners
and supervisory agents of the OTS, the FDIC and such other authorities, access
to the documentation regarding the Loans required by applicable regulations of
the OTS and the FDIC. Such access shall be afforded without charge, but only
upon reasonable and prior written request and during normal business hours at
the offices designated by the Servicer. Nothing in this Section shall limit the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the Mortgagors and the failure of the Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section.
SECTION 3.16. Annual Statement as to Compliance.
The Servicer shall deliver to the Depositor, the Insurer and the Trustee on
or before 120 days after the end of the Servicer's fiscal year, commencing with
its 1998 fiscal year, an Officer's Certificate stating, as to the signer
thereof, that (i) a review of the activities of the Servicer during the
preceding fiscal year and of the performance of the Servicer under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this
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Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. The Trustee shall forward a copy of
each such statement to each Rating Agency and to the Insurer.
SECTION 3.17. Annual Independent Public Accountants' Servicing Statement;
Financial Statements.
On or before 120 days after the end of the Servicer's fiscal year,
commencing with its 1998 fiscal year, the Servicer at its expense shall cause a
nationally or regionally recognized firm of independent public accountants (who
may also render other services to the Servicer, the Seller or any affiliate
thereof) which is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Trustee, the Insurer and the Depositor
to the effect that such firm has examined certain documents and records relating
to the servicing of the Loans under this Agreement and that, on the basis of
such examination, conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FNMA and FHLMC, such servicing has been conducted in compliance
with this Agreement except for such significant exceptions or errors in records
that, in the opinion of such firm, the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FNMA and FHLMC
requires it to report. In rendering such statement, such firm may rely, as to
matters relating to direct servicing of mortgage loans by Subservicers, upon
comparable statements for examinations conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FNMA and FHLMC (rendered within one year of
such statement) of independent public accountants with respect to the related
Subservicer. Copies of such statement shall be provided by the Trustee to any
Certificateholder upon request at the Servicer's expense, provided such
statement is delivered by the Servicer to the Trustee.
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds.
The Servicer shall, for so long as it acts as servicer under this
Agreement, obtain and maintain in force (a) a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Servicer
hereunder and (b) a fidelity bond in respect of its officers, employees and
agents. Each such policy or policies and bond shall, together, comply with the
requirements from time to time of FNMA or FHLMC for persons performing servicing
for mortgage loans purchased by FNMA or FHLMC. In the event that any such policy
or bond ceases to be in effect, the Servicer shall obtain a comparable
replacement policy or bond from an insurer or issuer, meeting the requirements
set forth above as of the date of such replacement.
SECTION 3.19. Optional Removal of Servicer by the Insurer.
If any of the following occur, the Insurer shall have the option (but not
the obligation), by notice in writing to the Servicer (with a copy to each
Rating Agency), to
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terminate all of the rights and obligations of the Servicer under this
Agreement and in and to the Loans and the proceeds thereof, other than its
rights as a Certificateholder hereunder:
(i) if on three consecutive Distribution Dates, the aggregate
outstanding principal balance of Loans more than 60 days contractually
delinquent (including Loans in foreclosure and REO Properties) as of the
end of the related Interest Accrual Period exceeds (a) prior to the
Step-Down Date, 6.00% of the Pool Principal Balance as of the end of the
related Interest Accrual Period or (b) on or after the Step-Down Date,
7.50% of the Pool Principal Balance as of the end of the related Interest
Accrual Period;
(ii) if on any Distribution Date, the cumulative Loan Losses over the
prior twelve month period exceed 1.00% of the average Pool Principal
Balance as of the end of the twelve preceding Interest Accrual Periods; or
(iii) if on any Distribution Date, the cumulative Loan Losses since
the Cut-Off Date exceed 2.50% of the Cut-off Date Pool Principal Balance.
On and after the receipt by the Servicer of the notice described in this
Section, all authority and power of the Servicer hereunder, whether with respect
to the Loans or otherwise, shall pass to and be vested in the Trustee, which
shall act as servicer in accordance with the duties and obligations described in
Sections 7.02 and 7.03.
ARTICLE IIIA
SPREAD ACCOUNT; POLICY
SECTION 3A.01 Establishment of Spread Account; Deposits in Spread Account;
Permitted Withdrawals from Spread Account.
(a) No later than the Closing Date, the Trustee will establish and maintain
for the benefit of the Certificateholders and the Insurer an Eligible Account
titled "Spread Account, The Chase Manhattan Bank, as trustee for the registered
holders of Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series
1998-1." The Spread Account will be initially funded by a deposit in the amount
of $[__________]. The Spread Account shall be treated as a "qualified reserve
fund" under applicable Treasury regulations. Except as set forth in clause (d)
of this Section 3A.01, the Trustee shall, promptly upon receipt, deposit into
the Spread Account and retain therein:
(i) on each Distribution Date, the Monthly Spread Account Deposit
Amount transferred by the Trustee pursuant to Section 4.02(a)(vi); and
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(ii) upon receipt, amounts required to be deposited or to be paid by
the Servicer pursuant to Section 3.05(d) and (f) in connection with losses
and gains on investments of amounts in the Spread Account.
(b) Amounts on deposit in the Spread Account shall be withdrawn on each
Distribution Date by the Trustee in the following order of priority:
(i) to deposit in the Distribution Account, an amount equal to the
excess of the Remittance Amount for such Distribution Date over the Net
Available Funds for such Distribution Date (any such amount, the "Spread
Account Draw"); and
(ii) to the extent that the amount then on deposit in the Spread
Account exceeds the Specified Spread Account Requirement as of such
Distribution Date (such excess, a "Spread Account Excess"), an amount equal
to such Spread Account Excess shall be distributed to the Class R
Certificateholders.
(c) The Trustee shall also be entitled to take the following actions with
respect to the Spread Account:
(i) invest amounts on deposit in the Spread Account in Eligible
Investments pursuant to Section 3.05(f);
(ii) withdraw any amount not required to be deposited in the Spread
Account or deposited therein in error at any time; and
(iii) clear and terminate the Spread Account upon the termination of
this Agreement and, upon such termination, to distribute the balance, if
any, to the Class R Certificateholders.
(d) On the Distribution Date on which all amounts due have been paid to the
Class A Certificateholders, including the Insurer as subrogee of the Class A
Certificateholders, and all I&I Payments have been paid to the Insurer, the
Trustee, after making any withdrawals from the Spread Account required pursuant
to Section 3A.01(b) or (c), shall:
(i) clear and terminate the Spread Account, liquidate any investments
therein and distribute any uninvested funds therein or the proceeds of such
liquidation to the Class R Certificateholders; and
(ii) distribute future receipts of the Spread Account Deposit Amount
to the Class R Certificateholders.
(e) The Spread Account may be terminated at any time with the prior written
approval of the Insurer and the Rating Agencies and written confirmation that
such termination will not result in a downgrade of the Class A Certificates
without taking the Policy into account.
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SECTION 3A.02 Policy.
(a) As soon as possible, and in no event later than 12:00 p.m. New York
City time on the second Business Day immediately preceding the Distribution
Date, the Trustee shall furnish the Insurer and the Servicer with a completed
notice in the form set forth as Exhibit A to the Endorsement to the Policy (the
"Notice") in the event that the sum of Net Available Funds and the Spread
Account Draw is insufficient to pay the Remittance Amount on such Distribution
Date. The Notice shall specify the Insured Amount required and shall constitute
a claim for an Insured Amount pursuant to the Policy. Upon receipt of Insured
Amounts on behalf of the Class A Certificateholders under the Policy, the
Trustee shall deposit such Insured Amounts in the Distribution Account and shall
distribute such Insured Amounts pursuant to Section 4.02.
(b) The Trustee shall receive, as attorney-in-fact of each Holder of a
Class A Certificate, any Insured Amount from the Insurer and disburse the same
to each Holder of a Class A Certificate in accordance with the provisions of
Section 4.02. Insured Amounts disbursed by the Trustee from proceeds of the
Policy shall not be considered payment by the Trust nor shall such payments
discharge the obligation of the Trust with respect to the related Class of Class
A Certificates, and the related Class Certificate Balance shall be deemed not
reduced for such purposes and the Insurer shall become the owner of such unpaid
amounts due from the Trust in respect of such Class of Class A Certificates. The
Trustee hereby agrees on behalf of each Holder of a Class A Certificate for the
benefit of the Insurer that it recognizes that to the extent the Insurer pays
Insured Amounts, either directly or indirectly (as by paying through the
Trustee), to the Class A Certificateholders, the Insurer will be subrogated to
the rights of such Class A Certificateholders, as applicable, with respect to
such Insured Amount, shall be deemed to the extent of the payments so made to be
a registered Class A Certificateholder for purposes of payment and shall receive
all future related Remittance Amounts until all such Insured Amounts paid by the
Insurer have been fully reimbursed, subject to the following paragraph. To
evidence such subrogation, the Trustee shall note the Insurer's rights as
subrogee on the registration books maintained by the Trustee and on any related
Class A Certificates surrendered for payment upon receipt from the Insurer of
proof of payment of any Insured Amount. Except as otherwise described herein,
the Insurer shall not acquire any voting rights hereunder as a result of such
subrogation. The effect of the foregoing provisions is that, to the extent of
Insured Amounts paid by it, the Insurer shall be paid before payment of the
balance of the related Remittance Amount is made to the other Holders of the
related Class of Class A Certificates subject to the following paragraph.
(c) It is understood and agreed that the intention of the parties is that
the Insurer shall not be entitled to reimbursement on any Distribution Date for
amounts previously paid by it unless on such Distribution Date the Class of
Class A Certificateholders shall also have received the full amount of the
related Remittance Amount for such Distribution Date.
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(d) The Trustee shall keep complete and accurate records of the amount of
Insured Amounts paid and the Insurer shall have the right to inspect such
records at reasonable times upon one Business Day's prior notice to the Trustee.
(e) The Trustee shall promptly notify the Insurer of any proceeding or the
institution of any action seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership or similar law (a "Preference
Claim") of any distribution made with respect to the Class A Certificates. Each
Holder, by its purchase of Class A Certificates, and the Trustee hereby agree
that the Insurer (so long as no Insurer Default exists) may at any time during
the continuation of any proceeding relating to a Preference Claim direct all
matters relating to such Preference Claim, including, without limitation, (i)
the direction of any appeal of any order relating to any Preference Claim and
(ii) the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the Insurer shall
be subrogated to the rights of the Trustee and each such Holder in the conduct
of any such Preference Claim, including, without limitation, all rights of any
party to an adversary proceeding action with respect to any order issued in
connection with any such Preference Claim. Insured Amounts paid by the Insurer
to the Trustee shall be received by the Trustee, as agent to the
Certificateholders. The Trustee is not permitted to make a claim on the Trust or
on any Certificateholder for payments made to Certificateholders under the
Policy which are characterized as preference payments by any federal bankruptcy
court having jurisdiction over any bankrupt Mortgagor unless ordered to do so by
such bankruptcy court.
ARTICLE IV
DISTRIBUTIONS AND
ADVANCES BY THE SERVICER
SECTION 4.01. Advances.
The Servicer shall determine on or before each Servicer Advance Date
whether it is required to make an Advance pursuant to the definition thereof. If
the Servicer determines it is required to make an Advance, it shall, on or
before the Servicer Advance Date, either (i) deposit into the Certificate
Account an amount equal to the Advance or (ii) make an appropriate entry in its
records relating to the Certificate Account that any Amount Held for Future
Distribution has been used by the Servicer in discharge of its obligation to
make any such Advance. Any funds so applied shall be replaced by the Servicer by
deposit in the Certificate Account no later than the close of business on the
next Servicer Advance Date. The Servicer shall be entitled to be reimbursed from
the Certificate Account for all Advances of its own funds made pursuant to this
Section as provided in Section 3.08. The obligation to make Advances with
respect to any Loan shall continue if such Loan has been foreclosed or otherwise
terminated and the Mortgaged Property has not been liquidated.
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SECTION 4.02. Priorities of Distribution.
(a) Except with respect to certain Distribution Dates following the
depletion of the Spread Account as described below, on each Distribution Date,
the Trustee shall distribute the following amounts from Distributable Funds, to
the extent available, in the priority indicated:
(i) first, to the Insurer, the Insurer's Monthly Premium;
(ii) second, to the Trustee, the Trustee Fee, except to the extent
previously paid by withdrawals under Section 3.08;
(iii) third, to the Servicer, an amount equal to the sum of (i) the
Servicing Fee, except to the extent previously paid by withdrawals under
Section 3.08, and (ii) any other amounts expended by the Servicer and
reimbursable thereto under this Agreement but not previously reimbursed;
(iv) fourth, to each Class of Class A Certificates, the related
Interest Distribution Amount pro rata based on each such Class' Interest
Distribution Amount;
(v) fifth, to the Class A Certificates as follows: to the Class A-1,
Class A-2, Class A-3, Class A-4, and Class A-5 Certificates, in that order,
until the Class Certificate Balance of each such Class is reduced to zero,
the Certificate Formula Principal Amount;
(vi) sixth, to the Insurer, any I&I Payments;
(vii) seventh, for deposit into the Spread Account, the Monthly Spread
Account Deposit Amount up to the Specified Spread Account Requirement; and
(viii) eighth, to the Class R Certificateholders, the sum of (i) the
Spread Account Excess, if any, and (ii) any remaining Available Funds.
Notwithstanding the foregoing, if on any Distribution Date following the
depletion of the Spread Account, the Insurer fails to pay an Insured Amount when
due, the Certificate Formula Principal Amount will be distributed to each Class
of Class A Certificates on a pro rata basis in proportion to the respective
Class Certificate Balances for each such Class.
(b) On each Distribution Date, the amount referred to in clause (i) of the
definition of Interest Distribution Amount for each Class of Certificates for
such Distribution Date shall be reduced by the related Class' pro rata share of
(i) Net Prepayment Interest Shortfalls (based on such Class' Interest
Distribution Amount for such Distribution Date without taking into account such
Net Prepayment Interest Shortfalls) and (ii) each Relief Act Reduction incurred
during the calendar month preceding the month of such Distribution Date.
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SECTION 4.03. Monthly Statements to Certificateholders.
(a) Not later than each Distribution Date, the Trustee shall prepare and
cause to be forwarded by first class mail to each Certificateholder, the
Insurer, the Servicer, the Depositor and each Rating Agency a statement setting
forth with respect to the related distribution:
(i) the amount thereof allocable to principal, separately identifying
the aggregate amount of any Principal Prepayments and Liquidation Proceeds
included therein;
(ii) the amount thereof allocable to interest, any Class Unpaid
Interest Amount included in such distribution and any remaining Class
Unpaid Interest Amount after giving effect to such distribution;
(iii) if the distribution to the Holders of such Class of Certificates
is less than the full amount that would be distributable to such Holders if
there were sufficient funds available therefor, the amount of the shortfall
and the allocation thereof as between principal and interest;
(iv) the Class Certificate Balance of each Class of Certificates after
giving effect to the distribution of principal on such Distribution Date;
(v) the Pool Principal Balance for the following Distribution Date;
(vi) the amount of the Servicing Fee paid to or retained by the
Servicer with respect to such Distribution Date;
(vii) the Pass-Through Rate for each such Class of Certificates with
respect to such Distribution Date;
(viii) the amount of Advances included in the distribution on such
Distribution Date and the aggregate amount of Advances outstanding as of
the close of business on such Distribution Date;
(ix) the number and aggregate principal amounts 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
Prepayment Period preceding such Distribution Date;
(x) with respect to any Loan that became an REO Property during the
preceding calendar month, the loan number and Stated Principal Balance of
such Loan as
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of the close of business on the last day of the Prepayment Period preceding
such Distribution Date and the date of acquisition thereof;
(xi) the total number and principal balance of any REO Properties (and
market value, if available) as of the close of business on the last day of
the Prepayment Period preceding such Distribution Date;
(xii) the Spread Account Draw;
(xiii) the Monthly Spread Account Deposit Amount, the percentage of
the Spread Account Deposit Amount used to determine such Monthly Spread
Account Deposit Amount, the Spread Account Deposit Amount, the Spread
Account Excess and the allocation of such Spread Account Excess to Class R
Certificateholders pursuant to Section 3A.01;
(xiv) the amount on deposit in the Spread Account after the
Distribution Date; and
(xv) the Specified Spread Account Requirement.
(b) The Trustee's responsibility for disbursing the above information to
the Certificateholders is limited to the availability, timeliness and accuracy
of the information provided by the Servicer. On or before the third Business Day
following the end of each Prepayment Period, the Servicer shall deliver to the
Trustee a report, in a form acceptable to the Trustee, containing all of the
necessary information for the Trustee to complete items (i), (v), (vi) and
(viii)-(xi) of the statement described in (a) above. The Trustee shall be
responsible for obtaining the necessary information to complete items (ii),
(iii), (iv), (vii) and (xii)-(xv) of the statement described in (a) above. The
Trustee will send a copy of each statement provided pursuant to this Section
4.03 to each Rating Agency.
(c) Within a reasonable period of time after the end of each calendar year,
the Trustee shall cause to be furnished to each Person who at any time during
the calendar year was a Certificateholder, a statement containing the
information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this Section
4.03 aggregated for such calendar year or applicable portion thereof during
which such Person was a Certificateholder. Such obligation of the Trustee shall
be deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code as from time to time in effect.
ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
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The Certificates shall be substantially in the forms attached hereto as
exhibits. The Certificates shall be issuable in the minimum denominations,
integral multiples in excess thereof (except that one Certificate in each Class
may be issued in a different amount which must be in excess of the applicable
minimum denomination) and aggregate denominations per Class set forth in the
Preliminary Statement.
Subject to Section 9.02 hereof respecting the final distribution on the
Certificates, on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record on the preceding Record Date either (a) by wire
transfer in immediately available funds to the account of such Holder at a bank
or other entity having appropriate facilities therefor, if (i) such Holder has
so notified the Trustee at least five Business Days prior to the related Record
Date and (ii) such Holder shall hold (A) 100% of the Class Certificate Balance
of any Class of Certificates or (B) Certificates of any Class with an aggregate
principal Denomination of not less than $1,000,000 or (b) by check mailed by
first class mail to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer. Certificates bearing the manual
or facsimile signatures of individuals who were, at the time when such
signatures were affixed, authorized to sign on behalf of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature and delivery of such Certificates
or did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless countersigned by the Trustee by manual signature, and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly executed and delivered hereunder.
All Certificates shall be dated the date of their countersignature. On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.
The Depositor shall provide, or cause to be provided, to the Trustee on a
continuous basis, an adequate inventory of Certificates to facilitate transfers.
SECTION 5.02. Certificate Register; Registration of Transfer and Exchange
of Certificates.
(a) The Trustee shall maintain, or cause to be maintained in accordance
with the provisions of Section 5.06 hereof, a Certificate Register for the Trust
Fund in which, subject to the provisions of subsections (b) and (c) below and to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. Upon surrender for registration of transfer of any
Certificate, the Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class and aggregate Percentage Interest.
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At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of the same Class in authorized denominations and evidencing
the same aggregate Percentage Interest upon surrender of the Certificates to be
exchanged at the office or agency of the Trustee. Whenever any Certificates are
so surrendered for exchange, the Trustee shall execute, authenticate, and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for registration
of transfer or exchange shall be accompanied by a written instrument of transfer
in the form of Exhibit G duly executed by the Holder thereof or his attorney
duly authorized in writing.
No service charge to the Certificateholders shall be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates may be required.
All Certificates surrendered for registration of transfer or exchange shall
be canceled and subsequently destroyed by the Trustee in accordance with the
Trustee's customary procedures.
(b) No transfer of a Class R Certificate shall be made unless such transfer
is made pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws or is exempt from the registration
requirements under said Act and such state securities laws. In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act and
such laws, in order to assure compliance with the Securities Act and such laws,
(i) the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer, the Certificateholder by delivering
a certificate in substantially the form set forth in Exhibit G (the "Transferor
Certificate") and the Certificateholder's prospective transferee by delivering a
letter in substantially the form of either Exhibit H (the "Investment Letter")
or Exhibit I (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Class R Certificate and any
prospective transferee designated by any such Holder, information regarding the
related Certificates and the Loans and such other information as shall be
necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4)
for transfer of any such Certificate without registration thereof under the
Securities Act pursuant to the registration exemption provided by Rule 144A. The
Trustee and the Servicer shall cooperate with the Depositor in providing the
Rule 144A information referenced in the preceding sentence, including providing
to the Depositor such information regarding the Certificates, the Loans and
other matters regarding the Trust Fund as the Depositor shall reasonably request
to meet its obligation under the preceding sentence. Each Holder of a Class R
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Depositor, the Sellers and the Servicer against
any liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.
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No transfer of an Class R Certificate shall be made unless the Trustee
shall have received (i) a representation letter from the transferee
substantially in the form of Exhibit H or Exhibit I, to the effect that such
transferee is not an employee benefit plan or arrangement subject to Section 406
of ERISA or a plan or arrangement subject to Section 4975 of the Code, nor a
person acting on behalf of any such plan or arrangement, nor using the assets of
any such plan or arrangement to effect such transfer, (ii) if the purchaser is
an insurance company, a representation that the purchaser is an insurance
company which is purchasing such Certificates with funds contained in an
"insurance company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under PTCE 95-60 or (iii)
in the case of any such Class R Certificate presented for registration in the
name of an employee benefit plan subject to ERISA, or a plan or arrangement
subject to Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement, or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust Fund, addressed to
the Trustee to the effect that the purchase or holding of such Class R
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. Notwithstanding
anything else to the contrary herein, any purported transfer of a Class R
Certificate to or on behalf of an employee benefit plan subject to ERISA or to
the Code without the delivery to the Trustee of an Opinion of Counsel
satisfactory to the Trustee as described above shall be void and of no effect.
To the extent permitted under applicable law (including, but not limited
to, ERISA), the Trustee shall be under no liability to any Person for any
registration of transfer of any Class R Certificate that is in fact not
permitted by this Section 5.02(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.
(c) Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions, and the rights
of each Person acquiring any Ownership Interest in a Class R Certificate are
expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a Class
R Certificate must be a Permitted Transferee and shall promptly notify the
Trustee of any change or impending change in its status as a Permitted
Transferee.
(ii) No Ownership Interest in a Class R Certificate may be registered
on the Closing Date or thereafter transferred, and the Trustee shall not
register the Transfer of any Class R Certificate unless, in addition to the
certificates required to be delivered to the Trustee under subparagraph (b)
above, the Trustee shall have been
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furnished with an affidavit (a "Transfer Affidavit") of the initial owner
or the proposed transferee in the form attached hereto as Exhibit F.
(iii) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall agree (A) to obtain a Transfer Affidavit from any
other Person to whom such Person attempts to Transfer its Ownership
Interest in a Class R Certificate, (B) to obtain a Transfer Affidavit from
any Person for whom such Person is acting as nominee, trustee or agent in
connection with any Transfer of a Class R Certificate and (C) not to
Transfer its Ownership Interest in a Class R Certificate or to cause the
Transfer of an Ownership Interest in a Class R Certificate to any other
Person if it has actual knowledge that such Person is not a Permitted
Transferee.
(iv) Any attempted or purported Transfer of any Ownership Interest in
a Class R Certificate in violation of the provisions of this Section
5.02(b) shall be absolutely null and void and shall vest no rights in the
purported Transferee. If any purported transferee shall become a Holder of
a Class R Certificate in violation of the provisions of this Section
5.02(b), then the last preceding Permitted Transferee shall be restored to
all rights as Holder thereof retroactive to the date of registration of
Transfer of such Class R Certificate. The Trustee shall be under no
liability to any Person for any registration of Transfer of a Class R
Certificate that is in fact not permitted by this Section or for making any
payments due on such Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of this Agreement
so long as the Transfer was registered after receipt of the related
Transfer Affidavit, Transferor Certificate and either the Rule 144A Letter
or the Investment Letter. The Trustee shall be entitled but not obligated
to recover from any Holder of a Class R Certificate that was in fact not a
Permitted Transferee at the time it became a Holder or, at such subsequent
time as it became other than a Permitted Transferee, all payments made on
such Class R Certificate at and after either such time. Any such payments
so recovered by the Trustee shall be paid and delivered by the Trustee to
the last preceding Permitted Transferee of such Certificate.
(v) The Depositor shall use its best efforts to make available, upon
receipt of written request from the Trustee, all information necessary to
compute any tax imposed under Section 860E(e) of the Code as a result of a
Transfer of an Ownership Interest in a Class R Certificate to any Holder
who is not a Permitted Transferee.
The restrictions on Transfers of a Class R Certificate set forth in this
Section 5.02(b) shall cease to apply (and the applicable portions of the legend
on a Class R Certificate may be deleted) with respect to Transfers occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund, the Trustee, the Sellers or the
Servicer, to the effect that the elimination of such restrictions will not cause
the Trust Fund hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a Certificateholder or another Person. Each Person holding or acquiring
any Ownership Interest in a Class R
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Certificate hereby consents to any amendment of this Agreement which, based
on an Opinion of Counsel furnished to the Trustee, is reasonably necessary (a)
to ensure that the record ownership of, or any beneficial interest in, a Class R
Certificate is not transferred, directly or indirectly, to a Person that is not
a Permitted Transferee and (b) to provide for a means to compel the Transfer of
a Class R Certificate which is held by a Person that is not a Permitted
Transferee to a Holder that is a Permitted Transferee.
(d) The preparation and delivery of all certificates and opinions referred
to above in this Section 5.02 in connection with transfer shall be at the
expense of the parties to such transfers.
(e) Except as provided below, the Book-Entry Certificates shall at all
times remain registered in the name of the Depository or its nominee and at all
times: (i) registration of the Certificates may not be transferred by the
Trustee except to another Depository; (ii) the Depository shall maintain
book-entry records with respect to the Beneficial Owners and with respect to
ownership and transfers of such Book-Entry Certificates; (iii) ownership and
transfers of registration of the Book-Entry Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository, Depository Participants and indirect participating firms as
representatives of the Beneficial Owners of the Book-Entry Certificates for
purposes of exercising the rights of Holders under this Agreement, and requests
and directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Beneficial Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Beneficial Owners.
All transfers by Beneficial Owners of Book-Entry Certificates shall be made
in accordance with the procedures established by the Depository Participant or
brokerage firm representing such Beneficial Owner. Each Depository Participant
shall only transfer Book-Entry Certificates of Beneficial Owners it represents
or of brokerage firms for which it acts as agent in accordance with the
Depository's normal procedures.
If (x) (i) the Servicer advises the Trustee in writing that the Depository
is no longer willing or able to properly discharge its responsibilities as
Depository, and (ii) the Trustee is unable to locate a qualified successor, (y)
the Servicer at its option advises the Trustee in writing that it elects to
terminate the book-entry system through the Depository or (z) after the
occurrence of an Event of Default or the resignation or removal of the Servicer,
Beneficial Owners representing at least 51% of the aggregate Certificate Balance
of all Book-Entry Certificates together advise the Depository, either directly
or through the Depository Participants, in writing (with instructions to notify
the Trustee in writing) that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Beneficial Owners. Upon the
occurrence of any of the events described in the immediately preceding sentence,
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the Trustee shall notify all Beneficial Owners of the occurrence of any such
event and of the availability through the Depository of definitive,
fully-registered Certificates (the "Definitive Certificates") to Beneficial
Owners requesting the same. Upon surrender to the Trustee of the related Class
of Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Servicer, the Depositor nor the Trustee shall be
liable for any delay in delivery of such instruction and each may conclusively
rely on, and shall be protected in relying on, such instructions. The Servicer
shall provide the Trustee with an adequate inventory of certificates to
facilitate the issuance and transfer of Definitive Certificates. Upon the
issuance of Definitive Certificates all references herein to obligations imposed
upon or to be performed by the Depository shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates and the Trustee shall recognize the Holders of the
Definitive Certificates as Certificateholders hereunder; provided that the
Trustee shall not by virtue of its assumption of such obligations become liable
to any party for any act or failure to act of the Depository.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate and (b) there is delivered to the Servicer and the Trustee
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Trustee that such Certificate
has been acquired by a bona fide purchaser, the Trustee shall execute,
countersign and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like Class, tenor
and Percentage Interest. In connection with the issuance of any new Certificate
under this Section 5.03, the Trustee may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee)
connected therewith. Any replacement Certificate issued pursuant to this Section
5.03 shall constitute complete and indefeasible evidence of ownership, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Servicer, the Trustee and any agent of the Servicer or the Trustee may
treat the Person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions as provided in this
Agreement and for all other purposes whatsoever, and neither the Servicer, the
Trustee nor any agent of the Servicer or the Trustee shall be affected by any
notice to the contrary.
SECTION 5.05. Access to List of Certificateholders' Names and Addresses.
If three or more Certificateholders (a) request such information in writing
from the Trustee, (b) state that such Certificateholders desire to communicate
with other
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Certificateholders with respect to their rights under this Agreement or
under the Certificates and (c) provide a copy of the communication which such
Certificateholders propose to transmit, or if the Depositor or Servicer shall
request such information in writing from the Trustee, then the Trustee shall,
within ten Business Days after the receipt of such request, provide the
Depositor, the Servicer or such Certificateholders at such recipients' expense
the most recent list of the Certificateholders of such Trust Fund held by the
Trustee, if any. The Depositor and every Certificateholder, by receiving and
holding a Certificate, agree that the Trustee shall not be held accountable by
reason of the disclosure of any such information as to the list of the
Certificateholders hereunder, regardless of the source from which such
information was derived.
SECTION 5.06. Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at its expense an
office or offices or agency or agencies in New York City where Certificates may
be surrendered for registration of transfer or exchange. The Trustee initially
designates its Corporate Trust Office for such purposes. The Trustee will give
prompt written notice to the Certificateholders of any change in such location
of any such office or agency.
ARTICLE VI
THE DEPOSITOR AND THE SERVICER
SECTION 6.01. Respective Liabilities of the Depositor and the Servicer.
The Depositor and the Servicer shall each be liable in accordance herewith
only to the extent of the obligations specifically and respectively imposed upon
and undertaken by them herein.
SECTION 6.02. Merger or Consolidation of the Depositor or the Servicer.
The Depositor and the Servicer will each keep in full effect their
respective existence, rights and franchises as a corporation under the laws of
the United States or under the laws of one of the states thereof and will each
obtain and preserve their respective qualifications to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, or any
of the Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Servicer may be merged or
consolidated, or any Person resulting from any merger or consolidation to which
the Depositor or the Servicer shall be a party, or any person succeeding to the
business of the Depositor or the Servicer, shall be the successor of the
Depositor or the Servicer, as the case may be, hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
the successor or
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surviving Person to the Servicer shall be qualified to sell mortgage loans
to, and to service mortgage loans on behalf of, FNMA or FHLMC and shall be
reasonably acceptable to the Insurer.
SECTION 6.03. Limitation on Liability of the Depositor, the Sellers, the
Servicer and Others.
None of the Depositor, the Sellers, the Servicer or any of the directors,
officers, employees or agents of the Depositor, the Sellers or the Servicer
shall be under any liability to the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor, the Sellers, the Servicer or any such Person
against any breach of representations or warranties made by it herein or protect
the Depositor, the Sellers, the Servicer or any such Person from any liability
which would otherwise be imposed by reasons of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Depositor, the Sellers, the Servicer
and any director, officer, employee or agent of the Depositor, the Sellers or
the Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Depositor, the Sellers, the Servicer and any director, officer,
employee or agent of the Depositor, the Sellers or the Servicer shall be
indemnified by the Trust Fund and held harmless against any loss, liability or
expense incurred in connection with any audit, controversy or judicial
proceeding relating to a governmental taxing authority or any legal action
relating to this Agreement or the Certificates, other than any loss, liability
or expense related to any specific Loan or Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties hereunder or by
reason of reckless disregard of obligations and duties hereunder. None of the
Depositor, the Sellers or the Servicer shall be under any obligation to appear
in, prosecute or defend any legal action that is not incidental to its
respective duties hereunder and which in its opinion may involve it in any
expense or liability; provided, however, that any of the Depositor, the Sellers
or the Servicer may in its discretion undertake any such action that it may deem
necessary or desirable in respect of this Agreement and the rights and duties of
the parties hereto and interests of the Trustee and the Certificateholders
hereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust Fund, and the Depositor, the Sellers and the Servicer shall be entitled to
be reimbursed therefor out of the Certificate Account.
SECTION 6.04. Limitation on Resignation of Servicer.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) upon appointment of a successor servicer acceptable to
the Insurer and receipt by the Trustee of a letter from each Rating Agency that
such a resignation and appointment will not result in a downgrading of the
rating of any of the Certificates without taking the Policy into account or (b)
upon determination that its duties hereunder are no longer permissible under
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applicable law. Any such determination under clause (b) permitting the
resignation of the Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee. No such resignation shall become effective
until the Trustee or a successor servicer reasonably acceptable to the Insurer
shall have assumed the Servicer's responsibilities, duties, liabilities and
obligations hereunder.
SECTION 6.05. Indemnification.
The Servicer agrees to indemnify and hold the Trustee, the Depositor, the
Insurer and each Certificateholder harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Depositor, the Insurer or
any Certificateholder may sustain directly resulting from the gross negligence
or willful misconduct of the Servicer in the performance of its duties hereunder
or in the servicing of the Mortgage Loans in compliance with the terms of this
Agreement. The Servicer shall not be liable or responsible for any of the
representations, covenants, warranties, responsibilities, duties or liabilities
of any prior servicer. The Servicer shall immediately notify the Trustee, the
Depositor, the Insurer and each Certificateholder if a claim is made by a third
party for which any of such parties could require indemnification from the
Servicer under this Section 6.05, and the Servicer shall assume (with the
consent of the Trustee and the Insurer) the defense of any such claim and
advance all expenses in connection therewith, including reasonable counsel fees,
and promptly advance funds to pay, discharge and satisfy any non-appealable,
final judgment or decree which may be entered against the Servicer, the Trustee,
the Depositor, the Insurer and/or the Certificateholder in respect of such
claim. Anything in this Agreement to the contrary notwithstanding, in no event
shall the Trustee be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Trustee has been advised of the likelihood of such loss or damage and
regardless of the form of action. The indemnity provided for in this Section
6.05 shall survive the termination of the Agreement.
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events:
(i) any failure by the Servicer to deposit in the Certificate Account
or remit to the Trustee any payment (other than a payment required to be
made under Section 4.01 hereof) required to be made with respect to any
Class of Certificates under the terms of this Agreement, which failure
shall continue unremedied for five days after the date upon which written
notice of such failure shall have been given (a) to the Servicer by the
Trustee or the Depositor or (b) to the Servicer, the Depositor and the
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Trustee by the Insurer or the Holders of Certificates of such Class
evidencing not less than 25% of the Voting Rights allocated to such Class;
(ii) any failure by the Servicer to duly observe or perform in any
material respect any other of the covenants or agreements on the part of
the Servicer contained in this Agreement, which failure shall continue
unremedied for a period of thirty days after the date on which written
notice of such failure shall have been given (a) to the Servicer by the
Trustee or the Depositor or (b) to the Servicer, the Depositor and the
Trustee by the Insurer or the Holders of Certificates of any Class
evidencing not less than 25% of the Voting Rights allocated to such Class;
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding, or for the winding-up or liquidation
of its affairs, shall have been entered against the Servicer and such
decree or order shall have remained in force undischarged or unstayed for a
period of 60 consecutive days;
(iv) the Servicer shall consent to the appointment of a receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings of or relating to the Servicer or
all or substantially all of the property of the Servicer;
(v) the Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of, or
commence a voluntary case under, any applicable insolvency or
reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations;
(vi) so long as the Servicer is a Seller, any failure by any Seller to
observe or perform in any material respect any of the other covenants or
agreements on the part of any Seller contained in this Agreement, which
failure shall continue unremedied for a period of 60 days after the date on
which written notice of such failure shall have been given to such Seller
by the Trustee or the Depositor, or to such Seller and the Trustee by the
Insurer or the Holders of Certificates of any Class evidencing not less
than 25% of the Voting Rights allocated to such Class; or
(vii) any failure of the Servicer to make any Advance in the manner
and at the time required to be made pursuant to Section 4.01 which
continues unremedied for a period of one Business Day after the date of
such failure.
If an Event of Default described in clauses (i) to (vi) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee shall, at the direction of the
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Insurer, or may, or at the direction of the Holders of Certificates of any Class
evidencing not less than 25% of the Voting Rights allocated to such Class and
with the consent of the Insurer, the Trustee shall by notice in writing to the
Servicer (with a copy to each Rating Agency), terminate all of the rights and
obligations of the Servicer under this Agreement and in and to the Loans and the
proceeds thereof, other than its rights as a Certificateholder hereunder. If an
Event of Default described in clause (vii) hereof shall occur, the Trustee
shall, at the direction of the Insurer, by notice in writing to the Servicer and
the Depositor, terminate all of the rights and obligations of the Servicer under
this Agreement and in and to the Loans and the proceeds thereof, other than its
rights as a Certificateholder hereunder. On and after the receipt by the
Servicer of such written notice, all authority and power of the Servicer
hereunder, whether with respect to the Loans or otherwise, shall pass to and be
vested in the Trustee. The Trustee shall, subject to Section 3.04 hereof,
thereupon make any Advance described in clause (vii) hereof. The Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Loans and related
documents, or otherwise. Unless expressly provided in such written notice, no
such termination shall affect any obligation of the Servicer to pay amounts owed
pursuant to Article VIII. The Servicer agrees to cooperate with the Trustee in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Trustee of all
cash amounts which shall at the time be credited to the Certificate Account, or
thereafter be received with respect to the Loans.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a Scheduled Payment on a Loan which was due prior to the notice terminating
such Servicer's rights and obligations as Servicer hereunder and received after
such notice, that portion thereof to which such Servicer would have been
entitled pursuant to Sections 3.08(a)(i) through (viii), and any other amounts
payable to such Servicer hereunder the entitlement to which arose prior to the
termination of its activities hereunder.
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Servicer receives a notice of termination
pursuant to Section 7.01 hereof, the Trustee shall, subject to and to the extent
provided in Section 3.04, be the successor to the Servicer in its capacity as
servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof and
applicable law including the obligation to make Advances pursuant to Section
4.01. As compensation therefor, the Trustee shall be entitled to all funds
relating to the Loans that the Servicer would have been entitled to charge to
the Certificate Account or Distribution Account if the Servicer had continued to
act hereunder. Notwithstanding the foregoing, if the Trustee has become the
successor to the Servicer in accordance with Section 7.01 hereof, the Trustee
may, if it shall be unwilling to so act, or shall, if it is prohibited by
applicable law from making
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Advances pursuant to Section 4.01 hereof or if it is otherwise unable to so
act, appoint, or petition a court of competent jurisdiction to appoint, any
established mortgage loan servicing institution the appointment of which does
not adversely affect the then current rating of the Certificates by each Rating
Agency as the successor to the Servicer hereunder in the assumption of all or
any part of the responsibilities, duties or liabilities of the Servicer
hereunder. Any successor to the Servicer shall be reasonably acceptable to the
Insurer and shall be an institution which is a FNMA and FHLMC approved
seller/servicer in good standing, which has a net worth of at least $10,000,000,
and which is willing to service the Loans and executes and delivers to the
Depositor and the Trustee an agreement accepting such delegation and assignment,
which contains an assumption by such Person of the rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer (other than
liabilities of the Servicer under Section 6.03 hereof incurred prior to
termination of the Servicer under Section 7.01), with like effect as if
originally named as a party to this Agreement; and provided further that each
Rating Agency acknowledges that its rating of the Certificates in effect
immediately prior to such assignment and delegation will not be qualified or
reduced as a result of such assignment and delegation without taking the Policy
into account. Pending appointment of a successor to the Servicer hereunder, the
Trustee, unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.04 hereof, act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Trustee may make such
arrangements for the compensation of such successor out of payments on Loans as
it and such successor shall agree; provided, however, that no such compensation
shall be in excess of the Servicing Fee permitted the Servicer hereunder. The
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. Neither the
Trustee nor any other successor servicer shall be deemed to be in default
hereunder by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof or any failure to perform, or any
delay in performing, any duties or responsibilities hereunder, in either case
caused by the failure of the Servicer to deliver or provide, or any delay in
delivering or providing, any cash, information, documents or records to it.
Any successor to the Servicer as servicer shall give notice to the
Mortgagors of such change of servicer.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination or appointment of a successor to the Servicer, the
Trustee shall give prompt written notice thereof to Certificateholders, the
Insurer and to each Rating Agency.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee shall have actual knowledge and after the
curing of all Events of Default that may have occurred, shall undertake to
perform such duties and only such duties as are specifically set forth in this
Agreement. In case an Event of Default of which a Responsible Officer of the
Trustee shall have actual knowledge has occurred and remains uncured or waived,
the Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement shall examine them to determine whether they are in the form
required by this Agreement; provided, however, that the Trustee shall not be
responsible for the accuracy or content of any such resolution, certificate,
statement, opinion, report, document, order or other instrument.
Unless an Event of Default of which a Responsible Officer of the Trustee
shall have actual knowledge shall have occurred and be continuing, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this Agreement
against the Trustee and the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Agreement which it believed in good faith to be genuine and
to have been duly executed by the proper authorities respecting any matters
arising hereunder.
The Trustee shall not be liable for an error of judgment made in good faith
by a Responsible Officer or other officers of the Trustee, unless it shall be
finally proven that the Trustee was negligent in ascertaining the pertinent
facts.
The Trustee shall not be liable with respect to any action taken, suffered
or omitted to be taken by it in good faith in accordance with this Agreement or
with the direction of the Insurer or Holders of Certificates evidencing not less
than 25% of the Voting Rights of the Certificates relating to the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee under this
Agreement.
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Subject to the other provisions of this Agreement and without limiting the
generality of this Section 8.01, the Trustee shall have no duty (A) to see to
any recording, filing, or depositing of this Agreement or any agreement referred
to herein or any financing statement or continuation statement evidencing a
security interest, or to see to the maintenance of any such recording or filing
or depositing or to any rerecording, refiling or redepositing of any thereof,
(B) to see to any insurance, (C) to see to the payment or discharge of any tax,
assessment, or other governmental charge or any lien or encumbrance of any kind
owing with respect to, assessed or levied against any part of the Trust Fund
other than from funds available in the Certificate Account or (D) to confirm or
verify the contents of any reports or certificates of the Servicer delivered to
the Trustee pursuant to this Agreement believed by the Trustee to be genuine and
to have been signed or presented by the proper party or parties; provided
however, that the provisions of this Section 8.01(iv) shall not apply during any
period during which the Trustee is acting in the capacity of servicer.
Notwithstanding anything contained in this Section 8.01 to the contrary, no
provision of this Agreement shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act or its
own willful misconduct.
SECTION 8.02 Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) the Trustee (acting as Trustee or as agent of the Tax Matters
Person for the REMIC) may request and rely upon and shall be protected in
acting or refraining from acting upon any resolution, Officers'
Certificate, Opinion of Counsel, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties and the Trustee shall have no responsibility to ascertain or
confirm the genuineness of any signature of any such party or parties;
(ii) the Trustee (acting as Trustee or as agent of the Tax Matters
Person for the REMIC) may consult with counsel, financial advisers or
accountants and the advice of any such counsel, financial advisers or
accountants and any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with such Opinion
of Counsel;
(iii) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Agreement;
(iv) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion,
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report, notice, request, consent, order, approval, bond or other paper or
document, unless requested in writing so to do by Holders of Certificates
evidencing not less than 25% of the Voting Rights allocated to each Class
of Certificates; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security afforded
to it by the terms of this Agreement, the Trustee may require reasonable
indemnity against such cost, expense or liability as a condition to taking
any such action. The reasonable expense of every such examination shall be
paid by the Servicer or if paid by the Trustee, shall be repaid by the
Servicer upon demand from the Servicer's own funds;
(v) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents,
accountants, custodians or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent,
accountant, custodian or attorney appointed by the Trustee with due care;
(vi) the Trustee shall not be required to risk or expend its own funds
or otherwise incur any financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers hereunder if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not assured to it, and
none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Trustee shall be the successor to,
and be vested with the rights, duties, powers and privileges of the
Servicer in accordance with the terms of this Agreement;
(vii) the Trustee shall not be liable for any loss on any investment
of funds pursuant to this Agreement (other than as issuer of the investment
security);
(viii) the Trustee shall not be required to take notice or be deemed
to have knowledge of any Event of Default (except an event of nonpayment by
the Servicer) until a Responsible Officer of the Trustee shall have
received written notice thereof, and in the absence of receipt of such
notice, the Trustee may conclusively assume that there is no default or
Event of Default;
(ix) the Trustee shall be under no obligation to exercise any of the
trusts, rights or powers vested in it by this Agreement or to institute,
conduct or defend any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificateholders, pursuant to
the provisions of this Agreement, unless such Certificateholders shall have
offered to the Trustee reasonable security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which may be incurred
therein or thereby;
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(x) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act; and
(xi) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Fund created hereby or the powers
granted hereunder.
SECTION 8.03. Trustee Not Liable for Certificates or Loans.
The recitals contained herein and in the Certificates shall be taken as the
statements of the Depositor or the Sellers, as the case may be, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Loan or related document other than with respect to the
Trustee's execution and counter-signature of the Certificates. The Trustee shall
not be accountable for the use or application by the Depositor or the Servicer
of any of the Certificates or of the proceeds of such Certificates or for the
use and application of any funds paid to the Depositor or the Servicer in
respect of the Loans or deposited in or withdrawn from the Certificate Account
by the Depositor or the Servicer. The Trustee shall not be responsible for the
legality or validity of this Agreement or the validity, priority, perfection or
sufficiency of the security for the Certificates issued or intended to be issued
hereunder; provided however, that the foregoing language shall not apply to the
Trustee's obligations under this Agreement.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates, and may otherwise deal with the parties hereto with the
same rights as it would have if it were not the Trustee.
SECTION 8.05. Trustee's Fees and Expenses.
The Trustee, as compensation for its activities hereunder, shall be
entitled to withdraw from the Distribution Account on each Distribution Date an
amount equal to the Trustee Fee (which shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust) for such
Distribution Date. The Trustee and any director, officer, employee or agent of
the Trustee shall be indemnified by the Servicer and held harmless against any
loss, liability or expense (including reasonable attorney's fees) (i) incurred
in connection with any claim or legal action relating to (a) this Agreement, (b)
the Certificates or (c) in connection with the performance of any of the
Trustee's duties hereunder, other than any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or negligence in the performance of
any of the Trustee's duties hereunder and (ii) resulting from any error in any
tax
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or information return prepared by the Servicer. Such indemnity shall survive
the termination of this Agreement or the resignation or removal of the Trustee
hereunder. Without limiting the foregoing, the Servicer covenants and agrees,
except as otherwise agreed upon in writing by the Depositor and the Trustee, and
except for any such expense, disbursement or advance as may arise from the
Trustee's negligence, bad faith or willful misconduct, to pay or reimburse the
Trustee, for all reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any of the provisions of this Agreement
with respect to the following: (A) the reasonable compensation and the expenses
and disbursements of its counsel not associated with the closing of the issuance
of the Certificates, (B) the reasonable compensation, expenses and disbursements
of any accountant, engineer or appraiser that is not regularly employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates. Except as otherwise provided herein, the
Trustee shall not be entitled to payment or reimbursement for any routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee, Certificate Registrar, Tax Matters Person or Paying Agent hereunder or
for any other expenses.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or association
organized and doing business under the laws of a state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority and with a credit rating which would
not cause either of the Rating Agencies to reduce their respective then current
ratings of the Certificates (or having provided such security from time to time
as is sufficient to avoid such reduction) without taking the Policy into
account. If such corporation or association publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 8.06
the combined capital and surplus of such corporation or association shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 8.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
8.07 hereof. The entity serving as Trustee may have normal banking and trust
relationships with the Depositor and its affiliates or the Servicer and its
affiliates; provided, however, that such entity cannot be an affiliate of the
Servicer other than the Trustee in its role as successor to the Servicer.
SECTION 8.07. Resignation and Removal of Trustee.
The Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice of resignation to the Depositor, the Insurer
and the Servicer and each Rating Agency not less than 60 days before the date
specified in such notice when, subject to Section 8.08, such resignation is to
take effect, and acceptance by a successor trustee in accordance with Section
8.08 meeting the qualifications set forth in Section 8.06. If no successor
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trustee meeting such qualifications shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice or
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 hereof and shall fail to resign after written
request thereto by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged as bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor or the Servicer may
remove the Trustee, and shall, within 30 days after such removal, appoint a
successor trustee by written instrument, in triplicate, one copy of which
instrument shall be delivered to the Trustee, one copy of which shall be
delivered to the Servicer and one copy to the successor trustee.
The Insurer or the Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by the Insurer or
such Holders or their attorneys-in-fact duly authorized, one complete set of
which instruments shall be delivered by the successor trustee to the Servicer,
one complete set to the Trustee so removed and one complete set to the successor
so appointed. Notice of any removal of the Trustee shall be given to each Rating
Agency by the successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 8.07 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.08 hereof.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
and the Servicer an instrument accepting such appointment hereunder and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The Depositor, the Servicer and the predecessor trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for more fully and certainly vesting and confirming in
the successor trustee all such rights, powers, duties, and obligations.
No successor trustee shall accept appointment as provided in this Section
8.08 unless at the time of such acceptance such successor trustee shall be
eligible under the provisions
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of Section 8.06 hereof, is approved in writing by the Insurer and its
appointment shall not adversely affect the then current rating of the
Certificates.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.08, the Depositor shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register. If the Depositor fails to mail such notice within 10 days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of the Depositor.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided that such corporation shall be eligible under
the provisions of Section 8.06 hereof without the execution or filing of any
paper or further act on the part of any of the parties hereto, anything herein
to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at the time be
located, the Servicer and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust Fund or any part
thereof, whichever is applicable, and, subject to the other provisions of this
Section 8.10, such powers, duties, obligations, rights and trusts as the
Servicer and the Trustee may consider necessary or desirable. If the Servicer
shall not have joined in such appointment within 15 days after the receipt by it
of a request to do so, or in the case an Event of Default shall have occurred
and be continuing, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 8.06 and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required under Section 8.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) to the extent necessary to effectuate the purposes of this Section
8.10, all rights, powers, duties and obligations conferred or imposed upon
the Trustee, except for the obligation of the Trustee under this Agreement
to advance funds on behalf of the Servicer, shall be conferred or imposed
upon and exercised or performed by the
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Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee hereunder or as successor
to the Servicer hereunder), the Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the applicable Trust Fund or
any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be held personally liable by reason of
any act or omission of any other trustee hereunder and such appointment
shall not, and shall not be deemed to, constitute any such separate trustee
or co-trustee as agent of the Trustee;
(iii) the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee; and
(iv) the Servicer, and not the Trustee, shall be liable for the
payment of reasonable compensation, reimbursement and indemnification to
any such separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the separate trustees and co-trustees, when and as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute the Trustee
its agent or attorney-in-fact, with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 8.11. Tax Matters.
It is intended that the assets with respect to which any REMIC election is
to be made, as set forth in the Preliminary Statement, shall constitute, and
that the conduct of matters
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relating to such assets shall be such as to qualify such assets as, a "real
estate mortgage investment conduit" as defined in and in accordance with the
REMIC Provisions. In furtherance of such intention, the Trustee covenants and
agrees that it shall act as agent (and the Trustee is hereby appointed to act as
agent) on behalf of the REMIC and that in such capacity it shall: (a) prepare
and file, or cause to be prepared and filed, in a timely manner, a U.S. Real
Estate Mortgage Investment Conduit Income Tax Return (Form 1066 or any successor
form adopted by the Internal Revenue Service) and prepare and file or cause to
be prepared and filed with the Internal Revenue Service and applicable state or
local tax authorities income tax or information returns for each taxable year
with respect to the REMIC, containing such information and at the times and in
the manner as may be required by the Code or state or local tax laws,
regulations, or rules, and furnish or cause to be furnished to
Certificateholders the schedules, statements or information at such times and in
such manner as may be required thereby; (b) within thirty days of the Closing
Date, furnish or cause to be furnished to the Internal Revenue Service, on Forms
8811 or as otherwise may be required by the Code, the name, title, address, and
telephone number of the person that the holders of the Certificates may contact
for tax information relating thereto, together with such additional information
as may be required by such Form, and update such information at the time or
times in the manner required by the Code; (c) make or cause to be made elections
that such assets be treated as a REMIC on the federal tax return for its first
taxable year (and, if necessary, under applicable state law); (d) prepare and
forward, or cause to be prepared and forwarded, to the Certificateholders and to
the Internal Revenue Service and, if necessary, state tax authorities, all
information returns and reports as and when required to be provided to them in
accordance with the REMIC Provisions, including without limitation, the
calculation of any original issue discount using the Prepayment Assumption; (e)
provide information necessary for the computation of tax imposed on the transfer
of a Class R Certificate to a Person that is not a Permitted Transferee, or an
agent (including a broker, nominee or other middleman) of a Non-Permitted
Transferee, or a pass-through entity in which a Non-Permitted Transferee is the
record holder of an interest (the reasonable cost of computing and furnishing
such information may be charged to the Person liable for such tax); (f) to the
extent that they are under its control, conduct matters relating to such assets
at all times that any Certificates are outstanding so as to maintain the status
as a REMIC under the REMIC Provisions; (g) not knowingly or intentionally take
any action or omit to take any action that would cause the termination of the
REMIC status; (h) pay, from the sources specified in the last paragraph of this
Section 8.11, the amount of any federal or state tax, including prohibited
transaction taxes as described below, imposed on the REMIC prior to its
termination when and as the same shall be due and payable (but such obligation
shall not prevent the Trustee or any other appropriate Person from contesting
any such tax in appropriate proceedings and shall not prevent the Trustee from
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings); (i) ensure that federal, state or local income tax or
information returns shall be signed by the Trustee or such other person as may
be required to sign such returns by the Code or state or local laws, regulations
or rules; (j) maintain records relating to the REMIC, including, but not limited
to, the income, expenses, assets and liabilities thereof and the fair market
value and adjusted basis of the assets determined at such intervals as may be
required by the Code, as may be necessary to prepare the foregoing returns,
schedules, statements or information; and (k) as and when necessary and
appropriate, represent the REMIC in any administrative or judicial
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proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of the
REMIC, enter into settlement agreements with any governmental taxing agency,
extend any statute of limitations relating to any tax item of the REMIC, and
otherwise act on behalf of the REMIC in relation to any tax matter or
controversy involving it.
In order to enable the Trustee to perform its duties as set forth herein,
the Depositor shall provide, or cause to be provided, to the Trustee within ten
(10) days after the Closing Date all information or data that the Trustee
requests in writing and determines to be relevant for tax purposes to the
valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Loans. Thereafter, the Depositor shall provide to the
Trustee promptly upon written request therefor, any such additional information
or data that the Trustee may, from time to time, reasonably request in order to
enable the Trustee to perform its duties as set forth herein. The Depositor
hereby indemnifies the Trustee for any losses, liabilities, damages, claims or
expenses of the Trustee arising from any errors or miscalculations of the
Trustee that result from any failure of the Depositor to provide, or to cause to
be provided, accurate information or data to the Trustee on a timely basis.
In the event that any tax is imposed on "prohibited transactions" of the
REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code, on
any contribution to the REMIC after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax is imposed, if not paid as otherwise provided for
herein, such tax shall be paid by (i) the Trustee, if such tax arises out of or
results from a breach by the Trustee of any of its obligations under this
Agreement, (ii) the Servicer, or if such tax arises out of or results from a
breach by the Servicer or a Seller of any of their obligations under this
Agreement, (iii) the Sellers, if any tax arises out of or results from any
Seller's obligation to repurchase a Loan pursuant to Section 2.02 or 2.03 or
(iv) in all other cases, or in the event that the Trustee, the Servicer or a
Seller fails to honor its obligations under the preceding clause (i),(ii) or
(iii), such tax will be paid with amounts otherwise to be distributed to the
Certificateholders, as provided in Section 3.08(b).
SECTION 8.12. Periodic Filings.
The Depositor shall prepare, execute and file all periodic reports required
under the Securities Exchange Act of 1934. In connection with the preparation
and filing of such periodic reports, the Servicer shall timely provide to the
Depositor all material information available to it which is required to be
included in such reports and not known to it to be in the possession of the
Depositor and such other information as the Depositor reasonably may request
from it and otherwise reasonably shall cooperate with the Depositor. The
Depositor shall have no liability with respect to any failure to properly
prepare or file such periodic reports resulting from or relating to the
Depositor's inability or failure to obtain any information not resulting from
its own negligence or willful misconduct.
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SECTION 8.13. Appointment of Custodians.
The Trustee may, with the consent of the Servicer, appoint one or more
Custodians to hold all or a portion of the Trustee's Mortgage Files as agent for
the Trustee, by entering into a Custodial Agreement. The Trustee agrees to
comply with the terms of each Custodial Agreement and to enforce the terms and
provisions thereof against the Custodian for the benefit of the
Certificateholders and the Insurer. The Trustee shall be liable for the fees of
any Custodian appointed hereunder. Each Custodian shall be a depository
institution subject to supervision by federal or state authority and shall be
qualified to do business in the jurisdiction in which it holds any Trustee's
Mortgage File.
SECTION 8.14. Trustee May Enforce Claims Without Possession of
Certificates.
All rights of action and claims under this Agreement or the Certificates
may be prosecuted and enforced by the Trustee without the possession of any of
the Certificates or the production thereof in any proceeding relating thereto,
any such proceeding instituted by the Trustee shall be brought in its own name
or in its capacity as Trustee. Any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Insurer or the Certificateholders in respect of which such judgment has been
recovered.
SECTION 8.15. Suits for Enforcement.
In case an Event of Default or other default by the Servicer hereunder
shall occur and be continuing, the Trustee, in its discretion, may proceed to
protect and enforce its rights and the rights of the Insurer and the
Certificateholders under this Agreement by a suit, action or proceeding in
equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution of
any power granted in this Agreement or for the enforcement of any other legal,
equitable or other remedy, as the Trustee, being advised by counsel, shall deem
most effectual to protect and enforce any of the rights of the Trustee, the
Insurer or the Certificateholders.
ARTICLE IX
TERMINATION
SECTION 9.01. Termination upon Liquidation or Purchase of all Loans.
Subject to Section 9.03, the obligations and responsibilities of the
Depositor, the Servicer and the Trustee created hereby with respect to the Trust
Fund shall terminate upon the earlier of (a) the purchase by the Servicer of all
Loans (and REO Properties) remaining in the Trust Fund at a price equal to the
sum of (i) 100% of the Stated Principal Balance of each Loan plus accrued and
unpaid interest thereon at the applicable Pass-Through Rate and (ii) 100% of
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the Stated Principal Balance of each Loan related to any REO Property plus
accrued and unpaid interest thereon at the applicable Pass-Through Rate or (b)
the later of (i) the maturity or other liquidation (or any Advance with respect
thereto) of the last Loan remaining in the Trust Fund and the disposition of all
REO Property and (ii) the distribution to Certificateholders of all amounts
required to be distributed to them pursuant to this Agreement. In no event shall
the trusts created hereby continue beyond the earlier of (i) the expiration of
21 years from the death of the survivor of the descendants of Joseph P. Kennedy,
the late Ambassador of the United States to the Court of St. James, living on
the date hereof or (ii) the Latest Possible Maturity Date. The right to purchase
all Loans and REO Properties pursuant to clause (a) above shall be conditioned
upon the Pool Principal Balance, at the time of any such repurchase, aggregating
less than or equal to five percent (5%) of the aggregate Cut-off Date Principal
Balance of the Loans.
SECTION 9.02. Final Distribution on the Certificates.
If on any Determination Date, the Servicer determines that there are no
Outstanding Loans and no other funds or assets in the Trust Fund other than the
funds in the Certificate Account, the Servicer shall direct the Trustee promptly
to send a final distribution notice to each Certificateholder. If the Servicer
elects to terminate the Trust Fund pursuant to clause (a) of Section 9.01, at
least 20 days prior to the date notice is to be mailed to the affected
Certificateholders, the Servicer shall notify the Depositor, the Insurer and the
Trustee of the date the Servicer intends to terminate the Trust Fund and of the
applicable repurchase price of the Loans and REO Properties.
Notice of any termination of the Trust Fund, specifying the Distribution
Date on which Certificateholders may surrender their Certificates for payment of
the final distribution and cancellation, shall be given promptly by the Trustee
by letter to Certificateholders mailed not earlier than the 10th day and not
later than the 15th day of the month next preceding the month of such final
distribution. Any such notice shall specify (a) the Distribution Date upon which
final distribution on the Certificates will be made upon presentation and
surrender of Certificates at the office therein designated, (b) the amount of
such final distribution, (c) the location of the office or agency at which such
presentation and surrender must be made, and (d) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office therein
specified. The Servicer will give such notice to each Rating Agency at the time
such notice is given to Certificateholders.
In the event such notice is given, the Servicer shall cause all funds in
the Certificate Account to be remitted to the Trustee for deposit in the
Distribution Account on the Business Day prior to the applicable Distribution
Date in an amount equal to the final distribution in respect of the
Certificates. Upon such final deposit with respect to the Trust Fund and the
receipt by the Trustee of a Request for Release therefor, the Trustee shall
promptly release to the Servicer the Mortgage Files for the Loans.
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Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders of each Class, in the order set
forth in Section 4.02 hereof, on the final Distribution Date and in proportion
to their respective Percentage Interests, with respect to Certificateholders of
the same Class, an amount equal to (i) as to each Class of Class A Certificates,
the Certificate Balance thereof plus accrued interest thereon, and (ii) as to
the Class R Certificates, the amount, if any, which remains on deposit in the
Distribution Account (other than the amounts retained to meet claims) after
application pursuant to clause (i) above.
In the event that any affected Certificateholders shall not surrender
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all the applicable Certificates shall not
have been surrendered for cancellation, the Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain a part of
the Trust Fund. If within one year after the second notice all Certificates
shall not have been surrendered for cancellation, the Class R Certificateholders
shall be entitled to all unclaimed funds and other assets of the Trust Fund
which remain subject hereto.
SECTION 9.03. Additional Termination Requirements.
(a) In the event the Servicer exercises its purchase option as provided in
Section 9.01, the Trust Fund shall be terminated in accordance with the
following additional requirements, unless the Trustee has been supplied with an
Opinion of Counsel, at the expense of the Servicer, to the effect that the
failure to comply with the requirements of this Section 9.03 will not (i) result
in the imposition of taxes on "prohibited transactions" on the REMIC as defined
in section 860F of the Code, or (ii) cause the Trust Fund to fail to qualify as
a REMIC at any time that any Certificates are outstanding:
(1) Within 90 days prior to the final Distribution Date set forth in
the notice given by the Servicer under Section 9.02, the Servicer shall
prepare and the Trustee, at the expense of the Tax Matters Person, shall
adopt a plan of complete liquidation within the meaning of section
860F(a)(4) of the Code which, as evidenced by an Opinion of Counsel (which
opinion shall not be an expense of the Trustee or the Tax Matters Person),
meets the requirements of a qualified liquidation; and
(2) Within 90 days after the time of adoption of such a plan of
complete liquidation, the Trustee shall sell all of the assets of the Trust
Fund to the Servicer for cash in accordance with Section 9.01.
(b) The Trustee as agent for any REMIC hereby agrees to adopt and sign such
a plan of complete liquidation upon the written request of the Servicer, and the
receipt of the
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Opinion of Counsel referred to in Section 9.03(a)(1) and to take such other
action in connection therewith as may be reasonably requested by the Servicer.
(c) By their acceptance of the Certificates, the Holders thereof hereby
authorize the Servicer to prepare and the Trustee to adopt and sign a plan of
complete liquidation.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the Depositor, the
Sellers, the Servicer and the Trustee with the consent of the Insurer, but
without the consent of any of the Certificateholders, to cure any ambiguity, or
to correct or supplement any provisions herein, or to make such other provisions
with respect to matters or questions arising under this Agreement as shall not
be inconsistent with any other provisions herein; provided that such action
shall not, as evidenced by an Opinion of Counsel (which Opinion of Counsel shall
not be an expense of the Trustee or the Trust Fund), adversely affect in any
material respect the interests of any Certificateholder; provided, however, that
the amendment shall not be deemed to adversely affect in any material respect
the interests of the Certificateholders if the Person requesting the amendment
obtains a letter from each Rating Agency stating that the amendment would not
result in the downgrading or withdrawal of the respective ratings then assigned
to the Certificates; it being understood and agreed that any such letter in and
of itself will not represent a determination as to the materiality of any such
amendment and will represent a determination only as to the credit issues
affecting any such rating. The Trustee, the Depositor, the Sellers, and the
Servicer also may at any time and from time to time amend this Agreement without
the consent of the Certificateholders to modify, eliminate or add to any of its
provisions to such extent as shall be necessary or helpful to maintain the
qualification of the Trust Fund as a REMIC under the Code or to avoid or
minimize the risk of the imposition of any tax on the REMIC pursuant to the Code
that would be a claim at any time prior to the final redemption of the
Certificates, provided that the Trustee has been provided an Opinion of Counsel,
which opinion shall be an expense of the party requesting such opinion but in
any case shall not be an expense of the Trustee or the Trust Fund, to the effect
that such action is necessary or helpful to maintain such qualification or to
avoid or minimize the risk of the imposition of such a tax.
This Agreement may be amended from time to time by the Seller, the
Servicer, the Depositor and the Trustee, without the consent of any of the
Certificateholders, to provide for termination of the Spread Account as
contemplated in Section 3A.01(e).
This Agreement may also be amended from time to time by the Depositor, the
Sellers, the Servicer and the Trustee with the consent of the Insurer and the
Holders of a Majority
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in Interest of each Class of Certificates affected thereby for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class, Percentage Interests aggregating 66%, or (iii) reduce the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding. Prior to the execution of any amendment to this
Agreement, the Trustee shall be entitled to receive and rely upon an Opinion of
Counsel (which Opinion of Counsel shall not be at the expense of the Trustee or
the Trust Fund) stating that the execution of such amendment is authorized or
permitted by this Agreement. The Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's own rights, duties or
immunities under this Agreement.
Notwithstanding any contrary provision of this Agreement, the Trustee shall
not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel, which opinion shall not be an expense of the
Trustee or the Trust Fund, to the effect that such amendment will not cause the
imposition of any tax on the REMIC or the Certificateholders or cause the Trust
Fund to fail to qualify as a REMIC at any time that any Certificates are
outstanding.
Promptly after the execution of any amendment to this Agreement requiring
the consent of Certificateholders or the Insurer, the Trustee shall furnish
written notification of the substance or a copy of such amendment to each
Certificateholder, the Insurer and each Rating Agency.
It shall not be necessary for the consent of Certificateholders or the
Insurer under this Section to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund) satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements for amending this Agreement have been complied with and (ii) either
(A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or the Insurer or (B) the conclusion set
forth in the immediately preceding clause (A) is not required to be reached
pursuant to this Section 10.01.
SECTION 10.02. Recordation of Agreement; Counterparts.
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This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at its expense, but only upon direction by the
Trustee accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts, taken together, shall constitute one and the
same instrument.
SECTION 10.03. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO AND
THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.04. Intention of Parties.
It is the express intent of the parties hereto that the conveyance of the
Loans by the Sellers to the Depositor pursuant to Article II of this Agreement
be, and be construed as, an absolute sale thereof to the Depositor. It is,
further, not the intention of the parties that such conveyance be deemed a
pledge thereof by the Sellers to the Depositor to secure a borrowing by the
Sellers from the Depositor. However, in the event that, notwithstanding the
intent of the parties, such assets are held to be the property of the Sellers or
any one of them, or if this Agreement is held or deemed to constitute or have
created a loan, lending transaction or an extension of credit by the Depositor
to the Sellers or any one of them, then and only then (i) this Agreement shall
be deemed, effective as of August 31, 1998, to be a security agreement within
the meaning of the Uniform Commercial Code of the State of New York and (ii) the
conveyance by the Sellers to the Depositor provided for in this Agreement shall
be deemed, effective as of August 31, 1998, to be an assignment and a grant by
the Sellers to the Depositor, and each of the Sellers does hereby grant and
assign to the Depositor, a security interest in, and lien upon, all of the
assets that constitute the Mortgage Notes and the Trust Fund, and all of the
proceeds thereof, whether now owned or hereafter acquired.
The Sellers, for the benefit of the Depositor, shall, in connection with
the perfection of the security interest described in the preceding paragraph of
this Section 10.04, deliver to the Depositor on the Closing Date the financing
statements described in Schedule IV.
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The Sellers shall also arrange for the delivery to the Depositor of any
appropriate Uniform Commercial Code continuation statements as may be necessary
or appropriate to continue the perfection of the security interest of the
Depositor in the Mortgage Notes and the Trust Fund, and all of the proceeds
thereof, whether now owned or hereafter acquired. The Sellers, for the benefit
of the Depositor, shall, to the extent consistent with this Agreement, take such
actions as may be necessary to ensure that, if this Agreement is held or deemed
to constitute or have created a loan, lending transaction or an extension of
credit by the Depositor to the Sellers or any one of them, then and only then
(i) this Agreement shall be deemed, effective as of August 31, 1998, to be a
security agreement within the meaning of the Uniform Commercial Code of the
State of New York and (ii) the conveyance by the Sellers to the Depositor
provided for in this Agreement shall be deemed, effective as of August 31, 1998,
to be an assignment and a grant by the Sellers to the Depositor, and each of the
Sellers does hereby grant and assign to the Depositor, a security interest in,
and lien upon, all of the assets that constitute the Mortgage Notes and the
Trust Fund, and all of the proceeds thereof, whether now owned or hereafter
acquired, such security interest shall be deemed to be a perfected security
interest of first priority under applicable law, and will be maintained as such
throughout the term of this Agreement. The Sellers shall arrange for filing any
appropriate Uniform Commercial Code financing statements, continuation
statements or other appropriate forms, notices or documents in connection with
any security interest granted or assigned to the Depositor.
The Depositor does hereby assign the security interest in and lien on the
Mortgage Notes and the Trust Fund, and all proceeds thereof, whether now owned
or hereafter acquired, to the Trustee for the benefit of the Certificateholders
and the Insurer. The Depositor shall arrange for filing of such Uniform
Commercial Code financing statements as are necessary to effect the assignment
of the security interest and lien to the Trustee for the benefit of the
Certificateholders and the Insurer.
It is the express intent of the parties hereto that the conveyance of the
Trust Fund by the Depositor to the Trustee pursuant to Article II of this
Agreement be, and be construed as, an absolute sale thereof to the Trustee. It
is, further, not the intention of the parties that such conveyance be deemed a
pledge thereof by the Depositor to the Trustee to secure a borrowing by the
Depositor from the Trustee. However, in the event that, notwithstanding the
intent of the parties, such assets are held to be the property of the Depositor,
or if this Agreement is held or deemed to constitute or have created a loan,
lending transaction or an extension of credit by the Trustee to the Depositor,
then and only then (i) this Agreement shall be deemed, effective as of August
31, 1998, to be a security agreement within the meaning of the Uniform
Commercial Code of the State of New York and (ii) the conveyance by the
Depositor to the Trustee provided for in this Agreement shall be deemed,
effective as of August 31, 1998, to be an assignment and a grant by the
Depositor to the Trustee, and the Depositor does hereby grant and assign to the
Trustee, for the benefit of the Certificateholders, a security interest in, and
lien upon, all of the assets that constitute the Mortgage Notes and the Trust
Fund, and all of the proceeds thereof, whether now owned or hereafter acquired.
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The Depositor, for the benefit of the Trustee, the Insurer and the
Certificateholders, shall, in connection with the perfection of the security
interest described in the preceding paragraph of this Section 10.04, deliver to
the Trustee on the Closing Date the financing statements described in Schedule
V. The Depositor shall also arrange for the delivery to the Trustee of any
appropriate Uniform Commercial Code continuation statements as may be necessary
or appropriate to continue the perfection of the security interest of the
Trustee in the Trust Fund, and all of the proceeds thereof, whether now owned or
hereafter acquired. The Depositor, for the benefit of the Trustee and the
Certificateholders, shall, to the extent consistent with this Agreement, take
such actions as may be necessary to ensure that, if this Agreement is held or
deemed to constitute or have created a loan, lending transaction or an extension
of credit by the Trustee to the Depositor, then and only then (i) this Agreement
shall be deemed, effective as of August 31, 1998, to be a security agreement
within the meaning of the Uniform Commercial Code of the State of New York and
(ii) the conveyance by the Depositor to the Trustee provided for in this
Agreement shall be deemed, effective as of August 31, 1998, to be an assignment
and a grant by the Depositor to the Trustee, and the Depositor does hereby grant
and assign to the Trustee, for the benefit of the Certificateholders, a security
interest in, and lien upon, all of the assets that constitute the Mortgage Notes
and the Trust Fund, and all of the proceeds thereof, whether now owned or
hereafter acquired, such security interest shall be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of this Agreement. The Servicer shall, within ten
(10) days of the Closing Date, present to the appropriate filing offices in the
jurisdictions set forth on Schedules IV and V all of the financing statements
delivered on the Closing Date by the Sellers to the Depositor, the assignments
thereof delivered by the Depositor to the Trustee on the Closing Date and the
financing statements delivered by the Depositor to the Trustee on the Closing
Date. The Servicer shall arrange for filing any appropriate Uniform Commercial
Code continuation statements or other appropriate forms, notices or documents in
connection with any security interest granted or assigned to the Trustee.
SECTION 10.05. Notices.
(a) The Trustee shall use its best efforts to promptly provide notice to
the Insurer and each Rating Agency with respect to each of the following of
which it has actual knowledge:
1. any material change or amendment to this Agreement;
2. the occurrence of any Event of Default that has not been cured;
3. the resignation or termination of the Servicer or the Trustee and
the appointment of any successor;
4. the repurchase or substitution of Loans pursuant to Section 2.03;
and
5. the final payment to Certificateholders.
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In addition, the Trustee shall promptly furnish to each Rating Agency
copies of the following:
1. each report to Certificateholders described in Section 4.03;
2. each annual statement as to compliance described in Section 3.16;
3. each annual independent public accountants' servicing report
described in Section 3.17; and
4. any notice of a purchase of a Loan pursuant to Section 2.02, 2.03
or 3.11.
(b) All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered to (a) in the case of the
Depositor, Equity One ABS, Inc., 103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19810, Attention: President, facsimile number: (302)
478-3667, (b) in the case of the Servicer, Equity One, Inc., 523 Fellowship
Road, Suite 230, Mt. Laurel, New Jersey 08054, Attention: President, facsimile
number: (609) 273-3752, or such other address as may be hereafter furnished to
the Depositor and the Trustee by the Servicer in writing, (c) in the case of
Equity One-Florida, Equity One Mortgage, Inc., 3820 Northdale Boulevard, Tampa,
FL 33624, Attention: President, facsimile number: (813) 960-8899, (d) in the
case of Equity One-Minnesota, Equity One, Inc., 2626 East 82nd Street, 1st
Floor/Suite 102, Bloomington, Minnesota 55425, Attention: President, facsimile
number: (612) 854-4820, (e) in the case of Equity One-New Hampshire, Equity One
Consumer Loan Company, Inc., 25 South River Road, Suite 304, Bedford, NH 03110,
Attention: President, facsimile number: (603) 622-6499, (f) in the case of
Equity One-New York, Equity One Mortgage, Inc., 270 Spagnoli Road, Melville, NY
11747, Attention: President, facsimile number: (516) 249-2270, (g) in the case
of Equity One-North Carolina, Equity One Mortgage Company, 4614 A West Market
Street, Greensboro, NC 27407, Attention: President, facsimile number: (910)
854-7794, (h) in the case of Equity One-Pennsylvania, Equity One, Incorporated,
340 East Maple Avenue, Suite 304, Langhorne, PA 19047, Attention: President,
facsimile number: (215) 741-4161, (i) in the case of Equity One-West Virginia,
Equity One of West Virginia, Inc., 2610 Aikens Center, Martinsburg, WV 25401,
Attention: President, facsimile number: (304) 264-9403, (j) in the case of the
Trustee, The Chase Manhattan Bank, 450 West 33rd Street, 15th Floor, New York,
New York 10001, Attention: Structured Finance Services (ABS), facsimile number:
212-946-8191, or such other address as the Trustee may hereafter furnish to the
Depositor or Servicer, (k) in the case of the Insurer, AMBAC Indemnity
Corporation, One State Street Plaza, New York, New York 10004, Attention:
Structured Finance Department - MBS, facsimile number: (212) 363-1459 and (l) in
the case of the Rating Agencies, the address specified therefor in the
definition corresponding to the name of such Rating Agency. Notices to
Certificateholders shall be deemed given when
85
<PAGE>
mailed, first class postage prepaid, to their respective addresses
appearing in the Certificate Register.
SECTION 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 10.07. Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by the Servicer
without the prior written consent of the Trustee, Insurer and Depositor.
SECTION 10.08. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the trust created hereby, nor entitle such
Certificateholder's legal representative or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
herein) or in any manner otherwise control the operation and management of the
Trust Fund, or the obligations of the parties hereto, nor shall anything herein
set forth or contained in the terms of the Certificates be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
party by reason of any action taken by the parties to this Agreement pursuant to
any provision hereof.
No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of an Event
of Default and of the continuance thereof, as herein provided, and unless the
Holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates shall also have made written request to the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by
86
<PAGE>
each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder or to enforce any right under this Agreement, except in
the manner herein provided and for the common benefit of all Certificateholders.
For the protection and enforcement of the provisions of this Section 10.08, each
and every Certificateholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
SECTION 10.09. Inspection and Audit Rights.
The Servicer agrees that, on reasonable prior notice, it will permit and
will cause each Subservicer to permit any representative of the Depositor, the
Insurer or the Trustee during the Servicer's normal business hours, to examine
all the books of account, records, reports and other papers of the Servicer
relating to the Loans, to make copies and extracts therefrom, to cause such
books to be audited by independent certified public accountants selected by the
Depositor or the Trustee and to discuss its affairs, finances and accounts
relating to the Loans with its officers, employees and independent public
accountants (and by this provision the Servicer hereby authorizes said
accountants to discuss with such representative such affairs, finances and
accounts), all at such reasonable times and as often as may be reasonably
requested. Any out-of-pocket expense incident to the exercise by the Depositor
or the Trustee of any right under this Section 10.09 shall be borne by the party
requesting such inspection; all other such expenses shall be borne by the
Servicer or the related Subservicer.
SECTION 10.10. Certificates Nonassessable and Fully Paid.
It is the intention of the Depositor that Certificateholders shall not be
personally liable for obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall be nonassessable for any reason
whatsoever, and that the Certificates, upon due authentication thereof by the
Trustee pursuant to this Agreement, are and shall be deemed fully paid.
SECTION 10.11. The Closing.
The closing of the transactions contemplated by this Agreement shall occur
at 10:00 a.m. Philadelphia Time on the Closing Date at the Closing Place.
SECTION 10.12. Interpretation.
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to one gender includes all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder," "hereof" or "herein" relate
to this
87
<PAGE>
Agreement. The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the construction of
this Agreement or the interpretation thereof in any respect. Section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
SECTION 10.13. Rights of the Insurer.
(a) The Insurer is an express third-party beneficiary of this Agreement.
(b) On each Distribution date the Trustee shall forward to the Insurer a
copy of the reports furnished to the Class A Certificateholders and the
Depositor on such Distribution Date.
(c) The Trustee shall provide to the Insurer copies of any report, notice,
Opinion of Counsel, Officer's Certificate, request for consent or request for
amendment to any document related hereto promptly upon the Trustee's production
or receipt thereof.
(d) Unless an Insurer Default exists, the Trustee and the Depositor shall
not agree to any amendment to this Agreement without first having obtained the
prior written consent of the Insurer, if such consent is not unreasonably
withheld.
(e) So long as there does not exist a failure by the Insurer to make a
required payment under the Policy, the Insurer shall have the right to exercise
all rights of the Holders of the Class A Certificates under this Agreement
without any consent of such Holders, and such Holders may exercise such rights
only with the prior written consent of the Insurer, except as provided herein.
(f) The Insurer shall not be entitled to exercise any of its rights
hereunder so long as there exists a failure by the Insurer to make a required
payment under the Policy.
SECTION 10.14. No Partnership.
Nothing herein contained shall be deemed or construed to create a
co-partnership or joint venture between the parties hereto and the services of
the Trustee and the Servicer shall be rendered as an independent contractor and
not as agent for the Certificateholders.
* * * * * *
88
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Trustee, each of the Sellers and the
Servicer have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
Equity One ABS, Inc., as Depositor
By:
----------------------------------------------
Name:
Title:
The Chase Manhattan Bank, as Trustee
By:
----------------------------------------------
Name:
Title:
Equity One, Inc. (DE), as a Seller and Servicer
By:
----------------------------------------------
Name:
Title:
Equity One, Incorporated (PA), as a Seller
By:
----------------------------------------------
Name:
Title:
Equity One Mortgage Company (NC), as a Seller
By:
----------------------------------------------
Name:
Title:
89
<PAGE>
Equity One Mortgage, Inc. (DE), as a Seller
By:
----------------------------------------------
Name:
Title:
Equity One, Inc. (MN), as a Seller
By:
----------------------------------------------
Name:
Title:
Equity One Consumer Loan Company, Inc. (NH), as a Seller
By:
----------------------------------------------
Name:
Title:
Equity One of West Virginia, Inc. (WV), as a Seller
By:
----------------------------------------------
Name:
Title:
Equity One Mortgage, Inc. (NY), as a Seller
By:
----------------------------------------------
Name:
Title:
90
<PAGE>
SCHEDULE I
Loan Schedule
[TO BE PROVIDED BY EQUITY ONE, INC. AT CLOSING]
S-I-1
<PAGE>
SCHEDULE IIA
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-Delaware
Equity One-Delaware ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIA to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIA shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a Delaware corporation and is validly
existing and in good standing under the laws of the State of Delaware and
is duly authorized and qualified to transact any and all business
contemplated by the Pooling and Servicing Agreement to be conducted by
Seller in any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such qualification
and, in any event, is in compliance with the doing business laws of any
such state, to the extent necessary to ensure its ability to enforce each
Loan and to perform any of its other obligations under the Pooling and
Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IIA-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIA-2
<PAGE>
SCHEDULE IIB
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-Florida
Equity One-Florida ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIB to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIB shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a Delaware corporation and is validly
existing and in good standing under the laws of the State of Delaware and
is duly authorized and qualified to transact any and all business
contemplated by the Pooling and Servicing Agreement to be conducted by
Seller in any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such qualification
and, in any event, is in compliance with the doing business laws of any
such state, to the extent necessary to ensure its ability to enforce each
Loan and to perform any of its other obligations under the Pooling and
Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms
S-IIB-1
<PAGE>
thereof are in the ordinary course of business of Seller and will not (a)
result in a material breach of any term or provision of the charter or
by-laws of Seller or (b) materially conflict with, result in a material
breach, violation or acceleration of, or result in a material default
under, the terms of any other material agreement or instrument to which
Seller is a party or by which it may be bound or (c) constitute a material
violation of any statute, order or regulation applicable to Seller of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over Seller; and Seller is not in breach or violation of any
material indenture or other material agreement or instrument, or in
violation of any statute, order or regulation of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
it which breach or violation may materially impair Seller's ability to
perform or meet any of its obligations under the Pooling and Servicing
Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIB-2
<PAGE>
SCHEDULE IIC
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-Minnesota
Equity One-Minnesota ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIC to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIC shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a Minnesota corporation and is validly
existing and in good standing under the laws of the State of Minnesota and
is duly authorized and qualified to transact any and all business
contemplated by the Pooling and Servicing Agreement to be conducted by
Seller in any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such qualification
and, in any event, is in compliance with the doing business laws of any
such state, to the extent necessary to ensure its ability to enforce each
Loan and to perform any of its other obligations under the Pooling and
Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IIC-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIC-2
<PAGE>
SCHEDULE IID
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-New Hampshire
Equity One-New Hampshire ("Seller") hereby makes the representations and
warranties set forth in this Schedule IID to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IID shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a New Hampshire corporation and is
validly existing and in good standing under the laws of the State of New
Hampshire and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by Seller in any state in which a Mortgaged Property is located
or is otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing business
laws of any such state, to the extent necessary to ensure its ability to
enforce each Loan and to perform any of its other obligations under the
Pooling and Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IID-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IID-2
<PAGE>
SCHEDULE IIE
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-New York
Equity One-New York ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIE to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIE shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a New York corporation and is validly
existing and in good standing under the laws of the State of New York and
is duly authorized and qualified to transact any and all business
contemplated by the Pooling and Servicing Agreement to be conducted by
Seller in any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such qualification
and, in any event, is in compliance with the doing business laws of any
such state, to the extent necessary to ensure its ability to enforce each
Loan and to perform any of its other obligations under the Pooling and
Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IIE-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIE-2
<PAGE>
SCHEDULE IIF
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-North Carolina
Equity One-North Carolina ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIF to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIF shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a North Carolina corporation and is
validly existing and in good standing under the laws of the State of North
Carolina and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by Seller in any state in which a Mortgaged Property is located
or is otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing business
laws of any such state, to the extent necessary to ensure its ability to
enforce each Loan and to perform any of its other obligations under the
Pooling and Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IIF-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIF-2
<PAGE>
SCHEDULE IIG
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-Pennsylvania
Equity One-Pennsylvania ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIG to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIG shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a Pennsylvania corporation and is
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by Seller in any state in which a Mortgaged Property is located
or is otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing business
laws of any such state, to the extent necessary to ensure its ability to
enforce each Loan and to perform any of its other obligations under the
Pooling and Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IIG-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIG-2
<PAGE>
SCHEDULE IIH
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of Equity One-West Virginia
Equity One-West Virginia ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIH to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans related to Seller as set forth in Schedule I.
Capitalized terms used but not otherwise defined in this Schedule IIH shall have
the meanings ascribed thereto in the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") relating to the above-referenced Series,
among Seller, the other Sellers and the Servicer identified therein, Equity One
ABS, Inc., as depositor, and The Chase Manhattan Bank, as trustee.
(1) Seller is duly organized as a West Virginia corporation and is
validly existing and in good standing under the laws of the State of West
Virginia and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by Seller in any state in which a Mortgaged Property is located
or is otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing business
laws of any such state, to the extent necessary to ensure its ability to
enforce each Loan and to perform any of its other obligations under the
Pooling and Servicing Agreement in accordance with the terms thereof.
(2) Seller has the full corporate power and authority to sell each
Loan, and to execute, deliver and perform, and to enter into and consummate
the transactions contemplated by the Pooling and Servicing Agreement and
has duly authorized by all necessary corporate action on the part of Seller
the execution, delivery and performance of the Pooling and Servicing
Agreement; and the Pooling and Servicing Agreement, assuming the due
authorization, execution and delivery thereof by the other parties thereto,
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except that (a) the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Seller, the sale of the Loans by Seller under the Pooling and Servicing
Agreement, the consummation of any other of the transactions contemplated
by the Pooling and Servicing Agreement, and the fulfillment of or
compliance with the terms thereof are in the ordinary course of business of
Seller and will not (a) result in a material
S-IIH-1
<PAGE>
breach of any term or provision of the charter or by-laws of Seller or (b)
materially conflict with, result in a material breach, violation or
acceleration of, or result in a material default under, the terms of any
other material agreement or instrument to which Seller is a party or by
which it may be bound or (c) constitute a material violation of any
statute, order or regulation applicable to Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
Seller; and Seller is not in breach or violation of any material indenture
or other material agreement or instrument, or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it which breach or violation may
materially impair Seller's ability to perform or meet any of its
obligations under the Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Seller's knowledge,
threatened, against Seller that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Seller to sell the Loans or to perform any of
its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of, or compliance by Seller with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Seller has obtained the same.
(6) Seller intends to treat the conveyance of the Loans to the
Depositor as a sale of the Loans for all tax, accounting and regulatory
purposes.
(7) Seller is not insolvent nor is Seller aware of any pending
insolvency, and Seller will not become insolvent as a result of its sale of
the Loans under the Pooling and Servicing Agreement, and Seller's sale of
the Loans to the Depositor under the Pooling and Servicing Agreement will
not be made with any intent to hinder, delay or defraud any of its
creditors.
S-IIH-2
<PAGE>
SCHEDULE IIX
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Representations and Warranties of the Servicer
Equity-One Delaware, in its capacity as Servicer, hereby makes the
representations and warranties set forth in this Schedule IIX to the Depositor,
and the Trustee, as of the Closing Date, or if so specified herein, as of the
Cut-off Date with respect to the Loans set forth in Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIX shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among
Servicer, the Sellers identified therein, Equity One ABS, Inc., as depositor,
and The Chase Manhattan Bank, as trustee.
(1) Servicer is duly organized as a Delaware corporation and is
validly existing and in good standing under the laws of the State of
Delaware and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by Servicer in any state in which a Mortgaged Property is located
or is otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing business
laws of any such state, to the extent necessary to ensure its ability to
service the Loans in accordance with the terms of the Pooling and Servicing
Agreement and to perform any of its other obligations under the Pooling and
Servicing Agreement in accordance with the terms thereof.
(2) Servicer has the full corporate power and authority to service
each Loan, and to execute, deliver and perform, and to enter into and
consummate the transactions contemplated by the Pooling and Servicing
Agreement and has duly authorized by all necessary corporate action on the
part of Servicer the execution, delivery and performance of the Pooling and
Servicing Agreement; and the Pooling and Servicing Agreement, assuming the
due authorization, execution and delivery thereof by the other parties
thereto, constitutes a legal, valid and binding obligation of Servicer,
enforceable against Servicer in accordance with its terms, except that (a)
the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought.
(3) The execution and delivery of the Pooling and Servicing Agreement
by Servicer, the servicing of the Loans by Servicer under the Pooling and
Servicing Agreement, the consummation of any other of the transactions
contemplated by
S-IIX-1
<PAGE>
the Pooling and Servicing Agreement, and the fulfillment of or compliance
with the terms thereof are in the ordinary course of business of Servicer
and will not (a) result in a material breach of any term or provision of
the charter or by-laws of Servicer or (b) materially conflict with, result
in a material breach, violation or acceleration of, or result in a material
default under, the terms of any other material agreement or instrument to
which Servicer is a party or by which it may be bound or (c) constitute a
material violation of any statute, order or regulation applicable to
Servicer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over Servicer; and Servicer is not in
breach or violation of any material indenture or other material agreement
or instrument, or in violation of any statute, order or regulation of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over it which breach or violation may materially impair
Servicer's ability to perform or meet any of its obligations under the
Pooling and Servicing Agreement.
(4) No litigation is pending or, to the best of Servicer's knowledge,
threatened, against Servicer that would materially and adversely affect the
execution, delivery or enforceability of the Pooling and Servicing
Agreement or the ability of Servicer to service the Loans or to perform any
of its other obligations under the Pooling and Servicing Agreement in
accordance with the terms thereof.
(5) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Servicer of, or compliance by Servicer with, the Pooling and
Servicing Agreement or the consummation of the transactions contemplated
thereby, or if any such consent, approval, authorization or order is
required, Servicer has obtained the same.
S-IIX-2
<PAGE>
SCHEDULE IIIA
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-Delaware
Equity One-Delaware ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIA to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIA shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIA-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIIA-2
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIA-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIIA-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIA-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIA-6
<PAGE>
SCHEDULE IIIB
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-Florida
Equity One-Florida ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIB to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIB shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%.] For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIB-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title
S-IIIB-2
<PAGE>
insurance policy and no prior holder of the related Mortgage, including the
Seller, has done, by act or omission, anything which would impair the
coverage of such mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIB-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available
S-IIIB-4
<PAGE>
under the Flood Disaster Protection Act of 1973, as amended, and if Seller
has received any notice of non-payment of any premium or cancellation of
any such policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIB-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIB-6
<PAGE>
SCHEDULE IIIC
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-Minnesota
Equity One-Minnesota ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIC to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIC shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIC-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIIC-2
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIC-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIIC-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIC-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIC-6
<PAGE>
SCHEDULE IIID
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-New Hampshire
Equity One-New Hampshire ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIID to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIID shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIID-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIID-2
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIID-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIID-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIID-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIID-6
<PAGE>
SCHEDULE IIIE
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-New York
Equity One-New York ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIE to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIE shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIE-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIIE-2
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIE-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIIE-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIE-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIE-6
<PAGE>
SCHEDULE IIIF
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-North Carolina
Equity One-North Carolina ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIF to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIF shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIF-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIIF-2
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIF-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIIF-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIF-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIF-6
<PAGE>
SCHEDULE IIIG
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-Pennsylvania
Equity One-Pennsylvania ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIG to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIG shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIG-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIIG-3
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIG-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b)(i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIIG-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIG-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIG-6
<PAGE>
SCHEDULE IIIH
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
Loan Representations and Warranties of Equity One-West Virginia
Equity One-West Virginia ("Seller") hereby makes the representations and
warranties set forth in this Schedule IIIH to the Depositor, the Insurer and the
Trustee, as of the Closing Date, or if so specified herein, as of the Cut-off
Date with respect to the Loans, Mortgages, Mortgage Notes and Mortgaged
Properties related to Seller set forth or referenced on Schedule I. Capitalized
terms used but not otherwise defined in this Schedule IIIH shall have the
meanings ascribed thereto in the Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") relating to the above-referenced Series, among Seller,
the other Sellers and the Servicer identified therein, Equity One ABS, Inc., as
depositor, and The Chase Manhattan Bank, as trustee.
(1) The information set forth on Schedule I to the Pooling and
Servicing Agreement with respect to the Loans is true and correct in all
material respects as of the Closing Date.
(2) As of the Cut-off Date, (i) no Loan was contractually delinquent
for [60] or more days and (ii) not more than [5%] (by principal balance) of
all of the mortgage loans set forth on Schedule I were between 30 and 59
days contractually delinquent.
(3) No Loan had a Loan-to-Value Ratio at origination in excess of
[90%]. For purposes of determining the date of origination on which each
Loan's Loan-to-Value Ratio is measured, no Loan has been significantly
modified within the meaning of Treasury Regulation 1.860G-2(b) as of the
Closing Date.
(4) Each Mortgage is a valid and enforceable first or subordinate lien
on the referenced Mortgaged Property subject only to (a) the lien of non
delinquent current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection
with the origination of the related Loan and (c) other matters to which
like properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage.
(5) Immediately prior to the assignment of the Loans to the Depositor,
the Seller had good title to, and was the sole owner of, each such Loan
free and clear of any pledge, lien (except in the case of a Loan secured by
a subordinate lien, which shall be
S-IIIH-1
<PAGE>
subject to prior liens approved by Seller), encumbrance or security
interest and had full right and authority, subject to no interest or
participation of, or agreement with, any other party, to sell and assign
the same pursuant to the Pooling and Servicing Agreement.
(6) There is no delinquent tax or assessment lien against any
Mortgaged Property.
(7) There is no valid right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of
the Mortgagor to pay the unpaid principal of or interest on such Mortgage
Note.
(8) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in item (12)
below.
(9) To the best of the Seller's knowledge, each Mortgaged Property is
free of material damage and in good repair.
(10) Each Loan at origination complied in all material respects with
applicable state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws.
(11) As of the Closing Date, neither the Seller nor any prior holder
of any Mortgage has modified the Mortgage in any material respect (except
that a Loan may have been modified by a written instrument which has been
recorded or submitted for recordation, if necessary, to protect the
interests of the Certificateholders and the original or a copy of which has
been or shall be delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the related
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction with respect thereto.
(12) For each Loan, a lender's policy of title insurance together with
a condominium endorsement and extended coverage endorsement, if applicable,
in an amount at least equal to the Cut-off Date Stated Principal Balance of
each such Loan or a commitment (binder) to issue the same was effective on
the date of the origination of each Loan, each such policy is valid and
remains in full force and effect, and each such policy was issued by a
title insurer qualified to do business in the jurisdiction where the
related Mortgaged Property is located, which policy insures the Seller and
successor owners of indebtedness secured by the related insured Mortgage,
as to the applicable priority lien of the Mortgage subject to the
exceptions set forth in paragraph (4) above; to the best of the Seller's
knowledge, no claims have been made under such mortgage title insurance
policy and no prior holder of the related Mortgage, including the Seller,
has
S-IIIH-2
<PAGE>
done, by act or omission, anything which would impair the coverage of such
mortgage title insurance policy.
(13) To the best of the Seller's knowledge, all of the improvements
which were included for the purpose of determining the appraised value of
each Mortgaged Property lie wholly within the boundaries and building
restriction lines of such property, and no improvements on adjoining
properties encroach upon such Mortgaged Property.
(14) To the best of the Seller's knowledge, no improvement located on
or being part of any Mortgaged Property is in violation of any applicable
zoning law or regulation. To the best of the Seller's knowledge, all
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of such Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from the appropriate authorities, unless the lack thereof
would not have a material adverse effect on the value of such Mortgaged
Property, and such Mortgaged Property is lawfully occupied under applicable
law.
(15) Each Mortgage Note and the related Mortgage are genuine, and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms and under applicable law. To the
best of the Seller's knowledge, all parties to such Mortgage Note and such
Mortgage had legal capacity to execute such Mortgage Note and such Mortgage
and each such Mortgage Note and Mortgage have been duly and properly
executed by such parties.
(16) The proceeds of each Loan have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as
to completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or recording such
Loans were paid.
(17) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security, including, (a) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (b) otherwise by judicial foreclosure.
(18) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
S-IIIH-3
<PAGE>
(19) Each Mortgage Note and each Mortgage is in substantially one of
the forms acceptable to FNMA or FHLMC, with such riders as have been
acceptable to FNMA or FHLMC, as the case may be.
(20) The origination, underwriting and collection practices used by
the Seller with respect to each Loan have been in all respects legal,
prudent and customary in the mortgage lending and servicing business.
(21) There is no pledged account or other security other than any
Escrow Account and real estate securing the Mortgagor's obligations.
(22) No Loan has a shared appreciation feature, or other contingent
interest feature.
(23) Each Loan contains a customary "due on sale" clause.
(24) At the Cut-off Date, the improvements on each Mortgaged Property
were covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended coverage
and coverage for such other hazards as are customary in the area where such
Mortgaged Property is located in an amount at least equal to the lesser of
(a) the maximum insurable value of the improvements on such Mortgaged
Property or (b) (i) in the case of a Loan secured by a Mortgage creating a
first lien on such Mortgaged Property, the original principal balance of
such Loan, or (ii) in the case of a Loan which is subject to a prior loan
or prior loans, the combined principal balances of such Loan and the prior
loan(s). If such Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium unit.
For all Mortgages creating a first lien on the related Mortgaged Property,
all such individual insurance policies and all flood policies referred to
in item (25) below contain a standard mortgagee clause naming the Seller or
the original mortgagee, and its successors in interest, as mortgagee, and
the Seller has received no notice that any premiums due and payable thereon
have not been paid; the Mortgage obligates the Mortgagor thereunder to
maintain all such insurance including flood insurance at the Mortgagor's
cost and expense, and upon the Mortgagor's failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor.
(25) If a Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration was required at
closing with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (a)
the original outstanding principal balance of the related Loan, (b) the
minimum amount required to compensate for damage or loss on a maximum
insurable value basis or (c) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973, as amended, and
if Seller has received
S-IIIH-4
<PAGE>
any notice of non-payment of any premium or cancellation of any such
policy, Seller has required or is in the process of requiring the
reinstatement of such insurance.
(26) To the best of the Seller's knowledge, there is no proceeding
occurring, pending or threatened for the total or partial condemnation of
any Mortgaged Property.
(27) There is no material monetary default existing under any Mortgage
or the related Mortgage Note and, to the best of the Seller's knowledge,
there is no material event which, with the passage of time or with notice
and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration under such Mortgage or related
Mortgage Note; and the Seller has not waived any default, breach, violation
or event of acceleration.
(28) Each Mortgaged Property is improved by a mixed use building or a
one- to four-family residential dwelling including condominium units,
which, to the best of Seller's knowledge, does not include cooperatives or
mobile homes and does not constitute other than real property under state
law.
(29) Each Loan is being serviced by the Servicer.
(30) Any future advances made prior to the Cut-off Date have been
consolidated with the outstanding principal amount secured by the related
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Loan
Schedule. The consolidated principal amount does not exceed the original
principal amount of such Loan. No Mortgage Note permits or obligates the
Servicer to make future advances to the Mortgagor at the option of the
Mortgagor.
(31) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, except for items which have
been assessed, but are not yet due and payable. Except for (a) payments in
the nature of escrow payments, and (b) interest accruing from the date of
any Mortgage Note or date of disbursement of the related Mortgage proceeds,
whichever is later, to the day which precedes by one month the Due Date of
the first installment of principal and interest, including without
limitation, taxes and insurance payments, the Servicer has not advanced
funds, or induced, solicited or knowingly received any advance of funds by
a party other than the Mortgagor, directly or indirectly, for the payment
of any amount required by the related Mortgage.
(32) Each Loan was underwritten in all material respects in accordance
with the Seller's underwriting guidelines as set forth in the Prospectus
Supplement.
S-IIIH-5
<PAGE>
(33) An appraisal of each Mortgaged Property was obtained from a
qualified appraiser, duly appointed by the originator, who had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of such Loan; such appraisal is in a form acceptable to FNMA
and FHLMC.
(34) No Loan is a graduated payment mortgage loan or a growing equity
mortgage loan, and no Loan is subject to a buydown or similar arrangement.
(35) The Loans were selected from among the outstanding fixed-rate
residential mortgage or mixed use loans in Seller's portfolio at the
Closing Date as to which the representations and warranties made as to such
Loans set forth in this Schedule IIIA can be made. Such selection was not
made in a manner that would adversely affect the interests of
Certificateholders or the Insurer.
(36) Each Loan has a payment date on or before its Due Date in the
month of the first Distribution Date.
(37) Approximately [ ____ ]% of the mortgage loans set forth on
Schedule I were balloon loans as described in the Prospectus Supplement.
(38) No Loan is subject to negative amortization or deferred interest
payments.
(39) No Mortgagor has requested relief under the Relief Act.
(40) None of the Loans are retail installment contracts for goods or
services or are home improvement loans for goods or services, which would
be either "consumer credit contracts" or "purchase money loans" as such
terms are defined in 16 C.F.R. ss.433.1.
(41) No Mortgagor has or will have a claim or defense against Seller
or any assignor or assignee of Seller under any express or implied warranty
with respect to goods or services provided in connection with any Loan.
(42) Each Loan is a "qualified mortgage" for purposes of Section
860G(a)(3) of the Code.
(43) The Loans, individually and in the aggregate, conform in all
material respects to the descriptions thereof in the Prospectus Supplement.
(44) There exist no deficiencies with respect to escrow deposits and
payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due the Seller have been capitalized under any
Mortgage or related Mortgage Note.
S-IIIH-6
<PAGE>
SCHEDULE IV
LIST OF FINANCING STATEMENTS:
PERFECTION OF GRANT OF SECURITY INTEREST
BY SELLERS TO DEPOSITOR
<TABLE>
<CAPTION>
==============================================================================================================
SELLER LOCATION
==============================================================================================================
<S> <C>
Equity One, Inc. (DE) Secretary of State of Delaware
- --------------------------------------------------------------------------------------------------------------
Secretary of State of New Jersey
- --------------------------------------------------------------------------------------------------------------
Burlington County, New Jersey
- --------------------------------------------------------------------------------------------------------------
Equity One, Incorporated (PA) Secretary of Commonwealth of Pennsylvania
- --------------------------------------------------------------------------------------------------------------
Bucks County, Pennsylvania
- --------------------------------------------------------------------------------------------------------------
Equity One Mortgage, Inc. (NY) Secretary of State of New York
- --------------------------------------------------------------------------------------------------------------
Suffolk County, New York
- --------------------------------------------------------------------------------------------------------------
Equity One Mortgage Company (NC) Secretary of State of North Carolina
- --------------------------------------------------------------------------------------------------------------
Guilford County, North Carolina
- --------------------------------------------------------------------------------------------------------------
Equity One, Inc. (MN) Secretary of State of Minnesota
- --------------------------------------------------------------------------------------------------------------
Hennepin County, Minnesota
- --------------------------------------------------------------------------------------------------------------
Equity One Consumer Loan Company, Inc. (NH) Secretary of State of New Hampshire
- --------------------------------------------------------------------------------------------------------------
Hillsborough County, New Hampshire
- --------------------------------------------------------------------------------------------------------------
Equity One of West Virginia, Inc. (WV) Secretary of State of West Virginia
- --------------------------------------------------------------------------------------------------------------
Berkeley County, West Virginia
- --------------------------------------------------------------------------------------------------------------
Equity One Mortgage, Inc. (DE) Secretary of State of Florida
- --------------------------------------------------------------------------------------------------------------
Hillsborough County, Florida
- --------------------------------------------------------------------------------------------------------------
Secretary of State of Delaware
==============================================================================================================
</TABLE>
S-IV-1
<PAGE>
SCHEDULE V
LIST OF FINANCING STATEMENTS:
PERFECTION OF GRANT OF SECURITY INTEREST
BY DEPOSITOR TO TRUSTEE
================================================================================
DEPOSITOR LOCATION
================================================================================
Equity One ABS, Inc. Secretary of State of Delaware
================================================================================
S-V-1
<PAGE>
EXHIBIT A
Form Of Class A Certificate
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
Certificate No. :
Cut-off Date: : August 31, 1998
First Distribution Date: : October 25, 1998
Initial Certificate Balance
of this Certificate
("Denomination") : $
Initial Class Certificate Balance
of all Certificates of
this Class: : $
CUSIP :
Equity One ABS, Inc.
Mortgage Pass-Through Certificates, Series 1998-1
Class A- [ ]
evidencing a percentage interest in the distributions allocable to the
Certificates of the above-referenced Class with respect to a Trust Fund
consisting primarily of a pool of the following types of loans
(collectively, the "Loans"): fixed rate mortgage loans secured by first
A-1
<PAGE>
and subordinate liens on (A) one- to four-family residential properties
and (B) mixed commercial/residential use properties
Equity One ABS, Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Sellers, the Servicer or the Trustee referred to below or any of their
respective affiliates. Neither this Certificate nor the Loans are guaranteed or
insured by any governmental agency or instrumentality.
This certifies that ___________________ is the registered owner of the
Percentage Interest evidenced by this Certificate (obtained by dividing the
denomination of this Certificate by the aggregate Initial Certificate Balances
of all Certificates of the Class to which this Certificate belongs) in certain
monthly distributions with respect to a Trust Fund consisting primarily of the
Loans deposited by Equity One ABS, Inc. (the "Depositor"). The Trust Fund was
created pursuant to a Pooling and Servicing Agreement dated as of the Cut-off
Date specified above (the "Agreement") among the Depositor, Equity One, Inc.
(DE), Equity One, Incorporated, (PA) Equity One Mortgage Company (NC), Equity
One Mortgage, Inc. (DE), Equity One, Inc. (MN), Equity One Consumer Loan
Company, Inc. (NH) , Equity One of West Virginia, Inc. (WV) and Equity One
Mortgage, Inc. (NY) (in such capacity, collectively, the "Sellers"), Equity One,
Inc. (DE) as servicer (in such capacity, the "Servicer"), and The Chase
Manhattan Bank, as trustee (the "Trustee"). To the extent not defined herein,
the capitalized terms used herein have the meanings assigned in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
* * *
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: ____________, 19__
The Chase Manhattan Bank,
as Trustee
By
----------------------------------
Countersigned:
A-2
<PAGE>
By
---------------------------------
Authorized Signatory of
The Chase Manhattan Bank,
as Trustee
A-3
<PAGE>
EXHIBIT B
Form Of Class R Certificate
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
PROPOSED TRANSFEREE DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN ACCORDANCE
WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
[THIS CERTIFICATE REPRESENTS THE "TAX MATTERS PERSON RESIDUAL INTEREST" ISSUED
UNDER THE AGREEMENT REFERRED TO BELOW AND MAY NOT BE TRANSFERRED TO ANY PERSON
EXCEPT IN CONNECTION WITH THE ASSUMPTION BY THE TRANSFEREE OF THE DUTIES OF THE
SERVICER UNDER SUCH AGREEMENT.]
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE EFFECT
THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A PLAN SUBJECT TO SECTION
4975 OF THE CODE, OR AN OPINION OF COUNSEL IN ACCORDANCE WITH THE PROVISIONS OF
THE AGREEMENT REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY
HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION OF
COUNSEL SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY ONLY BE MADE IN A TRANSACTION EXEMPTED
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
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Certificate No. :
Cut-off Date : August 31, 1998
Equity One ABS, Inc.
Mortgage Pass-Through Certificates, Series 1998-1
evidencing the distributions allocable to the Class R Certificates with
respect to a Trust Fund consisting primarily of a pool of the following
types of loans (collectively, the "Loans"): fixed rate mortgage loans
secured by first and subordinate liens on (A) one- to four-family
residential properties and (B) mixed commercial/residential use
properties
Equity One ABS, Inc., as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Sellers, the Servicer or the Trustee referred to below or any of their
respective affiliates. Neither this Certificate nor the Loans are guaranteed or
insured by any governmental agency or instrumentality.
This certifies that __________________________ is the registered owner of
the Percentage Interest (obtained by dividing the Denomination of this
Certificate by the aggregate Initial Certificate Balances of all Certificates of
the Class to which this Certificate belongs) in certain monthly distributions
with respect to a Trust Fund consisting of the Loans deposited by Equity One
ABS, Inc. (the "Depositor"). The Trust Fund was created pursuant to a Pooling
and Servicing Agreement dated as of the Cut-off Date specified above (the
"Agreement") among the Depositor, Equity One, Inc. (DE), Equity One,
Incorporated (PA), Equity One Mortgage Company (NC), Equity One Mortgage, Inc.
(DE), Equity One, Inc. (MN), Equity One Consumer Loan Company, Inc. (NH), Equity
One of West Virginia, Inc. (WV) and Equity One Mortgage, Inc. (NY) (in such
capacity, collectively, the "Sellers") and Equity One, Inc. (DE) as servicer (in
such capacity, the "Servicer"), and The Chase Manhattan Bank, as trustee (the
"Trustee"). To the extent not defined herein, the capitalized terms used herein
have the meanings assigned in the Agreement. This Certificate is issued under
and is subject to the terms, provisions and conditions of the Agreement, to
which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
Any distribution of the proceeds of any remaining assets of the Trust Fund
will be made only upon presentment and surrender of this Class R Certificate at
the Corporate Trust Office or the office or agency maintained by the Trustee in
New York, New York.
Any proposed transfer of a Class R Certificate shall be subject to the
restrictions on transfer described in Section 5.02 of the Agreement.
No transfer of a Class R Certificate shall be made unless the Trustee shall
have received either (i) a representation letter from the transferee of such
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Certificate, acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA or Section 4975 of the Code, nor a person acting
on behalf of any such plan, which representation letter shall not be an expense
of the Trustee or the Servicer, or (ii) in the case of any such Class R
Certificate presented for registration in the name of an employee benefit plan
subject to ERISA, or Section 4975 of the Code (or comparable provisions of any
subsequent enactment), or a trustee of any such plan or any other person acting
on behalf of any such plan, an Opinion of Counsel satisfactory to the Trustee
and the Servicer to the effect that the purchase or holding of such Class R
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee or the Servicer to any obligation in
addition to those undertaken in the Agreement, which Opinion of Counsel shall
not be an expense of the Trustee or the Servicer. Notwithstanding anything else
to the contrary herein, any purported transfer of a Class R Certificate to or on
behalf of an employee benefit plan subject to ERISA or to the Code without the
opinion of counsel satisfactory to the Trustee as described above shall be void
and of no effect.
Each Holder of this Class R Certificate will be deemed to have agreed to be
bound by the restrictions of the Agreement, including but not limited to the
restrictions that (i) each person holding or acquiring any Ownership Interest in
this Class R Certificate must be a Permitted Transferee, (ii) no Ownership
Interest in this Class R Certificate may be transferred without delivery to the
Trustee of (a) a transfer affidavit of the proposed transferee and (b) a
transfer certificate of the transferor, each of such documents to be in the form
described in the Agreement, (iii) each person holding or acquiring any Ownership
Interest in this Class R Certificate must agree to require a transfer affidavit
and to deliver a transfer certificate to the Trustee as required pursuant to the
Agreement, (iv) each person holding or acquiring an Ownership Interest in this
Class R Certificate must agree not to transfer an Ownership Interest in this
Class R Certificate if it has actual knowledge that the proposed transferee is
not a Permitted Transferee and (v) any attempted or purported transfer of any
Ownership Interest in this Class R Certificate in violation of such restrictions
will be absolutely null and void and will vest no rights in the purported
transferee.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
* * *
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<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: , 19
------- ---
The Chase Manhattan Bank,
as Trustee
By
---------------------------------
Countersigned:
By
---------------------------------
Authorized Signatory of
The Chase Manhattan Bank,
as Trustee
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EXHIBIT C
Form of Reverse of Certificates
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
This Certificate is one of a duly authorized issue of Certificates
designated as Equity One ABS, Inc. Mortgage Pass-Through Certificates, of the
Series specified on the face hereof (herein collectively called the
"Certificates"), and representing a beneficial ownership interest in the Trust
Fund created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced thereby, and the rights, duties and
immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on the
25th day of each month or, if such 25th day is not a Business Day, the Business
Day immediately following (the "Distribution Date"), commencing on the first
Distribution Date specified on the face hereof, to the Person in whose name this
Certificate is registered at the close of business on the applicable Record Date
in an amount equal to the product of the Percentage Interest evidenced by this
Certificate and the amount required to be distributed to Holders of Certificates
of the Class to which this Certificate belongs on such Distribution Date
pursuant to the Agreement. The Record Date applicable to each Distribution Date
is the Business Day immediately preceding such Distribution Date.
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor, the Servicer and the Trustee with the consent of the Holders
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of Certificates affected by such amendment evidencing the requisite Percentage
Interest, as provided in the Agreement. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange therefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the Corporate Trust Office or the office or agency maintained by the
Trustee in New York, New York, accompanied by a written instrument of transfer
in form satisfactory to the Trustee and the Certificate Registrar duly executed
by the Holder hereof or such holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of the same Class in authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Depositor, the Servicer, the Sellers and the Trustee and any agent of
the Depositor or the Trustee may treat the Person in whose name this Certificate
is registered as the owner hereof for all purposes, and neither the Depositor,
the Trustee, nor any such agent shall be affected by any notice to the contrary.
On any Distribution Date on which the Pool Principal Balance is less than
5% of the aggregate Cut-off Date Principal Balances of the Loans, the Servicer
will have the option to repurchase, in whole, from the Trust Fund all remaining
Loans and all property acquired in respect of the Loans at a purchase price
determined as provided in the Agreement. In the event that no such optional
termination occurs, the obligations and responsibilities created by the
Agreement will terminate upon the later of the maturity or other liquidation (or
any advance with respect thereto) of the last Loan remaining in the Trust Fund
or the disposition of all property in respect thereof and the distribution to
Certificateholders of all amounts required to be distributed pursuant to the
Agreement. In no event, however, will the trust created by the Agreement
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants living at the date of the Agreement of a certain person named
in the Agreement.
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<PAGE>
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
C-3
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto ___________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust Fund.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
_______________________________________________________________________________.
Dated:
_______________________________________
Signature by or on behalf of assignor
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds to _____________________________________________________________
_______________________________________________________________________________,
_______________________________________________________________________________,
for the account of ____________________________________________________________,
account number __________________ or, if mailed by check, to __________________.
Applicable statements should be mailed to ______________________________________
This information is provided by _______________________________________________,
the assignee named above, or __________________________________________________,
as its agent.
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EXHIBIT D
Form Of Initial Certification Of Trustee
[date]
[Depositor]
[Servicer]
[Sellers]
- ---------------------
- ---------------------
Re: Pooling and Servicing Agreement among Equity One ABS,
Inc., as Depositor, Equity One, Inc. (DE), Equity One,
Incorporated (PA), Equity One Mortgage Company (NC),
Equity One Mortgage, Inc. (DE), Equity One, Inc. (MN),
Equity One Consumer Loan Company, Inc. (NH), Equity One
of West Virginia, Inc. (WV) and Equity One Mortgage, Inc.
(NY) as Sellers, Equity One, Inc. (DE) as Servicer, and
The Chase Manhattan Bank, as Trustee, Mortgage
Pass-Through Certificates, Series 1998-1
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that, as to each Loan listed in the Loan Schedule
(other than any Loan paid in full or listed on the attached schedule) it has
received the original Mortgage Note and confirms that the name on the Mortgage
Note matches that on the Loan Schedule, except as set forth on the Exception
Report attached hereto.
Based on its review and examination and only as to the foregoing documents,
such documents appear regular on their face and related to such Loan.
The Trustee has made no independent examination of any documents contained
in each Mortgage File beyond the review specifically required in the Pooling and
Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Loans identified on the
Loan Schedule, or (ii) the collectability, insurability, effectiveness or
suitability of any such Loan.
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<PAGE>
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
The Chase Manhattan Bank,
as Trustee
By:
-------------------------------------
Name:
Title:
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EXHIBIT E
Form Of Final Certification Of Trustee
[date]
[Depositor]
[Servicer]
[Seller]
- ---------------------
- ---------------------
Re: Pooling and Servicing Agreement among Equity One
ABS, Inc., as Depositor, Equity One, Inc. (DE),
Equity One, Incorporated (PA), Equity One Mortgage
Company (NC), Equity One Mortgage, Inc. (DE), Equity
One, Inc. (MN), Equity One Consumer Loan Company,
Inc. (NH), Equity One of West Virginia, Inc. (WV)
and Equity One Mortgage, Inc. (NY) as Sellers and
Equity One, Inc. (DE) as Servicer, and The Chase
Manhattan Bank, as Trustee, Mortgage Pass-Through
Certificates, Series 1998-1
Gentlemen:
In accordance with Section 2.02 of the above-captioned Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), the undersigned, as
Trustee, hereby certifies that as to each Loan listed in the Loan Schedule
(other than any Loan paid in full or listed on the attached Document Exception
Report), except as set forth on the Exception Report attached hereto, it has
received:
(i) the original Mortgage Note and confirms that the name on the
Mortgage Note matches that on the Loan Schedule;
(ii) the original recorded Mortgage (unless such Mortgage has not yet
been returned by the relevant recording office, as certified by the
Depositor;
(iii) the original recorded assignment of the Mortgage in the form
provided in Section 2.01(c) of the Pooling and Servicing Agreement;
(iv) the original or duplicate original recorded assignment or
assignments of the Mortgage necessary to show a complete chain of
assignment from the originator to the Seller, unless the Depositor has
certified that the related assignment has not been returned from the
applicable recording office; and
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(v) the original or duplicate original lender's title policy and all
riders thereto or, any one of an original title binder, an original
preliminary title report or an original title commitment, or a copy thereof
certified by the title company, unless the Depositor has certified that
such title policy has not yet been received from the applicable title
insurance company.
Based on its review and examination and only as to the foregoing documents,
(a) such documents appear regular on their face and related to such Loan, and
(b) the information set forth in items (i), (ii), (iii) and (vi) of the
definition of the "Loan Schedule" in Section 1.01 of the Pooling and Servicing
Agreement accurately reflects information set forth in the Mortgage File.
The Trustee has made no independent examination of any documents contained
in each Mortgage File beyond the review specifically required in the Pooling and
Servicing Agreement. The Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in each Mortgage File of any of the Loans identified on the
Loan Schedule, or (ii) the collectability, insurability, effectiveness or
suitability of any such Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
The Chase Manhattan Bank,
as Trustee
By:
--------------------------------------
Name:
Title:
E-2
<PAGE>
EXHIBIT F
Form Of Transfer Affidavit
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
STATE OF )
) ss:
COUNTY OF )
The undersigned, being first duly sworn, deposes and says as follows:
1. The undersigned is an officer of _________________________, the proposed
Transferee of an Ownership Interest in a Class R Certificate (the "Certificate")
issued pursuant to the Pooling and Servicing Agreement, (the "Agreement"),
relating to the above-referenced Series, by and among Equity One ABS, Inc., as
depositor (the "Depositor"), Equity One, Inc. (DE), Equity One, Incorporated
(PA), Equity One Mortgage Company (NC), Equity One Mortgage, Inc. (DE), Equity
One, Inc. (MN), Equity One Consumer Loan Company, Inc. (NH), Equity One of West
Virginia, Inc. (WV) and Equity One Mortgage, Inc. (NY), as sellers, Equity One,
Inc. (DE) as servicer and The Chase Manhattan Bank, as Trustee. Capitalized
terms used, but not defined herein or in Exhibit 1 hereto, shall have the
meanings ascribed to such terms in the Agreement. The Transferee has authorized
the undersigned to make this affidavit on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the date of
the Transfer, a Permitted Transferee. The Transferee is acquiring its Ownership
Interest in the Certificate either (i) for its own account or (ii) as nominee,
trustee or agent for another Person and has attached hereto an affidavit from
such Person in substantially the same form as this affidavit. The Transferee has
no knowledge that any such affidavit is false.
3. The Transferee has been advised of, and understands that (i) a tax will
be imposed on Transfers of the Certificate to Persons that are not Permitted
Transferees; (ii) such tax will be imposed on the transferor, or, if such
Transfer is through an agent (which includes a broker, nominee or middleman) for
a Person that is not a Permitted Transferee, on the agent; and (iii) the Person
otherwise liable for the tax shall be relieved of liability for the tax if the
subsequent Transferee furnished to such Person an affidavit that such subsequent
Transferee is a Permitted Transferee and, at the time of Transfer, such Person
does not have actual knowledge that the affidavit is false.
4. The Transferee has been advised of, and understands that a tax will be
imposed on a "pass-through entity" holding the Certificate if at any time during
the taxable year of the pass-through entity a Person that is not a Permitted
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Transferee is the record holder of an interest in such entity. The Transferee
understands that such tax will not be imposed for any period with respect to
which the record holder furnishes to the pass-through entity an affidavit that
such record holder is a Permitted Transferee and the pass-through entity does
not have actual knowledge that such affidavit is false. (For this purpose, a
"pass-through entity" includes a regulated investment company, a real estate
investment trust or common trust fund, a partnership, trust or estate, and
certain cooperatives and, except as may be provided in Treasury Regulations,
persons holding interests in pass-through entities as a nominee for another
Person.)
5. The Transferee has reviewed the provisions of Section 5.02(c) of the
Agreement (attached hereto as Exhibit 2 and incorporated herein by reference)
and understands the legal consequences of the acquisition of an Ownership
Interest in the Certificate including, without limitation, the restrictions on
subsequent Transfers and the provisions regarding voiding the Transfer and
mandatory sales. The Transferee expressly agrees to be bound by and to abide by
the provisions of Section 5.02(c) of the Agreement and the restrictions noted on
the face of the Certificate. The Transferee understands and agrees that any
breach of any of the representations included herein shall render the Transfer
to the Transferee contemplated hereby null and void.
6. The Transferee agrees to require a Transfer Affidavit from any Person to
whom the Transferee attempts to Transfer its Ownership Interest in the
Certificate, and in connection with any Transfer by a Person for whom the
Transferee is acting as nominee, trustee or agent, and the Transferee will not
Transfer its Ownership Interest or cause any Ownership Interest to be
Transferred to any Person that the Transferee knows is not a Permitted
Transferee. In connection with any such Transfer by the Transferee, the
Transferee agrees to deliver to the Trustee a certificate substantially in the
form set forth as Exhibit G to the Agreement (a "Transferor Certificate") to the
effect that such Transferee has no actual knowledge that the Person to which the
Transfer is to be made is not a Permitted Transferee.
7. The Transferee does not have the intention to impede the assessment or
collection of any tax legally required to be paid with respect to the
Certificate.
8. The Transferee's taxpayer identification number is ______.
9. The Transferee is a U.S. Person as defined in Code Section 7701(a)(30).
10. The Transferee is aware that the Certificate may be a "noneconomic
residual interest" within the meaning of proposed Treasury regulations
promulgated pursuant to the Code and that the transferor of a noneconomic
residual interest will remain liable for any taxes due with respect to the
income on such residual interest, unless no significant purpose of the transfer
was to impede the assessment or collection of tax.
11. The Transferee is not an employee benefit plan that is subject to ERISA
or a plan that is subject to Section 4975 of the Code, and the Transferee is not
acting on behalf of such a plan.
* * *
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<PAGE>
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this ____ day of _____________, 19___.
___________________________________
PRINT NAME OF TRANSFEREE
By: _______________________________
Name: _____________________________
Title: ____________________________
[Corporate Seal]
ATTEST:
_____________________________
[Assistant] Secretary
Personally appeared before me the above-named ________________, known
or proved to me to be the same person who executed the foregoing instrument and
to be the _______________________ of the Transferee, and acknowledged that he
executed the same as his free act and deed and the free act and deed of the
Transferee.
Subscribed and sworn before me this _________ day of ___________, 19__.
_________________________________
NOTARY PUBLIC
My Commission expires the _______
day of
______________________, 19__.
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EXHIBIT 1
to EXHIBIT F
Certain Definitions
"Ownership Interest": As to any Certificate, any ownership interest in such
Certificate, including any interest in such Certificate as the Holder thereof
and any other interest therein, whether direct or indirect, legal or beneficial.
"Permitted Transferee": Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in section 521 of the Code)
which is exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any Class R Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) a Person that is not a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate whose income from sources without
the United States is includible in gross income for United States federal income
tax purposes regardless of its connection with the conduct of a trade or
business within the United States, or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have authority to control all
substantial decisions of the trust, unless such Person has furnished the
transferor and the Trustee with a duly completed Internal Revenue Service Form
4224, and (vi) any other Person so designated by the Depositor based upon an
Opinion of Counsel that the Transfer of an Ownership Interest in a Class R
Certificate to such Person may cause the REMIC hereunder to fail to qualify as a
REMIC at any time that the Certificates are outstanding. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in section 7701 of the Code or successor provisions. A corporation will
not be treated as an instrumentality of the United States or of any State or
political subdivision thereof for these purposes if all of its activities are
subject to tax and, with the exception of the Federal Home Loan Mortgage
Corporation, a majority of its board of directors is not selected by such
government unit.
"Person": Any individual, corporation, partnership, joint venture, bank,
joint stock company, trust (including any beneficiary thereof), unincorporated
organization or government or any agency or political subdivision thereof.
"Transfer": Any direct or indirect transfer or sale of any Ownership
Interest in a Certificate, including the acquisition of a Certificate by the
Depositor.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
F-4
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EXHIBIT 2
to EXHIBIT F
Section 5.02(c) of the Agreement
(c) Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions, and the rights
of each Person acquiring any Ownership Interest in a Class R Certificate are
expressly subject to the following provisions:
a. Each Person holding or acquiring any Ownership Interest in a Class
R Certificate shall be a Permitted Transferee and shall promptly notify the
Trustee of any change or impending change in its status as a Permitted
Transferee.
b. No Ownership Interest in a Class R Certificate may be registered on
the Closing Date or thereafter transferred, and the Trustee shall not
register the Transfer of any Class R Certificate unless, in addition to the
certificates required to be delivered to the Trustee under subparagraph (b)
above, the Trustee shall have been furnished with an affidavit (a "Transfer
Affidavit") of the initial owner or the proposed transferee in the form
attached hereto as Exhibit F.
c. Each Person holding or acquiring any Ownership Interest in a Class
R Certificate shall agree (A) to obtain a Transfer Affidavit from any other
Person to whom such Person attempts to Transfer its Ownership Interest in a
Class R Certificate, (B) to obtain a Transfer Affidavit from any Person for
whom such Person is acting as nominee, trustee or agent in connection with
any Transfer of a Class R Certificate and (C) not to Transfer its Ownership
Interest in a Class R Certificate or to cause the Transfer of an Ownership
Interest in a Class R Certificate to any other Person if it has actual
knowledge that such Person is not a Permitted Transferee.
d. Any attempted or purported Transfer of any Ownership Interest in a
Class R Certificate in violation of the provisions of this Section 5.02(b)
shall be absolutely null and void and shall vest no rights in the purported
Transferee. If any purported transferee shall become a Holder of a Class R
Certificate in violation of the provisions of this Section 5.02(b), then
the last preceding Permitted Transferee shall be restored to all rights as
Holder thereof retroactive to the date of registration of Transfer of such
Class R Certificate. The Trustee shall be under no liability to any Person
for any registration of Transfer of a Class R Certificate that is in fact
not permitted by this Section or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect
to such Holder under the provisions of this Agreement so long as the
Transfer was registered after receipt of the related Transfer Affidavit,
Transferor Certificate and either the Rule 144A Letter or the Investment
Letter. The Trustee shall be entitled but not obligated to recover from any
Holder of a Class R Certificate that was in fact not a Permitted Transferee
at the time it became a Holder or, at such subsequent time as it became
F-5
<PAGE>
other than a Permitted Transferee, all payments made on such Class R
Certificate at and after either such time. Any such payments so recovered
by the Trustee shall be paid and delivered by the Trustee to the last
preceding Permitted Transferee of such Certificate.
e. The Depositor shall use its best efforts to make available, upon
receipt of written request from the Trustee, all information necessary to
compute any tax imposed under Section 860E(e) of the Code as a result of a
Transfer of an Ownership Interest in a Class R Certificate to any Holder
who is not a Permitted Transferee.
The restrictions on Transfers of a Class R Certificate set forth in this
Section 5.02(b) shall cease to apply (and the applicable portions of the legend
on a Class R Certificate may be deleted) with respect to Transfers occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund, the Trustee, the Sellers or the
Servicer, to the effect that the elimination of such restrictions will not cause
the Trust Fund hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a Certificateholder or another Person. Each Person holding or acquiring
any Ownership Interest in a Class R Certificate hereby consents to any amendment
of this Agreement which, based on an Opinion of Counsel furnished to the
Trustee, is reasonably necessary (a) to ensure that the record ownership of, or
any beneficial interest in, a Class R Certificate is not transferred, directly
or indirectly, to a Person that is not a Permitted Transferee and (b) to provide
for a means to compel the Transfer of a Class R Certificate which is held by a
Person that is not a Permitted Transferee to a Holder that is a Permitted
Transferee.
F-6
<PAGE>
EXHIBIT G
Form Of Transferor Certificate
--------------------------
Date
Equity One ABS, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Attention:
------------------
The Chase Manhattan Bank
- ----------------------------
- ----------------------------
Attention:
---------------------------------
------------------------
Re: Equity One ABS, Inc. Mortgage Pass-Through Certificates,
Series 1998-1, Class,
-----------------------------------------------
Ladies and Gentlemen:
In connection with our disposition of the above Certificates we certify
that (a) we understand that the Certificates have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are being disposed by us in
a transaction that is exempt from the registration requirements of the Act, (b)
we have not offered or sold any Certificates to, or solicited offers to buy any
Certificates from, any person, or otherwise approached or negotiated with any
person with respect thereto, in a manner that would be deemed, or taken any
other action which would result in, a violation of Section 5 of the Act and (c)
to the extent we are disposing of a Class R Certificate, we have no knowledge
the Transferee is not a Permitted Transferee.
Very truly yours,
----------------------------------
Print Name of Transferor
By:
-------------------------------
Authorized Officer
G-1
<PAGE>
EXHIBIT H
Form Of Investment Letter (Non Rule 144A)
--------------------------------
Date
Equity One ABS, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Attention:
--------------------
The Chase Manhattan Bank
- ----------------------------
- ----------------------------
Attention:
------------------------------
------------------------
Re: Equity One ABS, Inc. Mortgage Pass-Through Certificates,
Series 1998-1, Class
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or
arrangement, nor are we using the assets of any such plan or arrangement to
effect such acquisition, (e) we are acquiring the Certificates for investment
for our own account and not with a view to any distribution of such Certificates
(but without prejudice to our right at all times to sell or otherwise dispose of
the Certificates in accordance with clause (g) below), (f) we have not offered
or sold any Certificates to, or solicited offers to buy any Certificates from,
any person, or otherwise approached or negotiated with any person with respect
thereto, or taken any other action which would result in a violation of Section
5 of the Act, and (g) we will not sell, transfer or otherwise dispose of any
Certificates unless (1) such sale, transfer or other disposition is made
H-1
<PAGE>
pursuant to an effective registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide
an opinion of counsel satisfactory to the addressees of this Certificate that
such sale, transfer or other disposition may be made pursuant to an exemption
from the Act, (2) the purchaser or transferee of such Certificate has executed
and delivered to you a certificate to substantially the same effect as this
certificate, and (3) the purchaser or transferee has otherwise complied with any
conditions for transfer set forth in the Pooling and Servicing Agreement.
Very truly yours,
---------------------------------------
Print Name of Transferee
By:
------------------------------------
Authorized Officer
H-2
<PAGE>
EXHIBIT I
Form Of Rule 144A Letter
----------------------------
Date
Equity One ABS, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Attention:
----------------
The Chase Manhattan Bank
- -------------------------
- -------------------------
Attention:
------------------------
Re: Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series
1998-1, Class ,
------------------------------------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan or arrangement that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or
arrangement, nor are we using the assets of any such plan or arrangement to
effect such acquisition, (e) we have not, nor has anyone acting on our behalf
offered, transferred, pledged, sold or otherwise disposed of the Certificates,
any interest in the Certificates or any other similar security to, or solicited
any offer to buy or accept a transfer, pledge or other disposition of the
Certificates, any interest in the Certificates or any other similar security
from, or otherwise approached or negotiated with respect to the Certificates,
any interest in the Certificates or any other similar security with, any person
in any manner, or made any general solicitation by means of general advertising
or in any other manner, or taken any other action, that would constitute a
distribution of the Certificates under the Act or that would render the
disposition of the Certificates a violation of Section 5 of the Act or require
registration pursuant thereto, nor will act, nor has authorized or will
authorize any person to act, in such manner with respect to the Certificates,
I-1
<PAGE>
(f) we are a "qualified institutional buyer" as that term is defined in Rule
144A under the Act and have completed either of the forms of certification to
that effect attached hereto as Annex 1 or Annex 2. We are aware that the sale to
us is being made in reliance on Rule 144A. We are acquiring the Certificates for
our own account or for resale pursuant to Rule 144A and further, understand that
such Certificates may be resold, pledged or transferred only (i) to a person
reasonably believed to be a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom notice
is given that the resale, pledge or transfer is being made in reliance on Rule
144A, or (ii) pursuant to another exemption from registration under the Act.
I-2
<PAGE>
ANNEX 1 TO EXHIBIT I
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees Other Than Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the parties
listed in the Rule 144A Transferee Certificate to which this certification
relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief Financial
Officer, Senior Vice President or other executive officer of the Buyer.
2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A") because (i) the Buyer owned and/or
invested on a discretionary basis either at least $100,000 in securities or, if
Buyer is a dealer, Buyer must own and/or invest on a discretionary basis at
least $10,000,000 in securities (except for the excluded securities referred to
below) as of the end of the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A and (ii) the Buyer satisfies the
criteria in the category marked below.
___ Corporation, etc. The Buyer is a corporation (other
than a bank, savings and loan association or similar
institution), Massachusetts or similar business
trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended.
___ Bank. The Buyer (a) is a national bank or banking
institution organized under the laws of any State,
territory or the District of Columbia, the business
of which is substantially confined to banking and is
supervised by the State or territorial banking
commission or similar official or is a foreign bank
or equivalent institution, and (b) has an audited net
worth of at least $25,000,000 as demonstrated in its
latest annual financial statements, a copy of which
is attached hereto.
___ Savings and Loan. The Buyer (a) is a savings and loan
association, building and loan association,
cooperative bank, homestead association or similar
institution, which is supervised and examined by a
State or Federal authority having supervision over
any such institutions or is a foreign savings and
loan association or equivalent institution and (b)
has an audited net worth of at least $25,000,000 as
demonstrated in its latest annual financial
statements, a copy of which is attached hereto.
___ Broker-dealer. The Buyer is a dealer registered
pursuant to Section 15 of the Securities Exchange
Act of 1934.
___ Insurance Company. The Buyer is an insurance company
whose primary and predominant business activity is
the writing of insurance or the reinsuring of risks
underwritten by insurance companies and which is
I-3
<PAGE>
subject to supervision by the insurance commissioner
or a similar official or agency of a State, territory
or the District of Columbia.
___ State or Local Plan. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.
___ ERISA Plan. The Buyer is an employee benefit plan
within the meaning of Title I of the Employee
Retirement Income Security Act of 1974.
___ Investment Advisor. The Buyer is an investment advisor
registered under the Investment Advisors Act of 1940.
___ Small Business Investment Company. Buyer is a small business
investment company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
___ Business Development Company. Buyer is a business development
company as defined in Section 202(a) (22) of the Investment
Advisors Act of 1940.
3. The term "securities" as used herein does not include (i) securities of
issuers that are affiliated with the Buyer, (ii) securities that are part of an
unsold allotment to or subscription by the Buyer, if the Buyer is a dealer,
(iii) securities issued or guaranteed by the U.S. or any instrumentality
thereof, (iv) bank deposit notes and certificates of deposit, (v) loan
participations, (vi) repurchase agreements, (vii) securities owned but subject
to a repurchase agreement and (viii) currency, interest rate and commodity
swaps.
4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary basis by the Buyer, the Buyer used the cost
of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (i) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934, as
amended.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
I-4
<PAGE>
6. Until the date of purchase of the Rule 144A Securities, the Buyer will
notify each of the parties to which this certification is made of any changes in
the information and conclusions herein. Until such notice is given, the Buyer's
purchase of the Certificates will constitute a reaffirmation of this
certification as of the date of such purchase. In addition, if the Buyer is a
bank or savings and loan is provided above, the Buyer agrees that it will
furnish to such parties updated annual financial statements promptly after they
become available.
------------------------------------
Print Name of Buyer
By:
---------------------------------
Name:
Title:
Date:
-------------------------------
I-5
<PAGE>
ANNEX 2 TO EXHIBIT I
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Transferees That are Registered Investment Companies]
The undersigned (the "Buyer") hereby certifies as follows to the parties
listed in the Rule 144A Transferee Certificate to which this certification
relates with respect to the Certificates described therein:
1. As indicated below, the undersigned is the President, Chief Financial
Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933, as amended ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an
investment company registered under the Investment Company Act of 1940, as
amended and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used, except (i) where the Buyer or the Buyer's Family of Investment
Companies reports its securities holdings in its financial statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those securities has been published. If clause (ii) in the preceding
sentence applies, the securities may be valued at market.
___ The Buyer owned $ in securities (other than the
excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).
___ The Buyer is part of a Family of Investment Companies
which owned in the aggregate $ in securities (other
than the excluded securities referred to below) as of
the end of the Buyer's most recent fiscal year (such
amount being calculated in accordance with Rule
144A).
3. The term "Family of Investment Companies" as used herein means two or
more registered investment companies (or series thereof) that have the same
investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
4. The term "securities" as used herein does not include (i) securities of
issuers that are affiliated with the Buyer or are part of the Buyer's Family of
Investment Companies, (ii) securities issued or guaranteed by the U.S. or any
instrumentality thereof, (iii) bank deposit notes and certificates of deposit,
(iv) loan participations, (v) repurchase agreements, (vi) securities owned but
I-6
<PAGE>
subject to a repurchase agreement and (vii) currency, interest rate and
commodity swaps.
5. The Buyer is familiar with Rule 144A and under-stands that the parties
listed in the Rule 144A Transferee Certificate to which this certification
relates are relying and will continue to rely on the statements made herein
because one or more sales to the Buyer will be in reliance on Rule 144A. In
addition, the Buyer will only purchase for the Buyer's own account.
6. Until the date of purchase of the Certificates, the undersigned will
notify the parties listed in the Rule 144A Transferee Certificate to which this
certification relates of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of the Certificates will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
-----------------------------------
Print Name of Buyer or Adviser
By:
--------------------------------
Name:
Title:
IF AN ADVISER:
-----------------------------------
Print Name of Buyer
Date:
------------------------------
I-7
<PAGE>
EXHIBIT J
Form Of Request For Release of Documents
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series 1998-1
To: Attn:
------------------------ ------------------
Re: The Pooling & Servicing Agreement dated as of August 31, 1998 among
Equity One, Inc. (DE), Equity One, Incorporated (PA), Equity One
Mortgage Company (NC), Equity One Mortgage, Inc. (DE), Equity One,
Inc. (MN), Equity One Consumer Loan Company, Inc. (NH), Equity One of
West Virginia, Inc. (WV) and Equity One Mortgage, Inc. (NY), as
Sellers, Equity One, Inc. (DE) as Servicer, and Equity One ABS, Inc.
as Depositor and The Chase Manhattan Bank as Trustee
Ladies and Gentlemen:
In connection with the administration of the Loans held by you as Trustee
for Equity One ABS, Inc., we request the release of the Loan File for the
Loan(s) described below, for the reason indicated.
FT Account #: Pool #:
Mortgagor's Name, Address and Zip Code:
Loan Number:
Reason for Requesting Documents (check one)
1. Loan paid in full (_______________________, Inc. hereby certifies
that all amounts have been received.)
2. Loan Liquidated (___________________________ hereby certifies
that all proceeds of foreclosure, insurance, or other
liquidation have been finally received.)
3. Loan in Foreclosure.
4. Other (explain):
The Documents and any proceeds thereof, including any proceeds of proceeds,
coming into the possession or control of the Servicer shall be deposited into
the Certificate Account, and the Servicer shall keep the Documents and any
proceeds separate and distinct from all other property in the Servicer's
possession, custody or control.
J-1
<PAGE>
If item 1 or 2 above is checked, and if all or part of the Mortgage File
was previously released to us, please release to us our previous receipt on file
with you, as well as any additional documents in your possession relating to the
above-specified Loan. If item 3 or 4 is checked, upon return of all of the above
documents to you as Trustee, please acknowledge your receipt by signing in the
space indicated below, and returning this form.
------------------------------------
------------------------------------
------------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
-----------------------------
TRUSTEE CONSENT TO RELEASE AND
ACKNOWLEDGEMENT OF RECEIPT
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
-----------------------------
J-2
<PAGE>
EXHIBIT K
Copy of Certificate Guarantee Insurance Policy
[TO BE PROVIDED AT CLOSING BY AMBAC]
K-1
