As Filed with the Securities and Exchange Commission on July 23, 1999
Registration No. 333-81237
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EQUITY ONE ABS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2029487
(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
(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
(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, other than Securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.|_|____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
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............................. $400,000,000 100% $400,000,000 $111,200
====================================================================================================================
</TABLE>
(1) Estimated for the purpose of calculating the registration fee.
(2) $97,128,056 in securities are being carried forward and $27,001.60 of the
filing fee is associated with the securities being carried forward and was
previously paid with Registrant's previous Registration Statement on Form
S-3 (File No. 333-24599). $278.00 of the filing fee was paid with the
initial filing of this Registration Statement on Form S-3 (File No.
333-81237) and the remaining $83,920.40 is being paid herewith.
Pursuant to Rule 429 of the Securities and Exchange Commission's Rules and
Regulations under the Securities Act of 1933, as amended, the prospectuses and
prospectus supplements contained in this Registration Statement also relate to
the Registrant's previous Registration Statement on Form S-3 (File No.
333-24599).
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 certificates 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.
(ii)
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED JULY 23, 1999
Prospectus Supplement dated _________, ____
To Prospectus dated July 23, 1999
$_________________________
EQUITY ONE MORTGAGE PASS-THROUGH TRUST _________-________
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES __________-______
<TABLE>
<CAPTION>
EQUITY ONE, INC. EQUITY ONE ABS, INC.
as Servicer as Depositor
Net Proceeds
Principal Balance Pass-Through Rate Payment Dates to Depositor(1)
----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Class A - 1 $ % $
Class A - 2 $ % $
- -------------------------------------------------------------------------------------------------------------------
Total $ N/A $
</TABLE>
- ------------
(1) Before deducting expenses, payable by the Depositor, estimated to be
$_________.
- ------------------------------
BEFORE BUYING CERTIFICATES,
CONSIDER CAREFULLY THE RISK THE CERTIFICATES--
FACTORS BEGINNING ON PAGE
S-11 IN THIS DOCUMENT AND ON
PAGE 5 IN THE PROSPECTUS.
o represent an interest in a trust fund
consisting primarily of a pool of fixed
rate mortgage loans divided into two
groups, Group I and Group II. The Class
A-1 Certificates will represent primarily
an interest in the mortgage loans in
Group I and the Class A-2 Certificates
will represent primarily an interest in
the mortgage loans in Group II.
The certificates will
represent interests in the o currently have no trading market.
trust fund only and will not
represent interests in or be CREDIT ENHANCEMENT FOR THE CERTIFICATES--
obligations of any other
entity. o will include a spread account, with an
initial balance of $______________. On
each distribution date, the trustee may
deposit additional funds into the spread
account after making required
distributions to the certificates and
paying certain other expenses. Amounts in
the spread account will be available to
fund shortfalls between required
distributions on the certificates and
funds available to pay them.
This prospectus supplement
may be used to offer and sell
the certificates only if it is
accompanied by the
prospectus.
o will also include a certificate guaranty
insurance policy from _______________.
This policy will guarantee current
payments of interest and ultimate payment
of principal to holders of the
certificates on the terms described in
this document.
[CERTIFICATE INSURER'S LOGO]
- ------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER'S LOGO]
__________________, as underwriter of the certificates, has agreed to purchase
the certificates and the certificates will be offered by the underwriter from
time to time as provided herein in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. It is expected that
delivery of the Class A Certificates will be made in book-entry form only
through the facilities of The Depository Trust Company on or about _________,
___________.
<PAGE>
Information about the certificates is presented in two separate documents
that progressively provide more detail:
o the accompanying prospectus which provides general information, some
of which may not apply to your certificates, and
o this prospectus supplement, which describes the specific terms of your
certificates.
We strongly encourage you to read both this prospectus supplement and the
prospectus in full. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone to provide you with different
information.
If the description of the terms of your certificates varies between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
We have made cross-references to captions in this prospectus supplement and
the accompanying prospectus under which you can find further related
discussions. The table of contents that follows on the next page and the table
of contents in the accompanying prospectus indicate where these captions are
located.
We are not offering the certificates in any state where the offer is not
permitted.
We do not claim that the information in this prospectus supplement and the
accompanying prospectus is accurate as of any date other than the dates stated
on the cover of each document.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Mortgage Pass-Through Certificates, Series __________-__ and
with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the Mortgage Pass-Through Certificates, Series __________-__
will be required to deliver a prospectus supplement and prospectus for ninety
days following the date of this prospectus supplement.
Subject to certain limitations, you can get a copy of any of the documents
referred to in the accompanying prospectus under the caption "Incorporation of
Certain Documents by Reference" free of charge from the trustee. You should
direct any requests for these documents to the Corporate Trust Office of the
Trustee at ________________, telephone: _________________, facsimile number:
__________________, Attention: ____________.
This prospectus supplement and the accompanying prospectus contain
forward-looking statements relating to future economic performance or
projections and other financial items. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the depositor notes that these
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause actual results or performance to differ
materially from these forward-looking statements. Those risks, uncertainties and
other factors include, among others, general economic and business conditions,
competition, changes in political and social conditions, regulatory initiatives
and compliance with government regulations, customer preference and various
other matters, many of which are beyond the depositor's control. These
forward-looking statements, together with related qualifying language and
assumptions, are found in the material, including each of the tables, set forth
under the captions "Risk Factors," "Yield, Prepayment and Maturity
Considerations," and "Yield and Prepayment Considerations." Forward-looking
statements are also found elsewhere in this prospectus supplement and the
accompanying prospectus, and may be identified by, among other things, the use
of forward-looking words such as "expects," "intends," "anticipates,"
"estimates", "believes", "may" or other comparable words. These forward-looking
statements speak only as of the date of this prospectus supplement. The
depositor expressly disclaims any obligation or undertaking to update or revise
forward-looking statements to reflect any change in the depositor's expectations
or any change in events, conditions or circumstances on which any
forward-looking statement is based.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Summary of Terms.............................................................S-4
Risk Factors................................................................S-11
The Mortgage Pool...........................................................S-14
Servicing of Loans..........................................................S-29
Description of the Certificates.............................................S-34
Yield, Prepayment and Maturity Considerations...............................S-44
The Insurer.................................................................S-50
Use of Proceeds.............................................................S-51
Federal Income Tax Consequences.............................................S-51
ERISA Considerations........................................................S-52
Legal Investment............................................................S-53
Underwriting................................................................S-54
Legal Matters...............................................................S-54
Experts.....................................................................S-54
Ratings.....................................................................S-54
Index of Defined Terms......................................................S-56
PROSPECTUS
Risk Factors...................................................................5
The Trust Fund................................................................11
Use of Proceeds...............................................................15
The Depositor.................................................................15
Loan Program..................................................................15
Description of the Securities.................................................21
Credit Enhancement............................................................34
Yield and Prepayment Considerations...........................................38
The Agreements................................................................40
Legal Aspects of the Loans....................................................52
Federal Income Tax Consequences...............................................61
State Tax Considerations......................................................81
ERISA Considerations..........................................................82
Legal Investment..............................................................85
Method of Distribution........................................................86
Legal Matters.................................................................87
Rating........................................................................87
Available Information.........................................................88
Incorporation of Certain Documents by Reference...............................88
Index of Defined Terms........................................................89
S-3
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. You should read this entire prospectus supplement and the
accompanying prospectus carefully before you decide whether to purchase
certificates.
This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
THE TRUST FUND
Equity One Mortgage Pass-Through Trust ________-____ will be formed on
________, ____by Equity One ABS, Inc., as depositor, Equity One, Inc., as
servicer, and ___________,as trustee. ___________, ____________, and
__________, as sellers, will sell the mortgage loans to Equity One ABS,
Inc. Equity One ABS, Inc. will deposit the mortgage loans with the trust
fund.
THE CERTIFICATES
On the closing date, _______________, _____, the trust fund will issue the
certificates. This document discusses three classes of certificates, the
Class A-1 Certificates, Class A-2 Certificates and Class R Certificates,
all of which will represent interests in the trust fund. The Class A-1 and
Class A-2 Certificates, sometimes referred to collectively as the Class A
Certificates, are being offered to you by this prospectus supplement and
the accompanying prospectus. We are not offering the Class R Certificates
for sale to investors. The Class R Certificates will not have a
pass-through rate.
Generally, we will offer the Class A Certificates for purchase in
denominations of $25,000 and integral multiples of $1 thereof.
REGISTRATION OF CERTIFICATES
We will issue the Class A Certificates in book-entry form. You will hold
your interests through a depository. While the Class A Certificates are
book-entry they will be registered in the name of the depository. The
limited circumstances under which definitive certificates will replace the
book entry certificates are described in this prospectus supplement.
TRUST PROPERTY
The trustee will hold the trust property for the benefit of the
certificateholders. The trust property includes:
o a pool of first and second lien mortgage loans split into two
groups
o payments on the mortgage loans received on and after [the cut-off
date] (other than amounts received on and after the [cut-off
date] in respect of principal and interest on the mortgage loans
due prior to the [cut-off date])
o the deed of trust or mortgage related to each mortgage loan
o property that once secured a mortgage loan that the trust fund
has acquired through foreclosure or deed in lieu of foreclosure
o the benefits of the Certificate Guaranty Insurance Policy
S-4
<PAGE>
o amounts on deposit in the various accounts maintained by the
servicer and the trustee for the benefit of the
certificateholders
o rights of the depositor under the agreement pursuant to which the
depositor purchased the mortgage loans from the sellers,
including the right to require the sellers to repurchase mortgage
loans for breaches of representations and warranties
o rights of the sellers under any hazard insurance policies
covering the mortgaged properties
THE MORTGAGE POOL
On [the closing date] the trust fund will acquire a pool of mortgage
loans, which will consist of two groups, Group I and Group II. Both
groups will include fixed rate mortgage loans secured by first or
second liens on one- to four-family dwellings. Group II will also
include fixed rate mortgage loans secured by first liens on
multi-family properties and structures which contain both residential
dwelling units and space used for retail, professional or other
commercial uses. The principal balance at origination of each mortgage
loan in Group I may not exceed certain maximum amounts as provided
under the guidelines of Fannie Mae and the Federal Home Loan Mortgage
Corporation.
We refer you to "The Mortgage Pool" in this prospectus supplement.
Subject to certain cross-collateralization provisions, the Class A- 1
Certificates will represent an interest in the mortgage loans in Group
I and the Class A-2 Certificates will represent an interest in the
mortgage loans in Group II.
The information below is based on the pool as it existed on [the
cut-off date] of $_______. The mortgage loans have the following
characteristics as of [the cut-off date]:
o number of mortgage loans: ______
o aggregate principal balance: $________
o mortgaged property location: __states; other than __% of
mortgaged properties located in [state], no state represents more
than ____% of the mortgage loans, by loan balance
o maximum combined loan-to-value ratio at origination: __% (based
on credit limit)
o weighted average combined loan-to-value ratio: __% (approximate)
o combined loan-to-value ratio range: __% to __% (approximate)
o loan balance range: $___________ to $ ________ (approximate)
o credit limit range: $ __________ to __________ (approximate)
o mortgage loan origination range from __________ to __________,
____
o weighted average loan utilization rate: __% (approximate)
o average loan balance: $____________
S-5
<PAGE>
o interest rates range: __% to __%
o weighted average interest rate: __% (approximate)
o weighted average remaining term to stated maturity, based on
principal balance: ___ months (approximate)
o term to stated maturity range: __ months to __ months
o last maturity date: _________
o average credit limit: $____________
o use and type of each mortgaged property: __% owner occupied; __%
second vacation home;
o __% first priority and __% second priority lien
We refer you to "The Mortgage Pool" in this prospectus supplement.
SERVICER AND SERVICING
Equity One, Inc. will service, manage and make collections on the mortgage
loans. In exchange for these services, Equity One, Inc. will receive an
annual servicing fee, payable monthly, of __% of the total principal
balance of the mortgage loans. The servicer will also be entitled to
certain other amounts as servicing compensation from the trust fund.
We refer you to "Servicing of Loans--The Servicer" and "--Servicing
Compensation and Payment of Expenses" in this prospectus supplement.
DISTRIBUTIONS TO CERTIFICATEHOLDERS-GENERAL
On the distribution date the trustee will make a payment on each of the
Class A Certificates. The distribution date will be the ____ day of each
month or, if the ___ day is not a business day, the next business day,
starting with __________, ____.
Payments on the Class A-1 Certificates will be funded:
o from a percentage of the payments received with respect to the
mortgage loans in Group I;
o or, if the amount described in the above bullet is insufficient,
from any excess funds available after making certain required
distributions for the Class A-2 Certificates;
o or, if the amount described in the above two bullets is
insufficient, from draws on the spread account;
o or, if the amount described in the above three bullets is
insufficient, from draws on the certificate guaranty insurance
policy.
Payments on the Class A-2 Certificates will be funded:
o from a percentage of the payments received with respect to the
mortgage loans in Group II;
S-6
<PAGE>
o or, if the amount described in the above bullet is insufficient,
from any excess funds available after making certain required
distributions for the Class A-1 Certificates;
o or, if the amount described in the above two bullets is
insufficient, from draws on the spread account;
o or, if the amount described in the above three bullets is
insufficient, from draws on the certificate guaranty insurance
policy.
Payments will be made on each distribution date in the following order of
priority:
o to interest on the Class A Certificates; and
o to principal on the Class A Certificates, subject to certain
priorities described under the caption "Description of the
Certificates--Principal" in this prospectus supplement.
After payment of the above amounts to the holders of Class A Certificates,
certain amounts may be distributed on the Class R Certificates.
We refer you to "Description of the Certificates--Principal--Residual
Certificates" in this prospectus supplement.
On the ___ day of such month or, if the ___ day is not a business day, the
prior business day, but no later than two business days prior to that
month's distribution date, the servicer will calculate, and instruct the
trustee regarding, the amounts to be paid to you on that month's
distribution date.
DISTRIBUTIONS OF INTEREST
On each distribution date, you will be entitled to receive interest earned
during the prior calendar month on your certificate at the applicable
pass-through rate. You will also be entitled to receive any interest that
you earned previously but did not receive. There are certain circumstances
which could reduce the amount of interest paid to you.
We refer you to "Description of the Certificates--Distributions" and
"--Interest" in this prospectus supplement.
The pass-through rate for each class of Class A Certificates will be the
per annum rate set forth on the cover page hereof. However, the
pass-through rates for the Class A-1 and Class A-2 Certificates will
increase to ___% per annum and ___% per annum, respectively, with respect
to any distribution date after the date on which the servicer has the
option to purchase the mortgage loans in the trust fund and properties
acquired by the trust fund in satisfaction of mortgage loans, if any.
We refer you to "Description of the Certificates--Optional Termination" in
this prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL
On each distribution date, the trustee will make a payment of principal on
your certificate if there is cash available for the payment on that date.
Principal payments to the Class A-1 Certificates will generally be made out
of amounts received on the mortgage loans in Group I. Principal payments to
the Class A-2 Certificates will generally be made out of amounts received
on the mortgage loans in Group II.
We refer you to "Description of the Certificates--Distributions" and
"--Principal" in this prospectus for a discussion of the priorities of
payment.
S-7
<PAGE>
CREDIT ENHANCEMENT--GENERAL
Credit enhancements reduce the harm caused to holders of certificates by
shortfalls in payments received on the mortgage loans. They reduce the
effect of shortfalls on all classes of certificates proportionately. The
credit enhancement provided for the benefit of certificateholders consists
of the spread account and the certificate guaranty insurance policy, as
described below and elsewhere in this prospectus supplement.
SPREAD ACCOUNT
The spread account will be established as a separate trust account with the
trustee for the benefit of the certificateholders and the insurer. On each
distribution date, the trustee will deposit funds derived from both groups
of mortgage loans, to the extent available, into the spread account.
On each distribution date, the amounts, if any, on deposit in the spread
account will be used primarily to fund any shortfall between the available
funds for payments on Class A Certificates and the amount of principal and
interest due on the Class A Certificates prior to any draws on the
certificate guaranty insurance policy. Certain amounts in the spread
account may be distributed on the Class R Certificates.
We refer you to "Description of the Certificates--Spread Account" in this
prospectus supplement.
CERTIFICATE GUARANTY INSURANCE POLICY
______________, the insurer, will issue the certificate guaranty insurance
policy to provide additional credit enhancement to the Class A
Certificates. Generally, under the certificate guaranty insurance policy,
the insurer will guarantee payment on each distribution date to the
trustee, for the benefit of the holders of the Class A Certificates, of an
amount sufficient to cover any shortfalls in funds available to pay
interest and principal to those certificateholders on that distribution
date. The certificate guaranty insurance policy does not cover any
specified rate of payment of principal.
We refer you to "Description of the Certificates--Certificate Guaranty
Insurance Policy" in this prospectus supplement.
ALLOCATION OF LOSSES
Neither the Class A Certificates nor the underlying mortgage loans are
insured or guaranteed by any governmental agency or instrumentality, or by
any other entity.
ADVANCES
Subject to certain exceptions, the servicer will have to make cash advances
to cover delinquent scheduled payments of principal of and interest on any
mortgage loan in the trust fund. Under certain circumstances, the trustee
will have to make a required advance if the Servicer fails to do so.
We refer you to "Servicing of Loans--Advances" in this prospectus
supplement.
S-8
<PAGE>
OPTIONAL TERMINATION
The servicer has the option to purchase all the mortgage loans and any
properties that the trustee acquired in satisfaction of any of the mortgage
loans. The servicer may exercise this option only when the aggregate
principal balance of all mortgage loans in the trust fund, including the
mortgage loans related to properties which the trustee has acquired, is
less than ___% of the aggregate principal balance of all mortgage loans in
the trust fund as of __________, _____. If the servicer exercises this
option, your certificate will be retired early and you will be entitled to:
o the outstanding principal balance of your certificate; and
o any unpaid accrued interest on your certificate at the applicable
pass-through rate.
We refer you to "Description of the Certificates--Optional Termination" in
this prospectus supplement.
FEDERAL INCOME TAX CONSEQUENCES
The trustee will elect to treat the trust fund as a "real estate mortgage
investment conduit," or REMIC, for federal income tax purposes. The Class A
Certificates will constitute "regular interests" in the REMIC and the Class
R Certificates will constitute the sole class of "residual interest" in the
REMIC. Depending on their respective issue prices, certain classes of Class
A Certificates may be issued with original issue discount for federal
income tax purposes.
We refer you to "Federal Income Tax Consequences" in this prospectus
supplement and in the accompanying prospectus.
ERISA CONSIDERATIONS
If you are a fiduciary of any pension or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended,
or Section 4975 of the Internal Revenue Code of 1986, as amended, you
should review carefully with your counsel whether you are permitted to buy
or hold any of the certificates.
We refer you to "ERISA Considerations" in this prospectus supplement.
LEGAL INVESTMENT
You should consult with your counsel to see if you are permitted to buy any
of the certificates since the legal investment rules vary depending on what
kind of entity you are and which other entities regulate you. The Class A
Certificates will not be "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 because certain of the
mortgage loans in the trust fund will be secured by second liens on the
related mortgaged properties.
We refer you to "Legal Investment" in this prospectus supplement and in the
accompanying prospectus.
S-9
<PAGE>
RATINGS
The Trust Fund will not issue the Certificates unless the Class A
Certificates are rated:
o __________ by ____________; and
o __________ by ____________.
The ratings address credit risk. When evaluating credit risk, the rating
agencies look at the likelihood of whether or not you will receive your
interest and principal payments. Credit risk does not relate to the
likelihood of prepayments on the mortgage loans. Prepayments affect the
timing of your payments and, as a result, could cause your actual return to
differ substantially from your anticipated return on your investment.
We refer you to "Ratings" and "Risk Factors-Certificate Rating Subject to
Change" in this prospectus supplement.
S-10
<PAGE>
RISK FACTORS
o The certificates are not suitable investments for all investors.
o You should not purchase any class of the certificates unless you understand
and are able to bear the prepayment, credit, liquidity and market risks
associated with that class.
o The certificates are complex securities and it is important that you
possess, either alone or together with an investment advisor, the expertise
necessary to evaluate the information contained in this prospectus supplement
and the accompanying prospectus in the context of your financial situation.
o In addition to the matters described elsewhere in this prospectus
supplement and the accompanying prospectus, you should carefully consider the
following risk factors before deciding to purchase a certificate. For a
discussion of additional risks pertaining to the certificates, we refer you
to "Risk Factors" in the accompanying prospectus.
BOOK-ENTRY CERTIFICATES MAY BE ILLIQUID.
Issuance of the Class A Certificates in book-entry form may adversely
affect your ability to sell your certificate in the secondary trading market
since investors may be unwilling to purchase certificates for which they cannot
obtain physical certificates.
We refer you to "Description of the Certificates--Book-Entry Certificates"
in this prospectus supplement and "Risk Factors--Book-Entry Registration" in the
accompanying prospectus.
BOOK-ENTRY CERTIFICATES MAY NOT BE ABLE TO BE PLEDGED.
Since transactions in the Class A Certificates can be effected only through
The Depository Trust Company, or DTC, participating organizations, indirect
participants and certain banks, your ability to pledge your certificate to
persons or entities that do not participate in the DTC system may be limited due
to lack of a physical certificate representing your certificate.
We refer you to "Description of the Certificates--Book-Entry Certificates"
in this prospectus supplement and "Risk Factors--Book-Entry Registration" in the
accompanying prospectus.
BOOK-ENTRY CERTIFICATES MAY RESULT IN DELAYED RECEIPT OF DISTRIBUTIONS.
As a beneficial owner, you may experience some delay in receiving
distributions of interest and principal on your certificate since these
distributions will be:
o forwarded by the trustee to DTC;
o credited by DTC to the accounts of DTC participants; and
o ultimately credited to your account by a DTC participant.
We refer you to "Description of the Certificates--Book-Entry Certificates"
in this prospectus supplement and "Risk Factors--Book-Entry Registration" in the
accompanying prospectus.
S-11
<PAGE>
LIQUIDATIONS COULD RESULT IN DELAYS AND LOSSES.
Even if the mortgaged properties provide adequate security for the mortgage
loans, substantial delays could be encountered in connection with the
liquidation of mortgage loans that are delinquent and resulting shortfalls in
distributions on your certificate could occur. Corresponding delays in your
receipt of related proceeds could occur if the spread account is depleted and
the insurer fails to perform its obligations under the certificate guaranty
insurance policy. Also, liquidation expenses (such as legal fees, real estate
taxes, and maintenance and preservation expenses) will be paid first, thereby
reducing the proceeds payable on your certificate and thereby reducing the
security for the mortgage loans. Mortgage loans secured by second liens on the
related properties will also generally be subject to the prior payment of loans
secured by first liens on such properties. If any of the mortgaged properties
fail to provide adequate security for the related mortgage loans, you could
experience a loss if the spread account is depleted and the insurer fails to
perform its obligations under the certificate guaranty insurance policy.
We refer you to "Yield, Prepayment and Maturity Considerations--Prepayment
Considerations and Risks" in this prospectus supplement and "Prepayment and
Yield Considerations" in the accompanying prospectus.
WE HAVE LIMITED INFORMATION REGARDING PREPAYMENT HISTORY.
The yield to maturity and weighted average life of your certificate will be
affected primarily by the rate and timing of prepayments on the mortgage loans
in Group I if you hold a Class A-1 Certificate and Group II if you hold a Class
A-2 Certificate. The mortgage loans may be prepaid in whole or in part at any
time, most without penalty. The trust's prepayment experience may be affected by
a wide variety of factors, including general economic conditions, interest
rates, the availability of alternative financing and homeowner mobility. The
servicer and its affiliates periodically conduct mass mailings to their existing
customers with respect to the refinancing of existing mortgage loans. Although
these marketing efforts are not specifically directed to customers who have
mortgage loans included in a trust fund, these customers may receive the
marketing materials as part of a broader mailing, which may result in an
increase in the rate of prepayments of mortgage loans included in a trust fund
through refinancings. In addition, substantially all of the mortgage loans
contain due-on-sale provisions, and the servicer intends to enforce such
provisions unless (1) enforcement is not permitted by applicable law or (2) the
servicer, in a manner consistent with reasonable commercial practice, permits
the purchaser of the related mortgaged property to assume the mortgage loan. To
the extent permitted by applicable law, such assumption will not release the
original borrower from its obligation under the mortgage loan. Enforcement of a
due-on-sale provision would result in repayment in full of the mortgage loan,
which would be treated as a prepayment.
You will bear any reinvestment risks resulting from a faster or slower
incidence of prepayments of the mortgage loans.
Consider carefully the discussion under "Yield, Prepayment and Maturity
Considerations--Prepayment Considerations and Risks" in this prospectus
supplement and under "Prepayment and Yield Considerations" and "Certain Legal
Aspects of the Loans--Due-on-Sale Clauses" in the accompanying prospectus.
DEFAULTS AND DELINQUENT PAYMENTS ON THE MORTGAGE LOANS COULD AFFECT YOUR YIELD.
If the spread account is depleted and the insurer fails to pay amounts
required under the certificate guaranty insurance policy, the yield to maturity
on your certificate will be sensitive to defaults and delinquent payments on the
mortgage loans in the applicable group. If the actual rate of defaults on the
mortgage loans in the applicable group and the actual amount of losses to the
trust fund upon liquidation of those mortgage loans is greater than the amounts
assumed by you in estimating the yield to maturity on your certificate, the
actual yield will be lower than your estimate. If the trust fund experiences
substantial losses, you may experience a loss. If the spread account is depleted
and the insurer fails to pay amounts required under the certificate guaranty
insurance policy, the timing of losses to the trust fund in connection with
liquidations of mortgage loans in the relevant group will affect the yield to
maturity on your certificate even if the rate of defaults and severity of such
losses are consistent with your expectations. In general, the earlier a loss
occurs, the greater effect it will have on the yield to maturity. There can be
no assurance as to the delinquency, foreclosure or loss experience with respect
to the mortgage loans.
PAYMENT DELAY LOWERS YOUR EFFECTIVE YIELD.
Generally, payments of principal and interest on the mortgage loans
received in any calendar month will not be passed through as payments on your
certificate until the distribution date in the following calendar month. As a
result, the monthly distributions on your certificate generally will reflect
mortgagor payments during the prior calendar month. The distribution date will
be the ____ day of each month (or the next succeeding business day), commencing
in _______________, ___. Thus, the effective yield to you will be below that
otherwise produced by the related pass-through rate and the price paid by you
for your Certificate because distributions on your certificate in respect of any
given month will not be made until on or about the _____ day of the following
month.
S-12
<PAGE>
BALLOON LOANS MAY BEAR HIGHER RISK OF LOSS.
Approximately ____% of the mortgage loans in Group I and approximately ___%
of the mortgage loans in Group II are balloon loans, which generally provide for
equal monthly payments and a final monthly payment substantially greater than
the preceding monthly payments. The balloon loans in the Trust Fund generally
have original terms of __ to __ years and provide for monthly payments based on
a __ to __ year amortization schedule. The mortgagor on a balloon loan will
generally attempt to refinance a balloon loan or sell the underlying mortgaged
property on or prior to the stated maturity date in order to avoid payment of
the final balloon payment. A mortgagor's ability 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 mortgage loan.
PROCEEDS OF LIQUIDATION OF MIXED USE LOANS MAY TAKE LONGER TO RECOVER.
Mixed use loans are mortgage loans secured by multi-family properties and
structures that include both residential dwelling units and space used for
retail, professional or other commercial uses. We expect that mixed use loans
will represent less than __ % of the mortgage loans in Group II. Group I will
not contain mixed use loans. Due to the limited market for the type of
properties securing mixed use loans, in the event of a foreclosure, we expect
that it will take longer to recover proceeds from the liquidation of a mixed use
loan than it would for a mortgage loan secured by a one- to four-family
dwelling.
SECOND LIENS MAY RESULT IN LOSSES IN FORECLOSURE PROCEEDINGS.
Mortgage loans representing approximately __% of the aggregate
outstanding principal balance of the mortgage loans in Group I and __% of the
aggregate outstanding principal balance of the mortgage loans in Group II on
[the cut-off date] are secured by second liens on the related mortgaged
properties. In most cases, the first lien mortgage related to a loan secured by
a second lien will not be included in the mortgage pool.
The proceeds from any liquidation, insurance or condemnation proceedings in
connection with the underlying mortgaged property will be available to satisfy
the outstanding balance of the related second mortgage only to the extent that
the claim of the related first mortgagee has been satisfied in full, including
any related foreclosure costs. In addition, the servicer, as second mortgagee on
the loans in its portfolio, may not foreclose on the property securing a second
mortgage unless it forecloses subject to the first mortgage, in which case it
must either pay the entire amount due on the first mortgage to the first
mortgagee at or prior to the foreclosure sale or advance funds to keep the first
mortgage current in the event the mortgagor is in default thereunder. The
servicer may, but is under no obligation to, advance funds in these
circumstances. The trust fund will not have any source of funds to satisfy
related first mortgages or make payments due to the first mortgagees.
DECREASE IN VALUE OF MORTGAGED PROPERTY WOULD DISPROPORTIONATELY AFFECT SECOND
LIENHOLDERS.
There are several factors that could adversely affect the value of
properties such that the outstanding balance of the related loan, together with
any senior financing on the properties, would equal or exceed the value of the
properties. Among the factors that could adversely affect the value of the
properties are an overall decline in the residential real estate market in the
areas in which the properties are located or a decline in the general condition
of the properties as a result of failure of borrowers to maintain adequately the
properties or of nature disasters that are not necessarily covered by insurance,
such as earthquakes and floods. Any such decline could extinguish the value of a
second interest in property before having any effect on the related first
interest therein. If such a decline occurs, the actual rates of delinquencies,
foreclosure and losses on the loans secured by second liens could be higher than
those currently experienced in the mortgage lending industry in general.
RATINGS OF THE CERTIFICATES RELATE TO CREDIT RISK ONLY.
The ratings of the certificates would be based on, among other things, the
adequacy of the value of the mortgage loans, the spread account and the
certificate guaranty insurance policy. These ratings should not be deemed a
recommendation to purchase, hold or sell certificates, since they do not address
market price or suitability for a particular investor. There is also no
assurance that these ratings will remain in effect for any given period of time
or may not be lowered or withdrawn entirely by the rating agency 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 mortgage loans
and the spread account, these ratings might also be lowered or withdrawn, among
other reasons, because of an adverse change in the financial or other condition
of the insurer or a change in the rating of the insurer's long term debt. Any
reduction or withdrawal of a rating will have an adverse effect on the value of
the certificates.
S-13
<PAGE>
BANKRUPTCY OR INSOLVENCY OF SELLERS OR DEPOSITOR; RECLASSIFICATION OF SALE OF
MORTGAGE LOANS AS FINANCING.
The servicer, the sellers and the depositor will treat each conveyance of
mortgage loans by the sellers to the depositor as a sale of those mortgage
loans. The depositor will treat each conveyance of mortgage loans from the
depositor to the trust fund as a sale of those mortgage loans. If the conveyance
of the mortgage loans by the sellers to the depositor is treated as a sale,
those mortgage loans would not be part of the related seller's bankruptcy estate
and would not be available to that seller's creditors. In the event of the
bankruptcy or insolvency of a seller, however, the bankruptcy trustee, a
conservator or a receiver of the seller or another person may attempt to
recharacterize the sale of the mortgage loans as a borrowing by the seller,
secured by a pledge of the mortgage loans. Similarly, if the conveyance of the
mortgage loans by the depositor to the trust fund is treated as a sale, those
mortgage loans would not be part of the depositor's bankruptcy estate and would
not be available to the depositor's creditors. In the event of the bankruptcy or
insolvency of the depositor, however, the bankruptcy trustee, a conservator or a
receiver of the depositor or another person may attempt to recharacterize the
sale of the mortgage loans as a borrowing by the depositor, secured by a pledge
of the mortgage loans. In either case, this position, if argued before or
accepted by a court, could prevent timely payments of amounts due on your
certificate and result in a reduction of payments due on your certificate.
MOST OF THE MORTGAGE LOANS ARE SECURED BY PROPERTIES LOCATED IN ONLY A FEW
STATES.
As of [the cut-off date]:
o approximately __%, __% and __% (by outstanding principal balance) of the
mortgage loans in Group I are secured by properties located in the State
of __________, the Commonwealth of __________ and the State of __________
respectively; and
o approximately __%, __% and __% (by outstanding principal balance) of the
mortgage loans in Group II are secured by properties located in the State
of _____________, the Commonwealth of __________________ and the
Commonwealth of _________________ respectively; and
o the aggregate outstanding principal balance of the mortgage loans secured
by properties in each other state represents not more than approximately
___% of the mortgage loans in either group.
If the ____________, ____________, ____________, or ____________ residential
real estate markets should experience an overall decline in property values
after the dates of origination of the mortgage loans, the rates of losses on the
mortgage loans would be expected to increase, and could increase substantially.
THE MORTGAGE POOL
GENERAL
The mortgage pool will consist of fixed rate mortgage loans (collectively,
the "Loans") divided into two groups, Group I and Group II. Both groups will
include mortgage loans secured by first or second liens on one- to four-family
dwellings (each, a "Residential Loan") and Group II will also include mortgage
loans secured by first liens on multi-family properties and structures which
include both residential dwelling units and space used for retail, professional
or other commercial uses (each, a "Mixed Use Loan"). We expect that Residential
Loans secured by one-family detached dwellings will represent approximately ___%
of the Loans in Group I and approximately ___% of the Loans in Group II. We
expect that Mixed Use Loans will represent less than ___% of the Loans in Group
II.
In addition, the Loans in Group I will conform to the following guidelines
of Fannie Mae and the Federal Home Loan Mortgage Corporation ("FHLMC"): at
origination
o each Loan in a first lien position had a principal balance not exceeding
$ _________ (or, in the case of a two- or more family dwelling,
$__________ and
o each Loan in a second lien position
o had a principal balance not exceeding $ __________ and
S-14
<PAGE>
o had a principal balance which, when added to the principal balance of the
related senior loan at such time, did not exceed $__________ in the
aggregate.
Equity One ABS, Inc. (the "Depositor") will purchase the Loans from
___________, __________, and ____________ (each a "Seller" and, collectively,
the "Sellers") pursuant to the Pooling and Servicing Agreement (the "Agreement")
dated as of __________, ____ (the "Cut-off Date") among the Sellers, Equity One,
Inc. (the "Servicer"), the Depositor and ______________ (the "Trustee"). The
Depositor will then convey the Loans in Group I and Group II, without recourse,
to the Trustee for the benefit of the holders of the Mortgage Pass-Through
Certificates, Series _______-____ (the "Certificates").
The Certificates will consist of the Class A-1 Certificates and the Class
A-2 Certificates (collectively, the "Class A Certificates") , and the Class R
Certificates. We are offering the Class A Certificates pursuant to this
Prospectus Supplement; we are not offering the Class R Certificates for sale to
investors. Subject to certain cross-collateralization provisions, the Class A-1
Certificates will represent an interest in the Group I Loans and the Class A-2
Certificates will represent an interest in the Group II Loans.
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. Subject to the limitations described below under "--Sale of the
Loans," the Sellers 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 they
selected the Loans from among the outstanding loans in their portfolios as to
which the representations and warranties set forth in the Agreement can be made
and that they did not make this selection in a manner that would adversely
affect the interests of _______________ (the "Insurer") or the
certificateholders. See "Loan Program--Representations by Sellers; Repurchases"
in the accompanying Prospectus. Under the Agreement, the Depositor will convey
all its right, title and interest in and to the Sellers' representations,
warranties and covenants, including the Sellers' repurchase obligation, to the
Trustee for the benefit of the Insurer and the certificateholders. The Depositor
will make no representations or warranties with respect to the Loans and will
have no obligation to repurchase or substitute Loans with deficient
documentation or which are otherwise defective. The Sellers are selling the
Loans without recourse and will have no obligation with respect to the
Certificates in their capacity as Sellers other than the repurchase obligation
described above. The obligations of Equity One, Inc., 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. 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. Information regarding FICO scores is
presented for informational purposes only. 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 in each of Group I and Group II as of the
Cut-off Date.
As of the close of business on the Cut-off Date,
o the aggregate of the Stated Principal Balances of the Loans in both
groups was $ ____________ (the "Cut-off Date Pool Principal Balance"),
o the aggregate of the Stated Principal Balances of the Loans in Group I
was $_______________ (the "Cut-off Date Group I Principal Balance") and
o the aggregate of the Stated Principal Balances of the Loans in Group II
was $______________ (the "Cut-off Date Group II Principal Balance").
Loans with balloon payments ("Balloon Loans") provide for payment based on the
amortization of the amount financed over a series of substantially equal monthly
payments, with a significantly greater payment due at the stated maturity of
approximately __ to __ years. As of the Cut-off Date, approximately __% of the
Group I Loans and approximately __% of the Group II Loans were Balloon Loans.
Balloon Loans 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").
S-15
<PAGE>
The Loans to be included in the mortgage pool were originated or acquired by the
Sellers substantially in accordance with the Sellers' underwriting criteria for
mortgage loans, described herein under "The Mortgage Pool--Underwriting
Standards" and under "Loan Program" in the Prospectus.
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. Approximately ___% of the Loans in Group I and
approximately ___% of the Loans in Group II provide for the actuarial accrual of
interest, with the remainder of the Loans in each group providing for simple
interest. All of the Loans provide for a grace period of ___ days for monthly
payments, as required by applicable law. All of the Loans may be prepaid in full
or in part at any time, most without penalty.
Each Loan in Group I was originated after __________, ____ and each Loan in
Group II was originated after __________, ____.
The latest stated maturity date of any Loan in Group I is __________, ____
and in Group II is __________, ____. The earliest stated maturity date of any
Loan in Group I is __________, ____ and in Group II is __________, ____.
As of the Cut-off Date, no Loan was ___ or more days delinquent.
No Loan had a Combined Loan-to-Value Ratio at origination of more than
__%. The weighted average Combined Loan-to-Value Ratio of the Loans in Group I
at the Cut-off Date was approximately __% and in Group II at the Cut-off Date
was approximately __%.
No borrower of a Loan had a FICO score (issued by the Fair Isaac Credit
Bureau with a higher score generally signifying a better credit history) of less
than ___________.
The "Combined Loan-to-Value Ratio" of a Loan is the fraction, expressed as
a percentage, the numerator of which is the principal balance of the Loan at the
date of origination plus, in the case of a Loan secured by a second lien, the
outstanding principal balance of the related first lien mortgage loan on the
date of origination of the second lien 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
o the appraised value based on an appraisal obtained by the originator
from an independent fee appraiser at the time of the origination of
the related Loan, and
o 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 the 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.
The following section, "Mortgage Pool Tables," sets forth in tabular format
certain information, as of the Cut-off Date, as to the Loans in each of Group I
and Group II. The sum of the columns in the tables below may not equal the total
indicated due to rounding.
S-16
<PAGE>
MORTGAGE POOL TABLES FOR GROUP I
<TABLE>
<CAPTION>
GROUP I MORTGAGE RATES(1)
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP I
MORTGAGE RATE (%) LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ------------------------- ------------------- --------------------------- --------------------------
<S> <C> <C> <C>
7.250 or less
7.251 - 7.500
7.501 - 7.750
7.751 - 8.000
8.001 - 8.250
8.251 - 8.500
8.501 - 8.750
8.751 - 9.000
9.001 - 9.250
9.251 - 9.500
9.501 - 9.750
9.751 - 10.000
10.001 - 10.250
10.251 - 10.500
10.501 - 10.750
10.751 - 11.000
11.001 - 11.250
11.251 - 11.500
11.751 - 12.000
12.001 or more
Totals 100%
===
</TABLE>
- --------------------
(1) As of the Cut-off Date, the weighted average mortgage rate of the Loans in
Group I was approximately _____%.
S-17
<PAGE>
GROUP I CURRENT LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP I
CURRENT LOAN AMOUNTS LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- -------------- ----------------------------- -------------------------
<S> <C> <C> <C>
$ 50,000.00 or less
$ 50,000.01 - $100,000.00
$100,000.01 - $150,000.00
$150,000.01 - $200,000.00
$200,000.01 - $250,000.00
$250,000.01 or more
Totals 100%
===
</TABLE>
- ---------------
(1) As of the Cut-off Date, the average current Loan principal balance in Group
I was $______________.
GROUP I FICO SCORES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP I
FICO SCORE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- -------------- ----------------------------- -------------------------
<S> <C> <C> <C>
Totals 100%
===
</TABLE>
S-18
<PAGE>
GROUP I STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF CLASS I
STATE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ------------------------- ------------------------ ---------------------------- ---------------------------
<S> <C> <C> <C>
Totals 100.00%
======
</TABLE>
- ----------------
(1) No more than approximately __% of the Loans in Group I will be secured by
mortgaged properties located in any one postal zip code area.
S-19
<PAGE>
GROUP I OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP I
OCCUPANCY TYPE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- -------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Non-Owner Occupied......
Owner Occupied..........
Totals 100.00%
======
</TABLE>
- ----------------
(1) Based upon representations of the related mortgagors at the time of
origination.
GROUP I REMAINING TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
REMAINING TERM TO
MATURITY NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP I
(MONTHS) LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ----------------------------- --------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
24 or less..........
25 - 36............
37 - 48............
49 - 60............
61 - 72............
73 - 84............
85 - 96............
97 - 108............
109 - 120............
121 - 132............
133 - 144............
145 - 156............
157 - 168............
169 - 180............
217 - 228............
229 - 240............
289 - 300............
337 - 348............
349 or more..........
Totals............... 100.00%
======
</TABLE>
- ----------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Loans in Group I was ______ months.
S-20
<PAGE>
GROUP I LIEN PRIORITIES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP I
LIEN PRIORITY MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ----------------------------- --------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
First.....................
Second....................
Totals 100.00%
======
</TABLE>
GROUP I DOCUMENTATION TYPE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP I
DOCUMENTATION MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ------------------------------ --------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
Full.......................
Alternative Income
Verification
No Income Verification
Totals 100.00%
======
</TABLE>
GROUP I COMBINED LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP I
RATIO MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ----------------------------- ---------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
20.00 or less............
20.01 - 30.00...........
30.01 - 40.00...........
40.01 - 50.00...........
50.01 - 60.00...........
60.01 - 70.00...........
70.01 - 80.00...........
80.01 - 90.00...........
90.01 or more
Totals 100.00%
======
</TABLE>
GROUP I CREDIT GRADES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP I
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ----------------------------- ---------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
A.............................
B.............................
Totals 100.00%
======
</TABLE>
S-21
<PAGE>
MORTGAGE POOL TABLES FOR GROUP II
GROUP II MORTGAGE RATES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP II
MORTGAGE RATE (%) LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ----------------------------- --------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
7.500 or less
7.501 - 7.750
7.751 - 8.000
8.001 - 8.250
8.251 - 8.500
8.501 - 8.750
8.751 - 9.000
9.001 - 9.250
9.251 - 9.500
9.501 - 9.750
9.751 - 10.000
10.001 - 10.250
10.251 - 10.500
10.501 - 10.750
10.751 - 11.000
11.001 - 11.250
11.251 - 11.500
11.751 or more
Totals 100.00%
======
</TABLE>
(1) As of the Cut-off Date, the weighted average mortgage rate of the Loans in
Group II was approximately ---%.
S-22
<PAGE>
GROUP II CURRENT LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP II
CURRENT LOAN AMOUNTS LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- ---------------- ------------------------- ---------------------------
<S> <C> <C> <C>
$ 50,000.00 or less
$ 50,000.01 - $100,000.00
$100,000.01 - $150,000.00
$150,000.01 - $200,000.00
$200,000.01 - $250,000.00
$250,000.01 - $300,000.00
$300,000.01 - $350,000.00
$350,000.01 - $400,000.00
$400,000.01 - $450,000.00
$450,000.01 - $500,000-00
$500,000.01 - $550,000.00
$550,000.01 - $600,000.00
$600,000.01 - $650,000.00
$650,000.01 - $700,000.00
$700,000.01 - $750,000.00
$800,000.01 or more
Totals 100.00%
======
</TABLE>
- ------------------
(1) As of the Cut-off Date, the average current Loan principal balance in
Group II was $______________.
GROUP II FICO SCORES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP II
FICO SCORE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- -------------- ----------------------------- -------------------------
<S> <C> <C> <C>
Totals 100%
===
</TABLE>
S-23
<PAGE>
GROUP II STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP II
STATE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- ---------------- ------------------------- ---------------------------
<S> <C> <C> <C>
Totals 100.00%
======
</TABLE>
- ----------------
(1) No more than approximately __% of the Loans in Group II will be secured by
mortgaged properties located in any one postal zip code area.
S-24
<PAGE>
GROUP II OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP II
OCCUPANCY TYPE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- ---------------- ------------------------- ---------------------------
<S> <C> <C> <C>
Non-Owner Occupied......
Owner Occupied..........
Totals 100.00%
======
</TABLE>
- --------------
(1) Based upon representations of the related mortgagors at the time of
origination.
GROUP II REMAINING TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY NUMBER OF AGGREGATE PRINCIPAL PERCENT OF GROUP II
(MONTHS) LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- ---------------------------------- ---------------- ------------------------- ---------------------------
<S> <C> <C> <C>
24 or less..........
25 - 36............
37 - 48............
49 - 60............
61 - 72............
73 - 84............
85 - 96............
97 - 108............
109 - 120............
157 - 168............
169 - 180............
229 - 240............
277 - 288............
289 - 300............
337 - 348............
349 or more..........
Totals............... 100.00%
=======
</TABLE>
- ----------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Loans in Group II was ______ months.
S-25
<PAGE>
GROUP II LIEN PRIORITIES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP II
LIEN PRIORITY MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ------------------------------- --------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
First.........................
Second........................
Totals 100.00%
======
</TABLE>
GROUP II DOCUMENTATION TYPE
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP II
DOCUMENTATION MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ------------------------------- --------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
Full.......................
Alternative Income
Verification
No Income Verification
Totals 100.00%
======
</TABLE>
GROUP II COMBINED LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP II
RATIO MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ------------------------------ ---------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
30.00 or less...........
30.01 - 40.00...........
40.01 - 50.00...........
50.01 - 60.00...........
60.01 - 70.00...........
70.01 - 80.00...........
80.01 or more...........
Totals 100.00%
======
</TABLE>
GROUP II CREDIT GRADES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE UNPAID PERCENT OF GROUP II
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE (BY PRINCIPAL BALANCE)
- ------------------------------ ---------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
A.............................
B.............................
Totals 100.00%
======
</TABLE>
S-26
<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, 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 and pursuant to the requirements of the
Agreement, the Depositor will deliver or cause to be delivered to the Trustee,
or a custodian for the Trustee, among other things,
o the original promissory note (the "Mortgage Note") (and any
modification or amendment thereto) endorsed to the Trustee without
recourse,
o the original instrument creating a first or second lien on the related
mortgaged property (the "Mortgage") with evidence of recording
indicated thereon,
o the title policy with respect to the related mortgaged property,
o 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 are
available to the Depositor), and
o an original recorded assignment of the Mortgage to the Trustee, once
returned from the public recording office (the items listed in this
bullet and the four bullets above are collectively referred to as 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. 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 the defect within 90 days of notice thereof from the Trustee, or within
such longer period not to exceed 2 years after the Closing Date as provided in
the Agreement in the case of missing documents not returned from the public
recording office, that 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 the Loan (a "Deleted Loan") from the Trust Fund and substitute in its
place another mortgage loan (a "Replacement Loan"). However, 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 the
substitution will not disqualify the REMIC or result in a prohibited transaction
tax under the Internal Revenue Code of 1986, as amended (the "Code").
Any Replacement Loan generally will, on the date of substitution, among
other characteristics set forth in the Agreement,
o have a Stated Principal Balance not in excess of, and not more than
10% less than, the Stated Principal Balance of the Deleted Loan (the
Stated Principal Balances to be measured as of the respective Due
Dates in the month of substitution, and 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")),
o have a mortgage rate not lower than, and not more than 1% per annum
higher than, that of the Deleted Loan,
o have a Combined Loan-to-Value Ratio not higher than that of the
Deleted Loan,
o have a debt-to-income ratio no higher than that of the Deleted Loan,
o have been originated pursuant to the same underwriting standards as
the Deleted Loan,
o have a remaining term to maturity not greater than (and not more than
one year less than) that of the Deleted Loan and
S-27
<PAGE>
o 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"); provided, however, that all
Loans to be included in the mortgage pool have been underwritten by Equity One's
Central Credit office in accordance with the Equity One Standards.
[Through its bulk purchase program, each Seller also purchases mortgage
loans that have been originated and closed by other lenders. Sellers purchase
mortgage loans in blocks ranging from $1,000,000 to $20,000,000. Prior to
funding any bulk purchase, each loan package is underwritten in accordance with
the Equity One Standards. Bulk purchased loans represent approximately __% of
the Loans in Group I and __% of the Loans in Group II as of the Cut-off Date.]
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 represent approximately
o __% of the Loans in Group I and
o __% of the Loans in Group II as of the Cut-off Date.
Grade B Credits Loans represent approximately
o __% of the Loans in Group I and
o __% of the Loans in Group II as of the Cut-off Date.
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 these determinations. We expect that some of the Loans included in
the mortgage pool will have been originated based on such underwriting
exceptions. Overall, the Sellers' goal 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 the Full Doc, the NIV or
the AIV loan documentation program to verify a borrower's income. See "Specific
Underwriting Criteria; Underwriting Programs" in the Prospectus.
o Approximately __% of the Loans in Group I and __% of the Loans in
Group II will be underwritten pursuant to the Full Doc program.
S-28
<PAGE>
o Approximately __ % of the Loans in Group I and __% of the Loans in
Group II will be underwritten pursuant to the NIV program.
o Approximately __ % of the Loans in Group I and __% of the Loans in
Group II will be underwritten pursuant to the AIV 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
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 [, except appraisals relating to
mortgages acquired through bulk purchases.] 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 or AIV 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 (1) the principal balance of the Loan or, if the loan is
secured by a second lien, the aggregate principal balance of such Loan and the
prior loan, and (2) the maximum insurable value of the improvements on the
mortgaged property.
SERVICING OF LOANS
GENERAL
The Servicer will service the Loans in accordance with the terms set forth
in the Agreement. The Servicer may perform any of its obligations under the
Agreement through one or more sub-servicers. Notwithstanding any sub-servicing
arrangement, the Servicer will remain liable for its servicing duties and
obligations under the Agreement as if the Servicer alone were servicing the
Loans. As of the Closing Date, the Servicer does not intend to service the Loans
with sub-servicing arrangements.
The Sellers have provided the information set forth in the following
sections through and including the section captioned "Foreclosure, Delinquency
and Loss Experience."
THE SERVICER
Equity One, Inc. ("Equity One"), a Delaware corporation and a wholly-owned
operating subsidiary of Popular North America, Inc., a Delaware corporation,
will act as the Servicer of the Loans pursuant to the Agreement. Equity One is
engaged primarily in the mortgage banking and consumer lending business, and as
such, originates, purchases, sells and services mortgage and consumer loans.
Equity One is a Fannie Mae approved lender. Equity One originates loans through
a retail branch system and through loan brokers and correspondents nationwide.
Equity One's loans are principally
o first- and second-lien, fixed or adjustable rate mortgage loans
secured by
o one- to four-family dwellings or
o multi-family properties and structures which include both residential
dwelling units and space used for retail, professional or other
commercial uses, and
o secured or unsecured consumer loans.
As of ______________, _____, Equity One and its subsidiaries provided
servicing for approximately mortgage loans (including mortgage loans serviced
for third parties) having an aggregate unpaid principal balance of approximately
$______________.
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 subsidiaries, from offices throughout the nation.
S-29
<PAGE>
LOAN SERVICING
Equity One services substantially all of the mortgage loans originated
or acquired by the Sellers, and also services mortgage loans for third parties
such as the Trust Fund to which the Sellers transfer mortgage loans originated
or acquired by them from time to time. Equity One has established standard
policies for the servicing and collection of mortgage loans. Servicing includes,
but is not limited to, collecting and remitting mortgage loan payments,
accounting for principal and interest, preparation of tax related information in
connection with the mortgage loans, supervision of delinquent mortgage loans,
making inspections as required of the mortgaged properties, loss mitigation
efforts, foreclosure proceedings and, if applicable, the disposition of
mortgaged properties, and generally administering the mortgage loans, for which
it receives servicing fees.
COLLECTION PROCEDURES
When a mortgagor fails to make a payment on a mortgage loan, the Servicer
contacts the mortgagor in an attempt to get the mortgagor to cure the
deficiency. Pursuant to its servicing procedures, the Servicer generally mails
to the mortgagor a notice of intent to foreclose after the mortgage loan becomes
45 days past due (two payments due but not received). Within 45 days thereafter,
if the mortgage loan remains delinquent, the Servicer will institute appropriate
legal action to foreclose on the mortgaged property. The Servicer may terminate
these foreclosure proceedings if the mortgagor cures the delinquency. Mortgage
loans to borrowers in bankruptcy proceedings may be restructured in accordance
with law and with a view to maximizing recovery on these mortgage loans,
including any deficiencies.
Once foreclosure is initiated, the Servicer uses a foreclosure tracking
system 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 Servicer determines the amount of the
foreclosure bid and whether to liquidate the mortgage loan.
After foreclosure, the Servicer may liquidate the mortgaged property and
charge-off the portion of the mortgage loan balance that was not recovered as
part of Liquidation Proceeds. If foreclosed, the mortgaged property is sold at a
public or private sale and may be purchased by the Servicer.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the business judgment of the
Servicer, 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
mortgage loans owned and serviced by Equity One and its subsidiaries at or for
the years specified therein. A mortgage 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 mortgage loans 60 days or more past
due on a contractual basis and includes mortgage loans where the mortgage loan
is in foreclosure or the borrower has filed for bankruptcy, but excludes
mortgage loans which are real estate owned. You should not consider this
information 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 first paragraph below the table will be
indicative of the actual foreclosure experience on the Loans.
S-30
<PAGE>
LOSS AND DELINQUENCY TABLE(1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
At or for the Year Ended At or for the At or for the
November 30, ________ Months ________ Months
Ended _________ Ended _______
-------------------------- ---------------- ---------------
<S> <C> <C> <C>
Portfolio Unpaid
Principal Balance(2)
Average Portfolio
Unpaid Principal
Balance(3)
60+ Days Delinquent(4)
Real Estate Owned(5)
Total Credit Losses(6) (7) (7)
</TABLE>
- -----------------
(1) This table includes only mortgage loans owned and serviced by Equity
One and its subsidiaries and real estate owned by Equity One and its
subsidiaries.
(2) Portfolio Unpaid Principal Balance is the net amount of principal to be
paid on each mortgage loan, excluding unearned finance charges and
other charges, and excludes the principal balance of each mortgage loan
as to which the related mortgaged property had been acquired through
foreclosure or deed in lieu of foreclosure by such date.
(3) Average Portfolio Unpaid Principal Balances are calculated by summing
monthly Portfolio Unpaid Principal Balances and dividing by the number
of months summed (i.e., twelve (12) in the case of the annual figures
and three (3) in the case of the quarterly figures).
(4) Delinquency percentages are calculated as the dollar amount of mortgage
loan principal delinquent as a percentage of the Portfolio Unpaid
Principal Balance. Delinquency percentages do not include the principal
balance of mortgage loans as to which the related mortgaged property
had been acquired through foreclosure or deed in lieu of foreclosure by
such date. Delinquency percentages are only available for mortgage
loans that are delinquent for a period of 60 days or more.
(5) Real estate owned represents the aggregate estimated fair value of the
properties acquired through foreclosure or deed in lieu of foreclosure.
The ____, _____ balance also includes properties securing mortgage
loans which had been in substance, but not legally, foreclosed by such
date.
(6) Total Credit Losses includes charge-offs of principal, net of
subsequent recoveries, relating to mortgage loans written off as
uncollectible. It does not include (a) losses incurred upon transfer of
mortgage loans to real estate owned and subsequent write downs of real
estate owned balances, (b) expenses associated with maintaining,
repairing, and selling foreclosed properties and real estate owned and
(c) losses (gains) on the disposition of real estate owned.
(7) Annualized.
S-31
<PAGE>
Historically, a variety of factors, including the appreciation of real
estate values, have limited the loss and delinquency experience on mortgage
loans. There can be no assurance that factors beyond the Servicer'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.
IMPACT OF THE YEAR 2000
The Year 2000 issue is the result of many computer programs that were
written using two digits rather than four to define the applicable year. Any
information technology ("IT") systems or non-IT systems (primarily embedded
systems and components) used by the Servicer, its affiliates or any of their
suppliers or outside service providers may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations, causing disruption of operations including, among other things,
a temporary inability to process transactions or engage in normal business
activities.
The Servicer and its affiliates have assigned certain individuals to
identify and correct Year 2000 compliance issues. IT systems with non-compliant
code are expected to be modified or replaced with systems that are Year 2000
compliant. Similar actions are being taken with respect to non-IT systems. These
individuals are also responsible for investigating the readiness of suppliers,
service providers and other third parties along with the development of
contingency plans where necessary.
All IT systems have been inventoried and assessed for compliance, and
detailed plans are in place for required system modifications or replacements.
Remediation and testing activities are underway with approximately ___% of the
systems already compliant. These systems are expected to be fully compliant by
__________________. Progress of the Year 2000 compliance program is continuously
being monitored by senior management.
The Servicer has identified critical suppliers, service providers and other
third parties and has surveyed their Year 2000 compliance programs. Risk
assessments and contingency plans, where necessary, will be finalized in
_________________.
Incremental costs of the Servicer directly related to Year 2000 issues are
estimated to be insignificant to the overall operating expenses of the company
between 1998 and 2000. Approximately ___% of the total estimated spending for
the Year 2000 represents costs to modify existing systems. This estimate assumes
that the Servicer will not incur significant Year 2000 related costs on behalf
of suppliers, service providers or other third parties.
The Servicer's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Servicer anticipates no major
interruption of its business activities, that will be dependent in part on the
ability of third parties to properly remediate their IT and non-IT systems in a
timely manner. Although the Servicer has implemented the actions described above
to address third party issues, it has no ability to influence the compliance
actions of those parties. Accordingly, while the Servicer believes its actions
in this regard should have the effect of reducing Year 2000 risks, it is unable
to eliminate them or estimate the ultimate effect Year 2000 risks will have on
its operating results.
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 the Loan multiplied by the Servicing Fee Rate (such
product, the "Servicing Fee"). The "Servicing Fee Rate" for each Loan will equal
___% per annum. Notwithstanding the foregoing, on each Distribution Date after
the Optional Termination Date, the Servicer will reduce its Servicing Fee to the
extent necessary to maintain the weighted average of the Adjusted Net Mortgage
Rates on the Loans in Group I at least equal to ____% and the weighted average
of the Adjusted Net Mortgage Rates on the Loans in Group II at least equal to
____%.
The "Adjusted Net Mortgage Rate" of any Loan is its mortgage rate, less the
sum of the Servicing Fee Rate, the per annum rate on each Loan payable to the
Trustee and the rate at which the Insurer's Monthly Premium accrues. The amount
of the monthly Servicing Fee may also be adjusted with respect to prepaid Loans,
as described herein under "--Adjustment to Servicing Fee in Connection with
Certain Prepaid Loans."
S-32
<PAGE>
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 Agreement.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID LOANS
When a borrower prepays a Loan between Due Dates, the borrower only has to
pay interest on the amount prepaid through the date of prepayment and not
thereafter. Except with respect to the initial Prepayment Period, principal
prepayments by borrowers on Loans in a particular Group received by the Servicer
from the first day through the fifteenth day of a calendar month will be
distributed to certificateholders of the related class of Certificates on the
Distribution Date in the same month in which such prepayments are received.
Accordingly, there will be no shortfall in the amount of interest to be
distributed to those certificateholders with respect to those prepaid Loans.
Conversely, principal prepayments by borrowers on Loans in a particular
Group 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 of the related class on
the Distribution Date in the month following the month of receipt. Accordingly,
there will be a shortfall in the amount of interest to be distributed to those
certificateholders with respect to those prepaid Loans.
Pursuant to the Agreement, the Servicing Fee for any month will be reduced,
up to the full amount of the Servicing Fee, in order to pass through to
certificateholders the interest to which they would be entitled in respect of
each prepaid Loan on the related Distribution Date. If the amount of shortfalls
in interest resulting from prepayments exceeds the amount of the Servicing Fee
otherwise payable on the related Distribution Date, the amount of interest to
which certificateholders will be entitled 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 (any such advance, an "Advance") prior to each Distribution Date, from
its own funds or funds in the Certificate Account that are not Available Funds
for that Distribution Date, an amount equal to
o the aggregate of payments of principal and interest on the Loans, net
of the Servicing Fee with respect to those Loans, which were due on
the Due Date in the calendar month preceding the month of that
Distribution Date and which were still delinquent on the Determination
Date in the month of such Distribution Date, plus
o interest on each Loan as to which the Trust Fund has acquired the
related mortgaged property through foreclosure or deed-in-lieu of
foreclosure ("REO Property").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Class A Certificates rather than to guarantee or
insure against losses. The Servicer only has to make Advances with respect to
delinquent payments of principal of or interest on each Loan to the extent that
the 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 decides on any Determination Date to make an Advance on a
Loan, that Advance will be included with the distribution on the related
Distribution Date to holders of Class A-1 Certificates, if the Advance was made
on a Group I Loan, or holders of Class A-2 Certificates, if the Advance was made
on a Group II Loan. Failure by the Servicer to make an Advance required under
the Agreement with respect to the Class A Certificates will be an Event of
Default thereunder, in which case the Trustee or the successor servicer will be
obligated to make that Advance, in accordance with the terms of the Agreement.
S-33
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trust Fund will issue the Certificates pursuant to the Agreement. Set
forth below are descriptions of the material terms and provisions pertaining to
the issuance of the Certificates. When this document refers to particular
provisions or terms used in the Agreement, the actual provisions, including
definitions of terms, are incorporated in this document by reference.
The Mortgage Pass-Through Certificates, Series ___-__, will consist of the
Class A-1 and Class A-2 Certificates (collectively, the "Class A Certificates"),
and the Class R Certificates (together with the Class A Certificates, the
"Certificates"). This document only offers the Class A Certificates. The classes
of Class A Certificates will have the respective initial Class Certificate
Balances and Pass-Through Rates set forth or described on the cover page hereof,
except that the Pass-Through Rates for the Class A-1 and Class A-2 Certificates
will be subject to an increase as described under "--Interest." The Class R
Certificates, which are not being offered hereby, may be sold at any time on or
after the Closing Date in accordance with the Agreement.
The "Class Certificate Balance" of any class of Certificates as of any
Distribution Date is the initial aggregate principal balance thereof reduced by
all amounts previously distributed to holders of Certificates of that class as
payments of principal.
The Class A Certificates will have an initial aggregate principal balance
of approximately $_____________ and will initially evidence in the aggregate a
beneficial ownership interest of approximately 100% in the principal of the
Trust Fund. The Class A-1 Certificates will have an initial aggregate principal
balance of approximately $_____________ and will initially evidence in the
aggregate a beneficial ownership interest of approximately 100% of the principal
of the Group I Loans. The Class A-2 Certificates will have an initial aggregate
principal balance of approximately $_______________ and will initially evidence
in the aggregate a beneficial ownership interest of approximately 100% of the
principal of the Group II Loans. The Trust Fund will initially issue the Class A
Certificates in book-entry form.
BOOK-ENTRY CERTIFICATES
The Trust Fund will issue each class of Class A Certificates in one or more
certificates that equal the aggregate initial Class Certificate Balance of that
class of Certificates and which will be held by a nominee of The Depository
Trust Company ("DTC"). Investors will hold beneficial interests in the Class A
Certificates indirectly through the book-entry facilities of DTC, as described
herein. Investors may hold their beneficial interests in the Class A
Certificates in minimum denominations representing an original principal amount
of $25,000 and integral multiples of $1 in excess thereof. One investor of each
class of Class A Certificates may hold a beneficial interest therein that is not
an integral multiple of $1. DTC has informed the Depositor that its nominee will
be Cede & Co. ("Cede"). Accordingly, Cede is expected to be the holder of record
of the Class A Certificates. Except as described in the Prospectus under
"Description of the Certificates--Book-Entry Certificates," no person acquiring
a Class A Certificate (each, a "Beneficial Owner") will be entitled to receive a
physical certificate representing that Certificate (a "Definitive Certificate").
Unless and until Definitive Certificates are issued, it is anticipated that
the only certificateholder of the Class A Certificates will be Cede, as nominee
of DTC. Beneficial Owners of the Class A Certificates will not be
"Certificateholders," as that term is used in the Agreement. Beneficial Owners
are only permitted to exercise the rights of certificateholders directly 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 Class A
Certificates of those Beneficial Owners are credited.
For a description of the book-entry procedures generally applicable to the
Class A 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") that will be maintained for the benefit of the
Trustee on behalf of the certificateholders and the Insurer. Funds credited to
the Certificate Account may be invested for the benefit and at the risk of the
S-34
<PAGE>
Servicer in Permitted Investments that are scheduled to mature on or prior to
the business day preceding the next Distribution Date. "Permitted Investments"
will be specified in the Agreement and will be limited to the types of
investments described in the Prospectus under "Credit Enhancement--Reserve
Accounts."
All payments in respect of principal and interest, net of the related
Servicing Fee, on the Loans received by the Servicer subsequent to the Cut-off
Date, other than principal and interest due on the Loans on or before the Cutoff
Date, including Insurance Proceeds and Liquidation Proceeds, net of Liquidation
Expenses, are required to be paid into the Certificate Account not later than
the next Business Day following receipt thereof. The Servicer may retain as
additional servicing compensation 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.
On or prior to the business day immediately preceding each Distribution
Date, the Servicer will withdraw from the Certificate Account the amount of
Distributable Funds with respect to each of the Class A-1 Certificates and Class
A-2 Certificates (the "Class A-1 Distributable Funds" and "Class A-2
Distributable Funds," respectively), and will deposit these amounts in an
account established and maintained by the Trustee for the benefit of the
certificateholders and the Insurer (the "Distribution Account").
DISTRIBUTIONS
A. On each Distribution Date, the Trustee will distribute the following
amounts from Class A-1 Distributable Funds (provided that the Trustee may only
use any Spread Account Draw and Insured Amounts for the items listed in clauses
(4) and (5) below and the Trustee may only use any amounts received pursuant to
clause (B)(6) below for the items listed in clauses (1) through (5) below), to
the extent available, to the parties and in the priorities indicated:
(1) first, to the Insurer, the Insurer's Monthly Premium based upon
the Class Certificate Balance of the Group I Loans;
(2) second, to the Trustee, any amounts then due and owing
representing fees of the Trustee based upon the Class Certificate Balance
of the Group I Loans;
(3) third, to the Servicer, an amount equal to the sum of (a) the
Servicing Fee relating to the Group I Loans, except to the extent
previously paid with permitted withdrawals from the Certificate Account,
and (b) any other amounts expended by the Servicer in connection with Group
I Loans and reimbursable thereto under the Agreement but not previously
reimbursed;
(4) fourth, to the Class A-1 Certificates, the related Interest
Distribution Amount;
(5) fifth, to the Class A-1 Certificates, an amount equal to the
lesser of (a) the Class A-1 Certificate Formula Principal Amount or (b) the
amount necessary to reduce the Class Certificate Balance of the Class A-1
Certificates to zero;
(6) sixth, to the Class A-2 Certificates to fund any Class A-2
Available Funds Shortfall;
(7) seventh, to the Insurer, any I&I Payments then due and owing
except to the extent previously paid pursuant to clause B(7) below; and
(8) eighth, for deposit into the Spread Account, all remaining
Available Funds with respect to the Class A-1 Certificates.
B. On each Distribution Date, the Trustee will distribute the following
amounts from Class A-2 Distributable Funds (provided that the Trustee may only
use any Spread Account Draw and Insured Amounts for the items listed in clauses
(4) and (5) below and the Trustee may only use any amounts received pursuant to
clause (A)(6) above for the items listed in clauses (1) through (5) below), to
the extent available, to the parties and in the priorities indicated:
(1) first, to the Insurer, the Insurer's Monthly Premium based upon
the Class Certificate Balance of the Group II Loans;
S-35
<PAGE>
(2) second, to the Trustee, any amounts then due and owing
representing fees of the Trustee based upon the Class Certificate Balance
of the Group II Loans;
(3) third, to the Servicer, an amount equal to the sum of (a) the
Servicing Fee relating to the Group II Loans, except to the extent
previously paid with permitted withdrawals from the Certificate Account,
and (b) any other amounts expended by the Servicer in connection with Group
II Loans and reimbursable thereto under the Agreement but not previously
reimbursed;
(4) fourth, to the Class A-2 Certificates, the related Interest
Distribution Amount;
(5) fifth, to the Class A-2 Certificates, an amount equal to the
lesser of (a) the Class A-2 Certificate Formula Principal Amount or (b) the
amount necessary to reduce the Class Certificate Balance of the Class A-2
Certificates to zero;
(6) sixth, to the Class A-1 Certificates to fund any Class A-1
Available Funds Shortfall;
(7) seventh, to the Insurer, any I&I Payments then due and owing
except to the extent previously paid pursuant to clause A(7) above; and
(8) eighth, for deposit into the Spread Account, all remaining
Available Funds with respect to the Class A-2 Certificates.
C. On each Distribution Date, following all distributions made pursuant to
clauses (A) and (B) above, the Trustee will distribute any Spread Account Excess
in the Spread Account to the Class R certificateholders.
The Trustee will make Distributions on the Certificates on the ____ day of
each month, or if such day is not a business day, on the first business day
thereafter, commencing in ________________, ____ (each, a "Distribution Date"),
to the persons in whose names the Certificates are registered at the close of
business (1) on the business day immediately preceding that Distribution Date
unless and until any of the Certificates are issued as physical certificates and
(2) while any physical certificates are outstanding, on the last business day of
the calendar month immediately preceding that 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 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 that certificateholder at a bank or other
depository institution having appropriate wire transfer facilities. However, the
final distribution in retirement of the Certificates will be made only upon
presentment and surrender of the Certificates at the Corporate Trust Office of
the Trustee.
On any Distribution Date, the amount available for distribution to the
Class A-1 Certificates generally will equal the sum of
o Available Funds relating to the Class A-1 Certificates,
o any Available Funds relating to the Class A-2 Certificates remaining
after payment of the amounts required to be distributed pursuant to
clauses (B)(1) through (B)(5) above,
o any amount (the "Spread Account Draw") available from the spread
Account for the Class A-1 Certificates and
o any Insured Amounts for the Class A-1 Certificates (collectively,
"Class A-1 Distributable Funds").
On any Distribution Date, the amount available for distribution to the
Class A-2 Certificates generally will equal the sum of
o Available Funds relating to the Class A-2 Certificates,
S-36
<PAGE>
o any Available Funds relating to the Class A-1 Certificates remaining
after payment of the amounts required to be distributed pursuant to
clauses (A)(1) through (A)(5) above,
o any amount (the "Spread Account Draw") available from the spread
Account for the Class A-2 Certificates and
o any Insured Amounts for the Class A-2 Certificates (collectively,
"Class A-2 Distributable Funds").
"Available Funds" with respect to any Distribution Date and either the
Class A-1 Certificates or Class A-2 Certificates will be equal to the sum of
o all scheduled installments of interest and principal on the Group I
Loans, with respect to the Class A-1 Certificates, or the Group II
Loans, with respect to the Class A-2 Certificates, (each an
"Applicable Group") due on the Due Date in the calendar month
preceding the month in which that Distribution Date occurs and
received prior to the related Determination Date, together with any
Advances in respect thereof;
o all proceeds of any primary mortgage guaranty insurance policies and
any other insurance policies with respect to the Applicable Group of
Loans, to the extent those 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 in the Applicable Group, by foreclosure or otherwise (together
with Insurance Proceeds, "Liquidation Proceeds") during the calendar
month preceding the month of that Distribution Date (in each case, net
of unreimbursed expenses incurred in connection with a liquidation or
foreclosure and unreimbursed Advances, if any);
o all partial or full prepayments received on Loans in the Applicable
Group during the period from the sixteenth day of the calendar month
preceding the month of that Distribution Date, or, in the case of the
first Distribution Date, from the Cut-off Date, through the fifteenth
day of the month of that Distribution Date (the "Prepayment Period");
and
o amounts received with respect to that Distribution Date as the
Substitution Adjustment Amount or purchase price in respect of a
Deleted Loan in the Applicable Group or a Loan in the Applicable Group
repurchased by a Seller or the Servicer as of that 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.
The "Class A-1 Available Funds Shortfall" with respect to any Distribution
Date will equal the amount, if any, by which Available Funds relating to the
Class A-1 Certificates for that Distribution Date is less than the aggregate
amount required to be distributed pursuant to clauses (A)(1) through (A)(5)
above. The "Class A-2 Available Funds Shortfall" with respect to any
Distribution Date will equal the amount, if any, by which Available Funds
relating to the Class A-2 Certificates for that Distribution Date is less than
the aggregate amount required to be distributed pursuant to clauses (B)(1)
through (B)(5) above.
PRIORITY OF DISTRIBUTION AMONG CERTIFICATES
As more fully described under "Description of the Certificates--Interest"
and "--Principal," the Trustee will make distributions on the Certificates on
each Distribution Date in the following order of priority: (1) to interest on
the Class A Certificates and (2) to principal on the Class A Certificates,
subject to the priorities set forth herein under "--Principal." As described
herein, after payment of such amounts to the Class A certificateholders, certain
amounts may be distributed on the Class R Certificates. See "Description of the
Certificates--Principal--Residual Certificates."
INTEREST
The Class A Certificates will accrue interest at the respective
Pass-Through Rates set forth on the cover page hereof, except that with respect
to any Distribution Date after the date on which the Servicer has the option to
S-37
<PAGE>
purchase, in whole, the Loans and the REO Property, if any, in the Trust Fund at
that time (as described under "--Optional Termination"), the Pass-Through Rates
for the Class A-1 and Class A-2 Certificates will increase to ___% per annum and
___% per annum, respectively.
On each Distribution Date, to the extent of funds available therefor, the
Class A Certificates will be entitled to receive interest in an amount equal to
the Interest Distribution Amount with respect to the related Interest Accrual
Period. The "Interest Distribution Amount" for each class of Class A
Certificates will be equal to the sum of (1) the amount of interest accrued at
the Pass-Through Rate for that class on the related Class Certificate Balance,
less the amount of Net Interest Shortfalls applicable to that class, as
described below, and (2) the sum of the amounts, if any, by which the amount
described in clause (1) above on each prior Distribution Date exceeded the
amount actually distributed to that class as interest on that Distribution Date
and not subsequently distributed ("Class Unpaid Interest Amounts").
With respect to each Distribution Date, the "Interest Accrual Period" will
be the calendar month preceding the month of that Distribution Date.
The interest entitlement described above for each class of Class A
Certificates for any Distribution Date will be reduced by the amount of Net
Interest Shortfalls applicable to that class. With respect to any Distribution
Date and either the Class A-1 Certificates or Class A-2 Certificates, "Net
Interest Shortfalls" is an amount equal to the sum of (1) the aggregate amount
of interest that would otherwise have been received with respect to each Loan in
the Applicable Group that was the subject of a Relief Act Reduction during the
calendar month preceding the month of that Distribution Date and (2) any Net
Prepayment Interest Shortfalls with respect to the Applicable Group and that
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 and either
the Class A- 1 Certificates or Class A-2 Certificates, a "Net Prepayment
Interest Shortfall" is the amount by which the aggregate of Prepayment Interest
Shortfalls with respect to the Applicable Group during the calendar month
preceding the month of that Distribution Date exceeds the aggregate amount
payable on that Distribution Date by the Servicer with respect to that Group of
Loans 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, net of the Servicing Fee Rate, on the Stated Principal Balance of that
Loan.
Subject to the terms of the Policy, any interest losses allocable to the
Class A Certificates will be covered under the Policy. Notwithstanding the
foregoing, if payments are not made as required under the Policy, any such
interest losses may be allocated to the Class A Certificates.
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of the Class A Certificates, on the basis of the related
Class Certificate Balance immediately prior to that Distribution Date. Interest
will be calculated and payable on the basis of a 360-day year divided into
twelve 30-day months.
Any Unpaid Interest Amount will be carried forward and added to the amount
holders of each such class of Class A Certificates will be entitled to receive
on the next Distribution Date. Such a shortfall could occur, for example, if
losses realized on the Loans in the Applicable Group were exceptionally high or
were concentrated in a particular month. Any Unpaid Interest Amount so carried
forward will not bear interest.
PRINCIPAL
Class A Certificates. On each Distribution Date, the Trustee will
distribute the Certificate Formula Principal Amount applicable to each of the
Class A-1 Certificates and Class A-2 Certificates (the "Class A-1 Certificate
Formula Principal Amount" and "Class A-2 Certificate Formula Principal Amount,"
respectively) as a payment of principal on each class of Certificates, in each
case to the extent of the amount of funds available for the distribution of
principal on each class.
The "Certificate Formula Principal Amount" for any Distribution Date and
with respect to either the Class A-1 Certificates or Class A-2 Certificates will
equal the sum of
S-38
<PAGE>
o the principal portion of each Scheduled Payment due on each Loan in
the Applicable Group on that Loan's Due Date in the calendar month
preceding the month of that Distribution Date,
o the Stated Principal Balance of each Loan in the Applicable Group that
was repurchased by a Seller or another person pursuant to the
Agreement as of that Distribution Date,
o the Substitution Adjustment Amount in connection with any Deleted Loan
from the Applicable Group received with respect to that Distribution
Date,
o any Insurance Proceeds or Liquidation Proceeds allocable to recoveries
of principal of Loans in the Applicable Group that are not yet
Liquidated Loans received during the calendar month preceding the
month of that Distribution Date,
o with respect to each Loan in the Applicable Group that became a
Liquidated Loan during the calendar month preceding the month of that
Distribution Date, the amount of Liquidation Proceeds allocable to
principal received during the month preceding the month of that
Distribution Date with respect to that Loan,
o all partial and full principal prepayments by borrowers on Loans in
the Applicable Group received during the related Prepayment Period,
and
o the principal portion of any Loan Losses on Loans in the Applicable
Group incurred during the calendar month preceding the month of that
Distribution Date.
"Liquidated Loan" means, with respect to any Distribution Date, a defaulted
Loan, including any REO Property, which was liquidated in the calendar month
preceding the month of that Distribution Date and as to which the Servicer has
determined, in accordance with the Agreement, that it has received all amounts
it expects to receive in connection with the liquidation of that Loan, including
the final disposition of an REO Property.
"Loan Losses" means the aggregate amount, if any, by which (1) the
outstanding principal balance of each Loan that became a Liquidated Loan during
the calendar month preceding the month of the related Distribution Date (that
principal balance determined immediately before that Loan became a Liquidated
Loan) exceeds (2) the Liquidation Proceeds allocable to principal received
during the calendar month preceding the month of the related Distribution Date
in connection with the liquidation of that Loan which have not theretofore been
used to reduce the Stated Principal Balance of that Loan.
"Stated Principal Balance" means as to any Loan and Due Date, the unpaid
principal balance of that Loan as of that Due Date, as specified in the
amortization schedule at the time relating thereto, before any adjustment to
that amortization schedule by reason of any moratorium or similar waiver or
grace period, after giving effect to any previous partial prepayments and
Liquidation Proceeds allocable to principal, other than with respect to any
Liquidated Loan, received and to the payment of principal due on such
Distribution Date and irrespective of any delinquency in payment by the related
mortgagor. The "Group Principal Balance" of either the Group I Loans or Group II
Loans with respect to any Distribution Date equals the aggregate of the Stated
Principal Balances of the Loans outstanding in the relevant group, including
Loans in foreclosure and REO Properties, on their Due Dates in the month
preceding the month of that Distribution Date. The "Pool Principal Balance" with
respect to any Distribution Date equals the sum of the Group Principal Balances
for the Group I and Group II Loans.
Residual Certificates. The Class R Certificates will remain outstanding for
so long as the Trust Fund exists, whether or not they are receiving current
distributions. On each Distribution Date, the holders of the Class R
Certificates will be entitled to receive any Spread Account Excess from the
Spread Account after payment of the other distributions described in
"--Distributions."
EXAMPLE OF DISTRIBUTIONS
The first collection period will begin on December 1, _____ and will
continue through December 31, ______. The first Distribution Date will occur on
S-39
<PAGE>
January 25, _____. Each Interest Accrual Period will consist of the calendar
month immediately preceding the related Distribution Date. The following sets
forth an example of a hypothetical monthly distribution:
January 1 - January 31.............. Interest Accrual Period. The Servicer and
any sub-servicers remit for deposit into
the Certificate Account all amounts
received on account of the Loans, other
than amounts of interest and principal
due prior to the Cut-off Date but
received on or after the Cut-off Date.
January 16 - February 15............ Prepayment Period. The Servicer and any
sub-servicers remit for deposit into the
Certificate Account all amounts received
on account of prepayments of principal on
the Loans.
February 20......................... Determination Date. The Trustee
determines, based on information provided
by the Servicer, the amount of principal
and interest that will be distributed to
certificateholders on February 25, ____.
Not later than 9:00 a.m. on
February 24......................... The Servicer transfers funds, including
any Advances, in the Certificate Account
to the Distribution Account.
Not later than 12:00 p.m. on
February 24......................... The Trustee will notify the Servicer and
the Insurer of the Insured Amounts, if
any, required to be distributed to the
holders of Class A certificates of record
at the close of business on February 24,
____.
February 24......................... Record Date. Distributions on February
25, ____ will be made to
certificateholders of record at the close
of business on February 24, ________.
February 25......................... Distribution Date. The Trustee or its
designee will transfer funds from the
Distribution Account into the Spread
Account, as required, will transfer to
certificateholders the amounts required
to be distributed pursuant to the
Agreement and will distribute the Spread
Account Excess to the holders of Class R
Certificates.
CROSS-COLLATERALIZATION PROVISIONS
The Agreement provides for cross-collateralization through the application
of excess amounts generated by one group of Loans to fund shortfalls in
Available Funds from the other group of Loans, subject to certain prior
requirements of such group of Loans. Therefore, as to any Distribution Date, the
amount, if any, of the Class A-1 Distributable Funds remaining after payment of
all then applicable prior requirements relating to the Class A-1 Certificates
will be used to fund any Class A-2 Available Funds Shortfall for that
Distribution Date. Likewise, as to any Distribution Date, the amount, if any, of
the Class A-2 Distributable Funds remaining after payment of all then applicable
prior requirements relating to the Class A-2 Certificates will be used to fund
any Class A-1 Available Funds Shortfall for that Distribution Date. The payment
of any amounts in respect of cross-collateralization will be applied in the
order specified above under "--Distributions."
CERTIFICATE GUARANTY INSURANCE POLICY
The following summary of the terms of the Certificate Guaranty Insurance
Policy to be issued by the Insurer (the "Policy") does not purport to be
complete and is qualified in its entirety by reference to the Policy. You may
obtain a form of the Policy, upon request, from the Depositor.
S-40
<PAGE>
Simultaneously with the issuance of the Class A Certificates, the Insurer
will deliver the Policy to the Trustee for the benefit of the holders of the
Class A Certificates. Under the Policy, the Insurer will irrevocably and
unconditionally guarantee payment on each Distribution Date to the Trustee for
the benefit of the holders of the Class A Certificates the full and complete
payment of Insured Amounts with respect to the Class A Certificates, calculated
in accordance with the original terms of the Class A Certificates when issued
and without regard to any amendment or modification of the Class A Certificates
or the Agreement except amendments or modifications to which the Insurer has
given its prior written consent.
The "Insured Amount" for any Distribution date shall equal the sum of
o any shortfall in amounts available in the Distribution Account to pay
the Interest Distribution Amounts for the related Interest Accrual
Period, plus
o the Guaranteed Principal Distribution Amount, plus
o without duplication of the amount specified in the immediately
preceding bullet, the aggregate Class Certificate Balance of all
classes of Class A Certificates to the extent unpaid on the Last
Scheduled Distribution Date or earlier termination of the Trust Fund
pursuant to the terms of the Agreement.
The "Guaranteed Principal Distribution Amount" for any Distribution Date
shall equal the sum of
o the amount, if any, by which the Class Certificate Balance of the
Class A-1 Certificates exceeds the Group Principal Balance of the
Group I Loans as of that Distribution Date, plus
o the amount, if any, by which the Class Certificate Balance of the
Class A-2 Certificates exceeds the Group Principal Balance of the
Group II Loans as of that Distribution Date.
An Insured Amount with respect to any Distribution Date will also include
any Preference Amount which occurs prior to the related Determination Date. A
"Preference Amount" means any amount previously distributed to a
certificateholder that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the Bankruptcy Code in
accordance with a final nonappealable order of a court having competent
jurisdiction.
The Insurer will pay claims under the Policy following Receipt by the
Insurer of the appropriate notice for payment on the later to occur of (1) 12:00
noon, New York City time, on the Business Day following Receipt of such notice
for payment, and (2) 12:00 noon, New York City time, on the relevant
Distribution Date.
The terms "Receipt" and "Received," with respect to the Policy, mean actual
delivery to the Insurer prior to 12:00 p.m., New York City time, on a Business
Day; delivery either on a day that is not a Business Day or after 12:00 p.m.,
New York City time, shall be deemed to be Received on the next succeeding
Business Day. If any notice or certificate given under the Policy by the Trustee
is not in proper form or is not properly completed, executed or delivered, it
shall be deemed not to have been Received, and the Insurer shall promptly so
advise the Trustee and the Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (1) a Saturday or
Sunday or (2) a day on which banking institutions in the City of New York, New
York, the State of New York or in the city in which the corporate trust office
of the Trustee or the Insurer is located, are authorized or obligated by law or
executive order to be closed. The Insurer's obligations under the Policy to pay
Insured Amounts will be deemed to be discharged to the extent funds are
transferred to the Trustee as provided in the Policy, whether or not such funds
are properly applied by the Trustee.
The Insurer will be subrogated to the rights of the holders of the Class A
Certificates to receive payments of principal and interest, as applicable, with
respect to distributions on the Class A Certificates to the extent of any
payment by the Insurer under the Policy. To the extent the Insurer pays Insured
Amounts, either directly or indirectly, as by paying through the Trustee, to the
holders of the Class A Certificates, the Insurer will be subrogated to the
rights of the holders of the Class A Certificates, as applicable, with respect
to those Insured Amounts and shall be deemed to the extent of the payments so
made to be a registered holder of Class A Certificates for purposes of payment.
S-41
<PAGE>
Claims under the Policy are direct unsecured and unsubordinated
obligations of the Insurer, and will rank equally with any other unsecured and
unsubordinated obligations of the Insurer except for certain obligations in
respect of tax and other payments to which preference is or may become afforded
by statute. The terms of the Policy cannot be modified, altered or affected by
any other agreement or instrument, or by the merger, consolidation or
dissolution of the Depositor. The Policy by its terms may not be canceled or
revoked prior to distribution in full of all Insured Amounts payable under the
Policy. The Policy is governed by the laws of the State of New York.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
To the fullest extent permitted by applicable law, the Insurer agrees under
the Policy not to assert, and waives, for the benefit of each holder of Class A
Certificates, all its rights whether acquired by subrogation, assignment or
otherwise, to the extent that those rights and defenses may be available to the
Insurer to avoid payment of its obligations under the Policy in accordance with
the express provisions of the Policy.
Pursuant to the terms of the Agreement, unless an Insurer Default exists,
the Insurer will be entitled to exercise the rights of the holders of the Class
A Certificates, without the consent of those certificateholders, and the holders
of the Class A Certificates may exercise those rights only with the prior
written consent of the Insurer. Either a continuance of any failure by the
Insurer to make a required payment under the Policy or the existence of a
proceeding in bankruptcy by or against the Insurer will constitute an "Insurer
Default." See "--Voting Rights."
The Agreement requires, on each Distribution Date, the Trustee, on behalf
of the Depositor, to pay to the Insurer a premium with respect to the Policy
(the "Insurer's Monthly Premium") out of Class A-1 Distributable Funds and Class
A-2 Distributable Funds (collectively, "Distributable Funds"). In addition,
under the Insurance and Indemnity Agreement to be executed by the Depositor,
Equity One (as both a Seller and Servicer), the Insurer and the Trustee, the
Insurer is entitled to receive payments out of Distributable Funds pursuant to
the priority of payments set forth under "--Priority of Distributions Among
Certificates" (or, in certain instances, directly from the Depositor or Equity
One) in reimbursement for any Insured Amounts, together with interest thereon if
not repaid immediately, paid by the Insurer under the Policy as well as certain
of the expenses of the Insurer and its counsel, and in satisfaction of any
indemnification obligations owed to the Insurer (collectively, any "I&I
Payments").
SPREAD ACCOUNT
The Trustee will establish a trust account (the "Spread Account") for the
benefit of the certificateholders and the Insurer into which it will deposit, on
each Distribution Date, funds, to the extent available, in an aggregate amount
equal to the sum of the Class A-1 Spread Account Deposit Amount and Class A-2
Spread Account Deposit Amount.
The "Class A-1 Spread Account Deposit Amount" with respect to any
Distribution Date is an amount equal to any excess of (1) Available Funds
relating to the Class A-1 Certificates over (2) the sum of
o the Insurer's Monthly Premium relating to the Group I Loans,
o any fees due and owing to the Trustee relating to the Group I Loans,
o any fees due and owing to or Advances or servicing costs or expenses
to be reimbursed to the Servicer with respect to the Group I Loans,
o the Interest Distribution Amount for the Class A-1 Certificates,
o the Class A-1 Certificate Formula Principal Amount,
o any amounts paid to the Class A-2 Certificates as part of a
cross-collateralization obligation, and
o any I&I Payments paid to the Insurer on that Distribution Date.
S-42
<PAGE>
The "Class A-2 Spread Account Deposit Amount" is an amount equal to any
excess of (1) Available Funds relating to the Class A-2 Certificates over (2)
the sum of
o the Insurer's Monthly Premium relating to the Group II Loans,
o any fees due and owing to the Trustee relating to the Group II Loans,
o any fees due and owing to or Advances or servicing costs or expenses
to be reimbursed to the Servicer with respect to the Group II Loans,
o the Interest Distribution Amount for the Class A-2 Certificates,
o the Class A-2 Certificate Formula Principal Amount,
o any amounts paid to the Class A-1 Certificates as part of a
cross-collateralization obligation, and
o any I&I Payments paid to the Insurer on that Distribution Date.
On each Distribution Date, amounts, if any, on deposit in the Spread
Account will be available to fund any shortfall between Available Funds with
respect to the Class A Certificates and the amount of principal and interest due
on those Certificates prior to any draws being made on the Policy. On each
Distribution Date, the Trustee will distribute to the holders of the Class R
Certificates any amounts in the Spread Account in excess of the maximum amount
required to be maintained in the Spread Account at any time (the "Specified
Spread Account Requirement") (any such amount, a "Spread Account Excess"). The
Insurer may, in its sole discretion, reduce or eliminate the Specified Spread
Account Requirement without the consent of any certificateholder as specified in
the Agreement, provided that such reduction or elimination does not result in
the reduction of the rating of the Class A Certificates without taking into
account the Policy. The holders of the Class R Certificates will not be required
to refund any amounts previously distributed to them properly, regardless of
whether there are sufficient funds on a subsequent Distribution Date to make
full distributions to the holders of the Class A Certificates.
The funding and maintenance of the Spread Account is intended to enhance
the likelihood of timely payment of principal and interest to the holders of
Class A Certificates and to afford limited protection against losses in respect
of the Loans. However, in certain circumstances, the Spread Account could be
depleted and shortfalls could result. Notwithstanding the depletion of the
Spread Account, the Insurer will be obligated to pay Insured Amounts on each
Distribution Date necessary to fund the full amount of principal and interest
due on the Class A Certificates on any Distribution Date.
OPTIONAL PURCHASE OF DEFAULTED LOANS
The Servicer may, at its option, purchase from the Trust Fund any Loan that
is delinquent in payment by 91 days or more. Any purchase shall be at a price
equal to 100% of the Stated Principal Balance of the Loan plus accrued interest
thereon at the applicable mortgage rate, less the Servicing Fee 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 that amount is to be
distributed.
S-43
<PAGE>
OPTIONAL TERMINATION
On any Distribution Date on which the Pool Principal Balance is less than
____% of the Cut-off Date Pool Principal Balance (each, an "Optional Termination
Date"), the Servicer will have the option to purchase, in whole, the Loans and
the REO Property, if any, remaining in the Trust Fund and, thereby, effect early
retirement of the Certificates. In the event the Servicer exercises this option,
the purchase price distributed with respect to each Certificate will be 100% of
its then outstanding principal balance plus any unpaid accrued interest thereon
at the applicable Pass-Through Rate. Distributions on the Certificates in
respect of any such optional termination will be paid to the Certificates as
described in "--Principal" and "--Interest."
THE TRUSTEE
___________________ will be the Trustee under the Agreement. The Depositor,
the Servicer and the Sellers may maintain other banking relationships in the
ordinary course of business with ________________. Class A Certificates may be
surrendered at the corporate trust office of the Trustee located at
__________________________, Attention: _______________, or at any other
addresses that the Trustee may designate from time to time.
VOTING RIGHTS
With respect to 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 the class in proportion to the outstanding principal balance of such
Certificates. Unless an Insurer Default exists, the Insurer will be entitled to
exercise the rights of the holders of the Class A Certificates.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The effective yield to the holders of the Class A Certificates will be
lower than the yield otherwise produced by the applicable rate at which interest
is passed through to those holders and the purchase price of those Certificates
because monthly distributions will not be payable to those holders until the
____ day, or, if that 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 that
delay.
Delinquencies on the Loans that are not advanced by or on behalf of the
Servicer, because those advances would be nonrecoverable, may adversely affect
the yield on the Class A Certificates. If the Insurer fails to make payments
required under the Policy, shortfalls resulting from delinquencies not so
advanced may be borne by the Class A Certificates. In addition, Net Interest
Shortfalls are not covered by the Policy and, therefore, will adversely affect
the yields on the Class A Certificates.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments and the aggregate amount of distributions
on, and the yield to maturity of, the Class A Certificates will be related to
the rate and timing of payments of principal on the Loans in Group I with
respect to the Class A-1 Certificates and the Loans in Group II with respect to
the Class A-2 Certificates. 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, most without a prepayment penalty. The
Loans are subject to the due-on-sale provisions included therein. In addition,
the Servicer and its affiliates periodically conduct mass mailings to their
existing customers with respect to the refinancing of existing mortgage loans.
Although these marketing efforts are not specifically directed to customers who
have mortgage loans included in a trust fund, these customers may receive the
marketing materials as part of a broader mailing, which may result in an
increase in the rate of prepayments of mortgage loans included in a trust fund
through refinancings. 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 Class A Certificates of
principal amounts that 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 Class A Certificates may vary from the anticipated yield
S-44
<PAGE>
will depend upon the degree to which that Class A Certificate is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Loans. Further, you
should consider the risk that, in the case of a Class A Certificate purchased at
a discount, a slower than anticipated rate of principal payments, including
prepayments, on Loans in the Applicable Group could result in you receiving an
actual yield that is lower than your anticipated yield. In the case of a Class A
Certificate purchased at a premium, a faster than anticipated rate of principal
payments could result in you receiving an actual yield that is lower than your
anticipated yield.
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.
The timing of changes in the rate of prepayments on Loans in the Applicable
Group may significantly affect your actual yield to maturity, even if the
average rate of principal payments is consistent with your expectation. In
general, the earlier a prepayment of principal on Loans in the Applicable Group,
the greater the effect on your yield to maturity. The effect on your yield as a
result of principal payments occurring at a rate higher or lower than the rate
that you anticipated during the period immediately following the issuance of the
Class A Certificates may not be offset by a subsequent like decrease or increase
in the rate of principal payments.
WEIGHTED AVERAGE LIVES OF THE CLASS A CERTIFICATES
The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of the net reduction, if any, of the Class Certificate
Balance of that Certificate on each Distribution Date by the number of years
from the date of issuance to that Distribution Date, (2) summing the results and
(3) dividing the sum by the aggregate amount of the net reductions in Class
Certificate Balance of that Certificate referred to in clause (1).
For a discussion of the factors that may influence the rate of payments,
including prepayments, of the Loans, see "--Prepayment Considerations and Risks"
herein and "Prepayment and Yield Considerations" in the Prospectus.
In general, the weighted average lives of the Class A Certificates will be
shortened if the level of prepayments of principal of Loans in the Applicable
Group increases. However, the weighted average lives of the Class A Certificates
will depend upon a variety of other factors, including, without limitation, the
timing of changes in the rate of principal payments, changes in the interest
rate environment and delays in realizing on REO Properties.
The interaction of the foregoing factors may have different effects on
various classes of Class A Certificates and the effects on any class may vary at
different times during the life of that class. Accordingly, no assurance can be
given as to the weighted average life of any class of Class A Certificates.
Further, to the extent the prices of the Class A Certificates represent
discounts or premiums to their respective original Class Certificate Balances,
variability in the weighted average lives of those classes of Class A
Certificates will result in variability in the related yields to maturity. For
an example of how the weighted average lives of the classes of Class A
Certificates may be affected at various constant percentages of SPA, see
"--Decrement Tables" below.
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"):
o the Group I Loans consist of six loans with the following
characteristics:
S-45
<PAGE>
<TABLE>
<CAPTION>
REMAINING
AMORTIZED
PRINCIPAL ORIGINAL TERM TO REMAINING TERM TO TERM
BALANCE MORTGAGE RATE MATURITY (IN MONTHS) MATURITY (IN MONTHS) (IN MONTHS)
- --------------------- ----------------- ---------------------- ----------------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
o the Group II Loans consist of six loans with the following
characteristics:
<TABLE>
<CAPTION>
REMAINING
AMORTIZED
ORIGINAL TERM TO REMAINING TERM TO TERM
PRINCIPAL BALANCE MORTGAGE RATE MATURITY (IN MONTHS) MATURITY (IN MONTHS) (IN MONTHS)
- --------------------- ----------------- ---------------------- ----------------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
o the Loans prepay at the specified constant percentages of SPA,
o no Loan is ever delinquent and no Loan ever defaults,
o there are no Net Interest Shortfalls and all prepayments are prepays
in full and include 30 days interest thereon,
o the initial Class Certificate Balance of each class of Class A
Certificates is as set forth on the cover page hereof,
o interest accrues on the Class A Certificates at the applicable
Pass-Through Rate set forth on the cover page hereof and as described
under "Description of the Certificates--Interest,"
o distributions in respect of the Class A Certificates are received in
cash on the _____ day of each month commencing in the calendar month
following the Closing Date,
o the Closing Date of the sale of the Class A Certificates is the date
set forth under "Summary of Terms--Closing Date," and
o the Servicer exercises the option to repurchase the Loans described
herein under "Description of the Certificates--Optional Termination"
at the earliest possible date.
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 _____% per annum of the then unpaid
principal balance of the pool of mortgage loans in the first month of the life
of the mortgage loans and an additional _____% (precisely ____%) per annum in
each month thereafter (for example, ____% per annum in the second month) until
the 12th month. Beginning in the 12th month and in each month thereafter during
the life of such mortgage loans, 100% SPA assumes a constant prepayment rate of
____% per annum. 0% SPA assumes no prepayments. Correspondingly, 125% SPA
assumes prepayment rates equal to 125% of SPA, and so forth. There is no
assurance that prepayments will occur at any SPA rate or at any other constant
rate.
S-46
<PAGE>
DECREMENT TABLES
The following tables indicate the percentages of the initial Class
Certificate Balances of the classes of Class A Certificates that would be
outstanding after each of the dates shown at various constant percentages of SPA
and the corresponding weighted average lives of these classes. The tables have
been prepared on the basis of the Structuring Assumptions. It is not likely that
(1) the Loans will have the precise characteristics described herein or (2) 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 term to maturity of the
Loans specified in the Structuring Assumptions.
S-47
<PAGE>
CLASS A-1
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
Various Constant Percentages of SPA
Date 0% 50% 75% 100% 125% 150%
------------- ----- ---- ---- ---- ---- ----
Closing Date 100% 100% 100% 100% 100% 100%
Weighted Average
Life to Maturity
(in years)**
Weighted Average
Life to Call
(in years)**
- --------------
* Rounded to the nearest whole percentage.
** Determined as specified under "--Weighted Average Lives of the Class A
Certificates."
S-48
<PAGE>
CLASS A-2
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
Various Constant Percentages of SPA
Date 0% 50% 75% 100% 125% 150%
- ------------ ---- ---- ---- ---- ---- -----
Closing Date 100% 100% 100% 100% 100% 100%
Weighted Average
Life to Maturity
(in years)**
Weighted Average
Life to Call
(in years)**
- ---------------
* Rounded to the nearest whole percentage.
** Determined as specified under "--Weighted Average Lives of the Class A
Certificates."
S-49
<PAGE>
LAST SCHEDULED DISTRIBUTION DATE
The "Last Scheduled Distribution Date" for the Class A-1 Certificates is
the Distribution Date in ___________________ of ___. The "Last Scheduled
Distribution Date" for the Class A-2 Certificates is the Distribution Date in
November of ______. Each such Last Scheduled Distribution Date is the
Distribution Date in the 12th month following the latest scheduled maturity date
for any of the Loans in each Group. Since the rate of distributions in reduction
of the Class Certificate Balance of each class of Class A Certificates will
depend on the rate of payment, including prepayments, of the Loans in the
Applicable Group, the Class Certificate Balance of any class could be reduced to
zero significantly earlier or later than the Last Scheduled Distribution Date.
The rate of payments on the Loans will depend on their particular
characteristics, as well as on prevailing interest rates from time to time and
other economic factors, and no assurance can be given as to the actual payment
experience of the Loans. See "Yield, Prepayment and Maturity
Considerations--Prepayment Considerations and Risks" and "--Weighted Average
Lives of the Class A Certificates" herein and "Prepayment and Yield
Considerations" in the Prospectus.
THE INSURER
The following information has been supplied by _________________ (the
"Insurer") for inclusion in this Prospectus Supplement. Accordingly, none of the
Depositor, the Servicer, the Sellers, the Trustee or the Underwriter makes any
representation as to the accuracy or completeness of this information.
The Insurer is a _____________ regulated by the of the State of
______________ and licensed to do business in 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, and Guam. The Insurer primarily
insures newly issued municipal and structured finance obligations. The Insurer
is a wholly-owned subsidiary of _______________, a ______________ company.
______________, ______________, and _________________ have each assigned a
triple-A claims paying ability rating to the Insurer.
The consolidated financial statements of the Insurer and its subsidiaries
as of ____________, _____________ and ________, ________, and for the three
years ended _____________, ____, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of
_____________ (which was filed with the Commission on ____________, ____;
Commission File Number _______) and the consolidated financial statements of the
Insurer and its subsidiaries as of ______________, ____ and for the periods
ending ________, ____ and __________,____ included in the Quarterly Report on
Form 10-Q of ________ for the period ended ____________, ____ (which was filed
with the Commission on ______________, ____), are hereby incorporated by
reference into this Prospectus Supplement and shall be deemed to be part hereof.
Any statement contained in a document incorporated herein by reference shall be
modified or superseded for the purposes of this Prospectus Supplement to the
extent that a statement contained herein by reference herein also modifies or
supersedes that statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by ______________________ with the Commission pursuant to
section 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of
this Prospectus Supplement and prior to the termination of the offering of the
Class A Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing of those documents.
The following table sets forth the Insurer's capitalization as of _______,
____, _______, ____, and _______, ____, and _______, ____, respectively, in
conformity with generally accepted accounting principles.
S-50
<PAGE>
[INSURER'S NAME]
CONSOLIDATED CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Unearned premiums...........................
Other liabilities...........................
Total liabilities...........................
Stockholder's equity(1).....................
Common stock...........................
Additional paid-in capital.............
Accumulated other comprehensive
income...............................
Retained earnings......................
Total stockholder's equity..................
Total liabilities and stockholder's equity..
</TABLE>
- -------------
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance
with the Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" adopted by the Insurer effective January 1, 1998. As
this new standard only requires additional information in the financial
statements, it does not affect the Insurer's financial position or results
of operations.
For additional financial information concerning the Insurer, see the
audited and unaudited financial statements for the Insurer incorporated by
reference herein. Copies of the financial statements of the Insurer incorporated
herein by reference and copies of the Insurer's annual statement for the year
ended ___________, ____ prepared in accordance with statutory accounting
standards are available, without charge, from the Insurer. The address of the
Insurer's administrative offices and its telephone number are _________
______________________ and _____________________.
The Insurer makes no representation regarding the Class A Certificates or
the advisability of investing in the Class A Certificates and makes no
representation regarding, nor has it participated in the preparation of, this
Prospectus Supplement other than the information supplied by the Insurer and
presented under the headings "The Insurer," "Description of the
Certificates--Certificate Guaranty Insurance Policy" and "Experts," and its
financial statements incorporated herein by reference.
USE OF PROCEEDS
The Depositor will use the net proceeds received by it from the sale of the
Class A Certificates to pay the purchase price of the Loans and for general
corporate purposes.
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 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 Class A
S-51
<PAGE>
Certificates will constitute the "regular interests" in the REMIC. The Class R
Certificates will constitute the sole class of "residual interest" in the REMIC.
See "Federal Income Tax Consequences" in the Prospectus.
The Class A Certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the Class A
Certificates must be reported under an accrual method of accounting.
The classes of Class A 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 Original Issue Discount ("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 100% 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 Class A 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 Class A 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 Class A 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. Mixed Use Loans may not qualify under Section
7701(a)(19) of the Code to the extent of the portion of such Mixed Use Loans
allocable to commercial use. The Class A 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 Class R Certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of these
holders may exceed cash distributions to them during certain periods. All or a
portion of the taxable income from a Class R 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 Class R 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 Class R Certificates should consult their tax advisors regarding
whether, at the time of acquisition, a Class R Certificate will be treated as a
"noneconomic" residual interest, a "non-significant value" residual interest and
a "tax avoidance potential" residual interest. See "Federal Income Tax
Consequences--Taxation of Holders of Residual Interest Securities--Restrictions
on Ownership and Transfer of Residual Interest Securities," "--Mark to Market
Rules," "--Excess Inclusions" and "--Tax Treatment of Foreign Investors" in the
Prospectus. Additionally, for information regarding prohibited transactions and
treatment of realized losses, see "Federal Income Tax Consequences--Taxation of
the REMIC--Prohibited Transactions and Contributions Tax" and "--Taxation of
Holders of Residual Interest Securities--Limitation on Losses" in the
Prospectus.
ERISA CONSIDERATIONS
Any Plan fiduciary who proposes to cause a Plan (as defined below) to
acquire any of the Class A 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 those 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 that 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
S-52
<PAGE>
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
those plans may be invested in the Class A 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 Class A 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 the Underwriter. [(Prohibited Transaction Exemption
89-89, Exemption Application No. D-6446, 54 Fed. Reg. 42589 (1989)] (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 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 Class A 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.
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 Class A Certificates. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment prudence and
diversification, an investment in any of the Class A 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.
LEGAL INVESTMENT
The Class A Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Enhancement Act of 1984 because certain
of the Loans serving as collateral for the Class A Certificates will be secured
by second liens on the related mortgaged properties. Accordingly, many
institutions with legal authority to invest in "mortgage related securities" may
not be legally authorized to invest in the Class A Certificates.
The appropriate characterization of the Class A Certificates under various
legal investment restrictions, and thus the ability of investors subject to
those restrictions to purchase Class A Certificates, may be subject to
significant interpretive uncertainties. Accordingly, 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 Class A Certificates complies with
applicable guidelines, policy statements or restrictions. See "Legal Investment"
in the Prospectus.
S-53
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated as of __________________, among 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 all
of the Class A Certificates, if any are purchased. Distribution of the Class A
Certificates may be made by the Underwriter from time to time in one or more
negotiated transactions, or otherwise, at varying prices to be determined at the
time of sale. The Underwriter may effect such transactions by selling the Class
A Certificates to or through dealers, and those dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Underwriter. In connection with the sale of the Class A Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting compensation. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Class A Certificates
may be deemed to be underwriters and any commissions received by them and any
profit on the resale of the Class A Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act").
If the Underwriter creates a short position in the Class A Certificates in
connection with the offering, i.e., if it sells more Class A Certificates than
are set forth on the cover page of this Prospectus Supplement, the Underwriter
may reduce that short position by purchasing Class A Certificates in the open
market.
In general, purchase of a security to reduce a short position could cause
the price of the security to be higher than it might be in the absence of such
purchases.
Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above, if engaged in, may have on the prices of the Class A
Certificates. In addition, neither the Depositor nor the Underwriter makes any
representation that the Underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriter intends to make a secondary market in the classes of Class
A Certificates, but the Underwriter has no obligation to do so. There can be no
assurance that a secondary market for the Class A Certificates will develop or,
if it does develop, that it will continue 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.
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.
___________________, will pass upon certain legal matters on behalf of the
Underwriter.
EXPERTS
The consolidated financial statements of ________________ and its
subsidiaries as of _______________, ____ and __________ and for each of the
years in the three year period ended ____________, ____ are incorporated by
reference herein and in the Registration Statement in reliance upon the report
of __________________, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
RATINGS
It is a condition to the issuance of the Class A Certificates that they be
rated "_____" by _____________________ ("________") and "______" by
__________________ ("_____" and, together with ________________, the "Rating
Agencies").
The ratings of ____________ and ______________ assigned to mortgage
pass-through certificates address the likelihood of the receipt by
certificateholders of all distributions to which they are entitled. The rating
S-54
<PAGE>
process addresses structural and legal aspects associated with the Class A
Certificates, including the nature of the underlying mortgage loans. The ratings
assigned to mortgage pass-through certificates do not represent any assessment
of the likelihood that principal prepayments will be made by the mortgagors or
the degree to which the prepayments will differ from that originally
anticipated. The rating of the Class A Certificates will depend primarily on an
assessment by the Rating Agencies of the Loans and upon the claims-paying
ability of the Insurer. Any change in the ratings of the Insurer by _________ or
____________ may result in a change in the ratings on the Class A Certificates.
The ratings do not address the possibility that certificateholders might suffer
a lower than anticipated yield due to non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Class A Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the Class A Certificates.
The Depositor has not requested that any rating agency rate the Class A
Certificates other than as stated above. However, there can be no assurance as
to whether any other rating agency will rate the Class A Certificates, or, if it
does, what rating would be assigned by that rating agency. A rating on the Class
A Certificates by another rating agency, if assigned at all, may be lower than
the ratings assigned to the Class A Certificates as stated above.
S-55
<PAGE>
INDEX OF DEFINED TERMS
Adjusted Net Mortgage Rate.......................S-35
Advance..........................................S-35
Agreement........................................S-15
Applicable Group.................................S-39
Available Funds..................................S-39
Balloon Loans....................................S-16
Beneficial Owner.................................S-36
Business Day.....................................S-44
Cede.............................................S-36
Certificate Account..............................S-37
Certificate Formula Principal Amount.............S-41
Certificates...............................S-15, S-36
Class A Certificates.......................S-15, S-36
Class A-1 Available Funds Shortfall..............S-40
Class A-1 Certificate Formula Principal Amount...S-41
Class A-1 Distributable Funds..............S-37, S-39
Class A-1 Spread Account Deposit Amount..........S-45
Class A-2 Available Funds Shortfall.............S-40
Class A-2 Certificate Formula Principal Amount...S-41
Class A-2 Distributable Funds..............S-37, S-39
Class A-2 Spread Account Deposit Amount..........S-46
Class Certificate Balance........................S-36
Class Unpaid Interest Amounts....................S-40
Closing Date.....................................S-16
Code.............................................S-28
Collateral Value.................................S-17
Combined Loan-to-Value Ratio.....................S-17
Cut-off Date.....................................S-15
Cut-off Date Group I Principal Balance...........S-16
Cut-off Date Group II Principal Balance..........S-16
Cut-off Date Pool Principal Balance..............S-16
Definitive Certificate...........................S-36
Deleted Loan.....................................S-28
Depositor........................................S-15
Distributable Funds..............................S-45
Distribution Account.............................S-37
Distribution Date................................S-38
DTC..............................................S-36
Due Date.........................................S-16
Equity One.......................................S-30
Equity One Standards.............................S-29
ERISA............................................S-56
FHLMC............................................S-15
Group Principal Balance..........................S-42
Guaranteed Principal Distribution Amount.........S-44
I&I Payments.....................................S-45
Insurance Proceeds...............................S-39
Insured Amount...................................S-44
Insurer....................................S-15, S-53
Insurer Default..................................S-45
Insurer's Monthly Premium........................S-45
Interest Accrual Period..........................S-40
Interest Distribution Amount.....................S-40
IT...............................................S-34
Last Scheduled Distribution Date.................S-53
Liquidated Loan..................................S-42
Liquidation Proceeds.............................S-39
Loan Losses......................................S-42
Loans............................................S-15
Mixed Use Loan...................................S-15
Mortgage.........................................S-28
Mortgage File....................................S-28
Mortgage Note....................................S-28
Net Interest Shortfalls..........................S-40
Net Prepayment Interest Shortfall................S-41
OID..............................................S-55
Optional Termination Date........................S-47
Permitted Investments............................S-37
Plan.............................................S-56
Policy...........................................S-43
Pool Principal Balance...........................S-42
Preference Amount................................S-44
Prepayment Assumption............................S-55
Prepayment Interest Excess.......................S-35
Prepayment Interest Shortfall....................S-41
Prepayment Period................................S-40
Rating Agencies..................................S-58
Receipt..........................................S-44
Received.........................................S-44
Record Date......................................S-39
Refinance Loan...................................S-17
Relief Act Reduction.............................S-41
REO Property.....................................S-35
Replacement Loan.................................S-28
Residential Loan.................................S-15
Scheduled Payments...............................S-16
Securities Act...................................S-57
Seller and Sellers...............................S-15
Servicer.........................................S-15
Servicing Fee....................................S-34
Servicing Fee Rate...............................S-34
SPA..............................................S-50
Specified Spread Account Requirement.............S-46
Spread Account...................................S-45
Spread Account Draw..............................S-39
Spread Account Excess............................S-46
Stated Principal Balance.........................S-42
Structuring Assumptions..........................S-49
Substitution Adjustment Amount...................S-28
Tax Counsel......................................S-55
Trustee..........................................S-15
Underwriter......................................S-57
Underwriter Exemption............................S-56
Voting Rights....................................S-47
S-56
<PAGE>
$-------------------------------
EQUITY ONE MORTGAGE PASS-THROUGH TRUST _________-_____
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES _________-_____
EQUITY ONE ABS, INC.
(Depositor)
-------------------------------------------------
PROSPECTUS SUPPLEMENT
------------, ----------
-------------------------------------------------
[Underwriter's Logo]
S-57
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED JULY 23, 1999
Prospectus Supplement dated _________, ____
To Prospectus dated July 23, 1999
$__________________
EQUITY ONE MORTGAGE LOAN TRUST ______ - ________
$______ [ ] ASSET BACKED NOTES, SERIES _____-____
$______ [ ] ASSET BACKED CERTIFICATES, SERIES _____-____
<TABLE>
<CAPTION>
EQUITY ONE, INC. EQUITY ONE ABS, INC.
as Master Servicer as Depositor
<S> <C> <C> <C> <C>
[Certificate] [Note] Net Proceeds
[Certificates/Notes] Principal Balance Rate Payment Dates to Depositor(1)
- -------------------- ----------------- -------------------- ------------- ---------------
$ % $
$ % $
- -------------------- ----------------- -------------------- ------------- ---------------
Total $ N/A $
</TABLE>
- ------------
(1) Before deducting expenses, payable by the Depositor, estimated to be
$______________.
- ------------------------------
BEFORE BUYING
[CERTIFICATES][NOTES], THE [CERTIFICATES] [NOTES]--
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING PAGE o the certificates represent an interest in a
S-9 IN THIS DOCUMENT AND ON trust fund consisting primarily of a pool of
PAGE 5 IN THE PROSPECTUS. [fixed and variable] rate mortgage loans.
o the notes are secured by assets of the trust
fund.
The [certificates] will o currently have no trading market.
represent interests in, and
the [notes] will be secured CREDIT ENHANCEMENT FOR THE [CERTIFICATES]
by the assets of, the trust [NOTES] --
fund only and the securities
will not represent interests o will include a [surety bond][letter of
in, be secured by or be credit]. This [policy][letter of credit]
obligations of any other will guarantee current and ultimate payment
entity. of principal [certificates][notes] on the
terms described in this document.
[CERTIFICATE INSURER'S LOGO]
This prospectus supplement may
be used to offer and sell the
[certificates][notes] only if
it is accompanied by the
prospectus.
- ------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER'S LOGO]
__________________, as underwriter of the securities, has agreed to purchase the
[certificates][notes] and the [certificates][notes] will be offered by the
underwriter from time to time as provided herein in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. It is expected
that delivery of the [certificates][notes] will be made in book-entry form only
through the facilities of The Depository Trust Company on or about _________,
___________.
<PAGE>
Information about the [certificates][notes] is presented in two separate
documents that progressively provide more detail:
o the accompanying prospectus which provides general information, some
of which may not apply to your [certificates][notes], and
o this prospectus supplement, which describes the specific terms of your
[certificates][notes].
We strongly encourage you to read both this prospectus supplement and the
prospectus in full. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone to provide you with different
information.
If the description of the terms of your [certificates][notes] varies
between this prospectus supplement and the accompanying prospectus, you should
rely on the information in this prospectus supplement.
We have made cross-references to captions in this prospectus supplement and
the accompanying prospectus under which you can find further related
discussions. The table of contents that follows on the next page and the table
of contents in the accompanying prospectus indicate where these captions are
located.
We are not offering the [certificates][notes] in any state where the offer
is not permitted.
We do not claim that the information in this prospectus supplement and the
accompanying prospectus is accurate as of any date other than the dates stated
on the cover of each document.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the [certificates][notes] and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the
[certificates][notes] will be required to deliver a prospectus supplement and
prospectus for ninety days following the date of this prospectus supplement.
Subject to certain limitations, you can get a copy of any of the documents
referred to in the accompanying prospectus under the caption "Incorporation of
Certain Documents by Reference" free of charge from the trustee. You should
direct any requests for these documents to the Corporate Trust Office of the
Trustee at ________________, telephone: _________________, facsimile number:
__________________, Attention: __________________________.
This prospectus supplement and the accompanying prospectus contain
forward-looking statements relating to future economic performance or
projections and other financial items. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the depositor notes that these
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause actual results or performance to differ
materially from these forward-looking statements. Those risks, uncertainties and
other factors include, among others, general economic and business conditions,
competition, changes in political and social conditions, regulatory initiatives
and compliance with government regulations, customer preference and various
other matters, many of which are beyond the depositor's control. These
forward-looking statements, together with related qualifying language and
assumptions, are found in the material, including each of the tables, set forth
under the captions "Risk Factors," "Yield, Prepayment and Maturity
Considerations," and "Yield and Prepayment Considerations." Forward-looking
statements are also found elsewhere in this prospectus supplement and the
accompanying prospectus, and may be identified by, among other things, the use
of forward-looking words such as "expects," "intends," "anticipates,"
"estimates", "believes", "may" or other comparable words. These forward-looking
statements speak only as of the date of this prospectus supplement. The
depositor expressly disclaims any obligation or undertaking to update or revise
forward-looking statements to reflect any change in the depositor's expectations
or any change in events, conditions or circumstances on which any
forward-looking statement is based.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
SUMMARY OF TERMS............................................................S-4
RISK FACTORS................................................................S-9
THE TRUST FUND.............................................................S-14
THE [LETTER OF CREDIT] [SURETY BOND] ISSUER................................S-14
THE MASTER SERVICER........................................................S-14
THE LOAN PROGRAM...........................................................S-15
DESCRIPTION OF THE LOANS...................................................S-19
MATURITY AND PREPAYMENT CONSIDERATIONS.....................................S-28
DESCRIPTION OF THE MASTER SERVICING AGREEMENT..............................S-29
DESCRIPTION OF THE SECURITIES..............................................S-32
THE DEPOSITOR..............................................................S-33
THE INDENTURE..............................................................S-33
THE TRUST AGREEMENT........................................................S-37
ADMINISTRATION AGREEMENT...................................................S-38
THE INDENTURE TRUSTEE......................................................S-38
THE OWNER TRUSTEE..........................................................S-38
USE OF PROCEEDS............................................................S-39
FEDERAL INCOME TAX CONSEQUENCES............................................S-39
STATE TAX CONSEQUENCES.....................................................S-40
ERISA CONSIDERATIONS.......................................................S-40
LEGAL INVESTMENT CONSIDERATIONS............................................S-42
UNDERWRITING...............................................................S-42
LEGAL MATTERS..............................................................S-43
RATINGS....................................................................S-43
INDEX OF DEFINED TERMS.....................................................S-44
PROSPECTUS
Risk Factors..................................................................6
The Trust Fund...............................................................12
Use of Proceeds..............................................................16
The Depositor................................................................16
Loan Program.................................................................16
Description of the Securities................................................22
Credit Enhancement...........................................................35
Yield and Prepayment Considerations..........................................39
The Agreements...............................................................44
Legal Aspects of the Loans...................................................52
Federal Income Tax Consequences..............................................62
State Tax Considerations.....................................................82
ERISA Considerations.........................................................82
Legal Investment.............................................................86
Method of Distribution.......................................................87
Legal Matters................................................................87
Rating.......................................................................87
Available Information........................................................88
Incorporation of Certain Documents by Reference..............................89
Index of Defined Terms.......................................................90
S-3
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. You should read this entire prospectus supplement and the
accompanying prospectus carefully before you decide whether to purchase
[certificates][notes].
This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
THE TRUST FUND
Equity One Mortgage Loan Trust ________-____ , a Delaware business trust,
will be formed on ________, ____by Equity One ABS, Inc., as depositor,
[sellers], and ___________,as trustee. ___________, ____________, and
__________, as sellers, will sell the mortgage loans to Equity One ABS,
Inc. Equity One ABS, Inc. will deposit the mortgage loans with the trust
fund.
[[Indenture Trustee] will act as trustee for the benefit of the
noteholders.] [[Owner Trustee] will act as trustee for the benefit of the
certificateholders.]
THE SECURITIES
On the closing date, _______________, _____, [the notes will be issued
pursuant to the indenture] [the trust fund will issue the securities].
Generally, we will offer the securities for purchase in denominations of
$25,000 and integral multiples of $1 in excess thereof.
REGISTRATION OF CERTIFICATES
We will issue the securities in book-entry form. You will hold your
interests through a depository. While the securities are book-entry they
will be registered in the name of the depository. The limited circumstances
under which definitive securities will replace the book entry securities
are described in this prospectus supplement.
TRUST PROPERTY
The [Indenture Trustee][Owner Trustee] will hold the trust property for the
benefit of the [noteholders][certificateholders]. The trust property
includes:
o a pool of fixed rate and variable rate mortgage loans secured by
first and/or subordinate liens on one- to four-family residential
properties and mixed commercial/residential use properties
o payments on the mortgage loans received on and after [the cut-off
date] (other than amounts received on and after the [cut-off
date] in respect of principal and interest on the mortgage loans
due prior to the [cut-off date])
o the deed of trust or mortgage related to each mortgage loan
o property that once secured a mortgage loan that the trust fund
has acquired through foreclosure or deed in lieu of foreclosure
o the benefits of the [spread account][letter of credit][surety
bond]
o amounts on deposit in the various accounts maintained by the
servicer and the trustee for the benefit of the
certificateholders
o rights of the depositor under the agreement pursuant to which the
depositor purchased the mortgage loans from the sellers,
including the right to require the sellers to repurchase mortgage
loans for breaches of representations and warranties
o rights of the sellers under any hazard insurance policies
covering the mortgaged properties
We refer you to "The Trust Fund--General" in this prospectus supplement.
S-4
<PAGE>
THE MORTGAGE POOL
On [the closing date] the trust fund will acquire a pool of mortgage loans.
The information below is based on the pool as it existed on [the cut-off
date] of $_______. The mortgage loans have the following characteristics as
of [the cut-off date]:
o number of mortgage loans: ______
o aggregate principal balance: ________$
o mortgaged property location: __states; other than __% of
mortgaged properties located in [state], no state represents more
than ____% of the mortgage loans, by loan balance
o maximum combined loan-to-value ratio at origination: __% (based
on credit limit)
o weighted average combined loan-to-value ratio: __% (approximate)
o combined loan-to-value ratio range: __% to __% (approximate)
o loan balance range: $___________ to $ ________ (approximate)
o credit limit range: $ __________ to __________ (approximate)
o mortgage loan origination range from __________ to __________,
____
o weighted average loan utilization rate: __% (approximate)
o average loan balance: $____________
o interest rates range: __% to __%
o weighted average interest rate: __% (approximate)
o weighted average remaining term to stated maturity, based on
principal balance: ___ months (approximate)
o term to stated maturity range: __ months to __ months
o last maturity date: _________
o average credit limit: $____________
o use and type of each mortgaged property: __% owner occupied; __%
second vacation home;
o __% first priority and __% second priority lien
We refer you to "The Mortgage Pool" in this prospectus supplement.
SERVICER AND SERVICING
Equity One, Inc. will service, manage and make collections on the mortgage
loans. In exchange for these services, Equity One, Inc. will receive an
annual servicing fee, payable monthly, of __% of the total principal
balance of the mortgage loans. The master servicer will also be entitled to
certain other amounts as servicing compensation from the trust fund.
We refer you to "Description of the Master Servicing Agreement--Servicing
Compensation and Payment of Expenses" in this prospectus supplement.
S-5
<PAGE>
COLLECTIONS
The master servicer will allocate all collections on the loans between
amounts collected in respect of interest and amounts collected in respect
of principal. The master servicer will generally deposit collections
distributable to the securityholders in a collection account.
We refer you to "Description of the Master Servicing Agreement--Allocations
and Collections" in this prospectus supplement and "The
Agreements--Payments on Loans; Deposits to Security Account" and
"--Collection Procedures" in the accompanying prospectus.
DISTRIBUTIONS TO SECURITYHOLDERS
On the distribution date the trustee will make a payment on each of the
securities. The distribution date will be the ____ day of each month or, if
the ___ day is not a business day, the next business day, starting with
__________, ____.
On each distribution date, collections on the mortgage loans will be
applied in the following order of priority:
o to the master servicer, the servicing fee;
o as payment for the accrued interest due and any overdue accrued
interest, with interest thereon;
o as principal on the securities, the excess of principal
collections over additional balances created during the preceding
collection period. This amount will be allocated between the
notes and certificates, pro rata, based on their respective
principal balances;
o as principal on the securities, payments for any amounts
unrecoverable as loses on the mortgage loans;
o the premium on the [surety bond];
o reimbursement of prior draws made on the [surety bond];
o any remaining amounts to the depositor.
We refer you to "Description of the Securities--Distributions" in this
prospectus supplement.
On the ___ day of that month or, if the ___ day is not a business day, the
prior business day, but no later than two business days prior to that
month's distribution date, the master servicer will calculate, and instruct
the trustee regarding, the amounts to be paid to you on that month's
distribution date.
INTEREST
Interest will accrue on the unpaid principal balance of the securities at
the applicable rate and be payable on each distribution date with respect
to the calendar month preceding such distribution date. Interest will be
calculated on the basis of a 360-day year made up of twelve 30-day months.
We refer you to "Description of the Securities--Distributions" and
"--Interest" in this prospectus supplement.
CREDIT ENHANCEMENT--GENERAL
Credit enhancements reduce the harm caused to securityholders by shortfalls
in payments received on the mortgage loans. They reduce the effect of
shortfalls on all classes of securities proportionately. The credit
enhancement provided for the benefit of securityholders consists of the
[spread account][letter of credit][surety bond], as described below and
elsewhere in this prospectus supplement.
S-6
<PAGE>
[LETTER OF CREDIT][SURETY BOND]
______________, the __________, will issue the [letter of credit][surety
bond] to provide credit enhancement to the securities. Generally, the terms
of the [letter of credit][surety bond] will guarantee payment on each
distribution date to the trustee, for the benefit of the securityholders,
of an amount sufficient to cover any shortfalls in funds available to pay
amounts due to the securityholders on that distribution date.
ALLOCATION OF LOSSES
Neither the securities nor the underlying mortgage loans are insured or
guaranteed by any governmental agency or instrumentality, or by any other
entity.
OPTIONAL TERMINATION
The master servicer has the option to purchase all the mortgage loans and
any properties that the trustee acquired in satisfaction of any of the
mortgage loans. The master servicer may exercise this option only when the
aggregate principal balance of all mortgage loans in the trust fund,
including the mortgage loans related to properties which the trustee has
acquired, is less than __% of the aggregate principal balance of all
mortgage loans in the trust fund as of _____________. If the master
servicer exercises this option, your security will be retired early and you
will be entitled to:
o the outstanding principal balance of your security; and
o any unpaid accrued interest on your security at the applicable
rate.
We refer you to "Description of the Securities--Optional Termination" in
this prospectus supplement.
FEDERAL INCOME TAX CONSEQUENCES
The trustee will elect to treat the trust fund as a "real estate mortgage
investment conduit," or REMIC, for federal income tax purposes. The
[certificates][notes] will constitute "regular interests" in the REMIC.
We refer you to "Federal Income Tax Consequences" in this prospectus
supplement and in the accompanying prospectus.
ERISA CONSIDERATIONS
If you are a fiduciary of any pension or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended,
or Section 4975 of the Internal Revenue Code of 1986, as amended, you
should review carefully with your counsel whether you are permitted to buy
or hold any of the securities.
We refer you to "ERISA Considerations" in this prospectus supplement.
LEGAL INVESTMENT
You should consult with your counsel to see if you are permitted to buy any
of the securities since the legal investment rules vary depending on what
kind of entity you are and which other entities regulate you.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and "Legal Investment" in the accompanying prospectus.
RATINGS
The Trust Fund will not issue the securities unless they are rated:
o __________ by ____________; and
o __________ by ____________.
S-7
<PAGE>
The ratings address credit risk. When evaluating credit risk, the rating
agencies look at the likelihood of whether or not you will receive your
interest and principal payments. Credit risk does not relate to the
likelihood of prepayments on the mortgage loans. Prepayments affect the
timing of your payments and, as a result, could cause your actual return to
differ substantially from your anticipated return on your investment.
We refer you to "Ratings" and "Risk Factors-Certificate Rating Subject to
Change" in this prospectus supplement.
S-8
<PAGE>
RISK FACTORS
o The [notes][certificates] are not suitable investments for all investors.
o You should not purchase any class of [notes][certificates] unless you
understand and are able to bear the prepayment, credit, liquidity and
market risks associated with that class.
o The [notes][certificates] are complex securities and it is important that
you possess, either alone or together with an investment advisor, the
expertise necessary to evaluate the information contained in this
prospectus supplement and the accompanying prospectus in the context of
your financial situation.
o In addition to the matters described elsewhere in this prospectus
supplement and the accompanying prospectus, you should carefully consider
the following risk factors before deciding to purchase
[notes][certificates]. For a discussion of additional risks pertaining to
the [notes][certificates], we refer you to "Risk Factors" in the
accompanying prospectus.
BOOK-ENTRY CERTIFICATES MAY BE ILLIQUID.
Issuance of the Class A Certificates in book-entry form may adversely
affect your ability to sell your certificate in the secondary trading market
since investors may be unwilling to purchase certificates for which they cannot
obtain physical certificates.
We refer you to "Description of the Securities--Book-Entry Certificates" in
this prospectus supplement and "Risk Factors--Book-Entry Registration" in the
accompanying prospectus.
BOOK-ENTRY CERTIFICATES MAY NOT BE ABLE TO BE PLEDGED.
Since transactions in the Class A Certificates can be effected only through
The Depository Trust Company, or DTC, participating organizations, indirect
participants and certain banks, your ability to pledge your certificate to
persons or entities that do not participate in the DTC system may be limited due
to lack of a physical certificate representing your certificate.
We refer you to "Description of the Securities--Book-Entry Certificates" in
this prospectus supplement and "Risk Factors--Book-Entry Registration" in the
accompanying prospectus.
BOOK-ENTRY CERTIFICATES MAY RESULT IN DELAYED RECEIPT OF DISTRIBUTIONS.
As a beneficial owner, you may experience some delay in receiving
distributions of interest and principal on your certificate since these
distributions will be:
o forwarded by the trustee to DTC;
o credited by DTC to the accounts of DTC participants; and
o ultimately credited to your account by a DTC participant.
We refer you to "Description of the Securities--Book-Entry Certificates" in
this prospectus supplement and "Risk Factors--Book-Entry Registration" in the
accompanying prospectus.
S-9
<PAGE>
LIQUIDATIONS COULD RESULT IN DELAYS AND LOSSES.
Even if the mortgaged properties provide adequate security for the mortgage
loans, substantial delays could be encountered in connection with the
liquidation of mortgage loans that are delinquent and resulting shortfalls in
distributions on your security could occur. Corresponding delays in your receipt
of related proceeds could occur if the [letter of credit][surety bond] provider
fails to perform its obligations under the [letter of credit][surety bond].
Also, liquidation expenses (such as legal fees, real estate taxes, and
maintenance and preservation expenses) will be paid first, thereby reducing the
proceeds payable on your security and thereby reducing the security for the
mortgage loans. Mortgage loans secured by second liens on the related properties
will also generally be subject to the prior payment of loans secured by first
liens on those properties. If any of the mortgaged properties fail to provide
adequate security for the related mortgage loans, you could experience a loss if
the [letter of credit][surety bond] provider fails to perform its obligations
under the [letter of credit][surety bond].
We refer you to "Maturity and Prepayment Considerations" in this prospectus
supplement and "Prepayment and Yield Considerations" in the accompanying
prospectus.
WE HAVE LIMITED INFORMATION REGARDING PREPAYMENT HISTORY.
The yield to maturity and weighted average life of your security will be
affected primarily by the rate and timing of prepayments on the mortgage loans.
The mortgage loans may be prepaid in whole or in part at any time, most without
penalty. The trust's prepayment experience may be affected by a wide variety of
factors, including general economic conditions, interest rates, the availability
of alternative financing and homeowner mobility. The servicer and its affiliates
periodically conduct mass mailings to their existing customers with respect to
the refinancing of existing mortgage loans. Although these marketing efforts are
not specifically directed to customers who have mortgage loans included in a
trust fund, these customers may receive the marketing materials as part of a
broader mailing, which may result in an increase in the rate of prepayments of
mortgage loans included in a trust fund through refinancings. In addition,
substantially all of the mortgage loans contain due-on-sale provisions, and the
master servicer intends to enforce these provisions unless (1) enforcement is
not permitted by applicable law or (2) the master servicer, in a manner
consistent with reasonable commercial practice, permits the purchaser of the
related mortgaged property to assume the mortgage loan. To the extent permitted
by applicable law, such assumption will not release the original borrower from
its obligation under the mortgage loan. Enforcement of a due-on-sale provision
would result in repayment in full of the mortgage loan, which would be treated
as a prepayment.
You will bear any reinvestment risks resulting from a faster or slower
incidence of prepayments of the mortgage loans.
Consider carefully the discussion under "Maturity and Prepayment
Considerations" in this prospectus supplement and under "Prepayment and Yield
Considerations" and "Certain Legal Aspects of the Loans--Due-on-Sale Clauses" in
the accompanying prospectus.
DEFAULTS AND DELINQUENT PAYMENTS ON THE MORTGAGE LOANS COULD AFFECT YOUR YIELD.
If the spread account is depleted and any other provider of credit
enhancement defaults on its payment obligations, the yield to maturity on your
security will be sensitive to defaults and delinquent payments on the mortgage
loans. If the actual rate of defaults on the mortgage loans and the actual
amount of losses to the trust fund upon liquidation of those mortgage loans is
greater than the amounts assumed by you in estimating the yield to maturity on
your security, the actual yield will be lower than your estimate. If the trust
fund experiences substantial losses, you may experience a loss. If the spread
account is depleted and any other provider of credit enhancement defaults on its
payment obligations, the timing of losses to the trust fund in connection with
liquidations of mortgage loans will affect the yield to maturity on your
security even if the rate of defaults and severity of such losses are consistent
with your expectations. In general, the earlier a loss occurs, the greater
effect it will have on the yield to maturity. There can be no assurance as to
the delinquency, foreclosure or loss experience with respect to the mortgage
loans.
S-10
<PAGE>
PAYMENT DELAY LOWERS YOUR EFFECTIVE YIELD.
Generally, payments of principal and interest on the mortgage loans
received in any calendar month will not be passed through as payments on your
security until the distribution date in the following calendar month. As a
result, the monthly distributions on your security generally will reflect
mortgagor payments during the prior calendar month. The distribution date will
be the ____ day of each month (or the next succeeding business day), commencing
in _______________, ___. Thus, the effective yield to you will be below that
otherwise produced by the related pass-through rate and the price paid by you
for your security because distributions on your security in respect of any given
month will not be made until on or about the _____ day of the following month.
BALLOON LOANS MAY BEAR HIGHER RISK OF LOSS.
Approximately ____% of the mortgage loans are balloon loans, which
generally provide for equal monthly payments and a final monthly payment
substantially greater than the preceding monthly payments. The balloon loans in
the Trust Fund generally have original terms of __ to __ years and provide for
monthly payments based on a __ to __ year amortization schedule. The mortgagor
on a balloon loan will generally attempt to refinance a balloon loan or sell the
underlying mortgaged property on or prior to the stated maturity date in order
to avoid payment of the final balloon payment. A mortgagor's ability 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 mortgage loan.
PROCEEDS OF LIQUIDATION OF MIXED USE LOANS MAY TAKE LONGER TO RECOVER.
Mixed use loans are mortgage loans secured by multi-family properties and
structures that include both residential dwelling units and space used for
retail, professional or other commercial uses. We expect that mixed use loans
will represent less than __ % of the mortgage loans. Due to the limited market
for the type of properties securing mixed use loans, in the event of a
foreclosure, we expect that it will take longer to recover proceeds from the
liquidation of a mixed use loan than it would for a mortgage loan secured by a
one- to four-family dwelling.
SECOND LIENS MAY RESULT IN LOSSES IN FORECLOSURE PROCEEDINGS.
Mortgage loans representing approximately __% of the of the aggregate
outstanding principal balance of the mortgage loans on [the cut-off date] are
secured by second liens on the related mortgaged properties. In most cases, the
first lien mortgage related to a loan secured by a second lien will not be
included in the mortgage pool.
The proceeds from any liquidation, insurance or condemnation proceedings in
connection with the underlying mortgaged property will be available to satisfy
the outstanding balance of the related second mortgage only to the extent that
the claim of the related first mortgagee has been satisfied in full, including
any related foreclosure costs. In addition, the servicer, as second mortgagee on
the loans in its portfolio, may not foreclose on the property securing a second
mortgage unless it forecloses subject to the first mortgage, in which case it
must either pay the entire amount due on the first mortgage to the first
mortgagee at or prior to the foreclosure sale or advance funds to keep the first
mortgage current in the event the mortgagor is in default thereunder. The
servicer may, but is under no obligation to, advance funds in these
circumstances. The trust fund will not have any source of funds to satisfy
related first mortgages or make payments due to the first mortgagees.
DECREASE IN VALUE OF MORTGAGED PROPERTY WOULD DISPROPORTIONATELY AFFECT SECOND
LIENHOLDERS.
There are several factors that could adversely affect the value of
properties such that the outstanding balance of the related loan, together with
any senior financing on the properties, would equal or exceed the value of the
properties. Among the factors that could adversely affect the value of the
properties area an overall decline in the residential real estate market in the
areas in which the properties are located or a decline in the general condition
of the properties as a result of failure of borrowers to maintain adequately the
properties or of nature disasters that are not necessarily covered by insurance,
such as earthquakes and floods. Any such decline could extinguish the value of a
second interest in property before having any effect on the related first
interest therein. If such a decline occurs, the actual rates of delinquencies,
S-11
<PAGE>
foreclosure and losses on the loans secured by second liens could be higher than
those currently experienced in the mortgage lending industry in general.
RATINGS OF THE SECURITIES RELATE TO CREDIT RISK ONLY.
The ratings of the securities would be based on, among other things, the
adequacy of the value of the mortgage loans, the spread account and the [letter
of credit][surety bond]. These ratings should not be deemed a recommendation to
purchase, hold or sell securities, since they do not address market price or
suitability for a particular investor. There is also no assurance that these
ratings will remain in effect for any given period of time or may not be lowered
or withdrawn entirely by the rating agency 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 mortgage loans and the spread
account, these ratings might also be lowered or withdrawn, among other reasons,
because of an adverse change in the financial or other condition of the [letter
of credit][surety bond] provider or a change in the rating of the [letter of
credit][surety bond] provider's long term debt. Any reduction or withdrawal of a
rating will have an adverse effect on the value of the securities.
BANKRUPTCY OR INSOLVENCY OF SELLERS OR DEPOSITOR; RECLASSIFICATION OF SALE OF
MORTGAGE LOANS AS FINANCING.
The servicer, the sellers and the depositor will treat each conveyance of
mortgage loans by the sellers to the depositor as a sale of those mortgage
loans. The depositor will treat each conveyance of mortgage loans from the
depositor to the trust fund as a sale of those mortgage loans. If the conveyance
of the mortgage loans by the sellers to the depositor is treated as a sale,
those mortgage loans would not be part of the related seller's bankruptcy estate
and would not be available to that seller's creditors. In the event of the
bankruptcy or insolvency of a seller, however, the bankruptcy trustee, a
conservator or a receiver of the seller or another person may attempt to
recharacterize the sale of the mortgage loans as a borrowing by the seller,
secured by a pledge of the mortgage loans. Similarly, if the conveyance of the
mortgage loans by the depositor to the trust fund is treated as a sale, those
mortgage loans would not be part of the depositor's bankruptcy estate and would
not be available to the depositor's creditors. In the event of the bankruptcy or
insolvency of the depositor, however, the bankruptcy trustee, a conservator or a
receiver of the depositor or another person may attempt to recharacterize the
sale of the mortgage loans as a borrowing by the depositor, secured by a pledge
of the mortgage loans. In either case, this position, if argued before or
accepted by a court, could prevent timely payments of amounts due on your
security and result in a reduction of payments due on your security.
MOST OF THE MORTGAGE LOANS ARE SECURED BY PROPERTIES LOCATED IN ONLY A FEW
STATES.
As of [the cut-off date]:
o approximately __%, __% and __% (by outstanding principal balance) of the
mortgage loans are secured by properties located in the State of
__________, the Commonwealth of __________ and the State of __________
respectively; and
o the aggregate outstanding principal balance of the mortgage loans secured
by properties in each other state represents not more than approximately
___% of the mortgage loans.
S-12
<PAGE>
If the ____________, ____________, ____________, or ____________ residential
real estate markets should experience an overall decline in property values
after the dates of origination of the mortgage loans, the rates of losses on the
mortgage loans would be expected to increase, and could increase substantially.
S-13
<PAGE>
THE TRUST FUND
GENERAL
Equity One Mortgage Loan Trust ________-_____ (the "Issuer" or "Trust
Fund") , is a business trust formed under the laws of the State of Delaware
pursuant to a trust agreement (the "Trust Agreement") by and among Equity One
ABS, Inc., as depositor (the "Depositor") , [sellers] (the "Sellers") , and
___________, as owner trustee ("Owner Trustee") , 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
o acquiring, holding and managing the Loans and the other assets of the
Trust Fund and proceeds therefrom,
o issuing the Notes and the Certificates,
o making payments on the Notes and the Certificates, and
o engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The property of the Trust Fund will consist of the following:
o each of the Loans that are ___________;
o collections on the Loans received after ___________, ___ (the "Cut-off
Date");
o mortgaged properties pertaining to the related Loans that are acquired
by foreclosure or deed in lieu of foreclosure;
o the Collection Account and the [Distribution Account] (excluding net
earnings thereon);
o the [Letter of Credit] [Surety Bond]; and
o 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
Equity One, Inc., as master servicer (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
Equity One, Inc. ("Equity One"), a Delaware corporation and a wholly-owned
operating subsidiary of Popular North America, Inc., a Delaware corporation,
will act as Master Servicer for the Loans pursuant to a master servicing
agreement by and between the Depositor and the Master Servicer (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 is a Fannie Mae approved lender. Equity One originates mortgage loans
through a retail branch system and through mortgage loan brokers and
correspondents nationwide. Equity One's loans are principally
o first- and second-lien, fixed or adjustable rate mortgage loans
secured by
S-14
<PAGE>
o one- to four-family dwellings or
o multi-family properties and structures which include both
residential dwelling units and space used for retail,
professional or other commercial uses, and
o secured or unsecured consumer loans.
As of ______________, _____, Equity One and its subsidiaries provided
servicing for approximately mortgage loans (including mortgage loans serviced
for third parties) having an aggregate unpaid principal balance of approximately
$______________.
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 subsidiaries, 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.
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"), provided, however, that all
Loans to be included in the mortgage pool have been underwritten by Equity One's
Central Credit office in accordance with the Equity One Standards.
[Through its bulk purchase program, each Seller also purchases mortgage
loans that have been originated and closed by other lenders. Sellers purchase
mortgage loans in blocks ranging from $1,000,000 to $20,000,000. Prior to
funding any bulk purchase, each loan package is underwritten in accordance with
the Equity One Standards. Bulk purchased loans represent approximately __% of
the Loans as of the Cut-off Date.]
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 represent approximately __% of the Loans as of the
Cut-off Date.
Grade B Credits Loans represent approximately __% of the Loans as of the
Cut-off Date.
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 these determinations. We expect that some of the Loans included in
the mortgage pool will have been originated based on such underwriting
exceptions. Overall, the Sellers' goal 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.
S-15
<PAGE>
Under the Equity One Standards, Sellers must use the Full Doc, the NIV or
the AIV loan documentation program to verify a borrower's income. See "Specific
Underwriting Criteria; Underwriting Programs" in the Prospectus.
o Approximately __% of the Loans will be underwritten pursuant to the
Full Doc program.
o Approximately __ % of the Loans will be underwritten pursuant to the
NIV program.
o Approximately __ % of the Loans will be underwritten pursuant to the
AIV 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
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 [, except appraisals relating to
mortgages acquired through bulk purchases.] 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 or AIV 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 (1) the principal balance of the Loan or, if the loan is
secured by a second lien, the aggregate principal balance of such Loan and the
prior loan, and (2) the maximum insurable value of the improvements on the
mortgaged property.
LOAN SERVICING
Equity One services substantially all of the mortgage loans originated or
acquired by the Sellers, and also services mortgage loans for third parties such
as the Trust Fund to which the Sellers transfer mortgage loans originated or
acquired by them from time to time. Equity One has established standard policies
for the servicing and collection of mortgage loans. Servicing includes, but is
not limited to, collecting and remitting mortgage loan payments, accounting for
principal and interest, preparation of tax related information in connection
with the mortgage loans, supervision of delinquent mortgage loans, making
inspections as required of the mortgaged properties, loss mitigation efforts,
foreclosure proceedings and, if applicable, the disposition of mortgaged
properties, and generally administering the mortgage loans, for which it
receives servicing fees.
COLLECTION PROCEDURES
When a mortgagor fails to make a payment on a mortgage loan, the Master
Servicer contacts the mortgagor in an attempt to get the mortgagor to cure the
deficiency. Pursuant to its servicing procedures, the Master Servicer generally
mails to the mortgagor a notice of intent to foreclose after the mortgage loan
becomes 45 days past due (two payments due but not received). Within 45 days
thereafter, if the mortgage loan remains delinquent, the Master Servicer will
institute appropriate legal action to foreclose on the mortgaged property. The
Master Servicer may terminate these foreclosure proceedings if the mortgagor
cures the delinquency. Mortgage loans to borrowers in bankruptcy proceedings may
be restructured in accordance with law and with a view to maximizing recovery on
these mortgage loans, including any deficiencies.
Once foreclosure is initiated, the Master Servicer uses a foreclosure
tracking system to monitor the progress of the proceedings. The system includes
state specific parameters to monitor whether proceedings are progressing within
the time frame typical for the state in which the mortgaged property is located.
During the foreclosure proceeding, the Master Servicer determines the amount of
the foreclosure bid and whether to liquidate the mortgage loan.
After foreclosure, the Master Servicer may liquidate the mortgaged property
and charge-off the portion of the mortgage loan balance that was not recovered
as part of Liquidation Proceeds. If foreclosed, the mortgaged property is sold
at a public or private sale and may be purchased by the Master Servicer.
Servicing and charge-off policies and collection practices may change over
time in accordance with, among other things, the business judgment of the Master
Servicer, changes in the servicing portfolio and applicable laws and
regulations.
S-16
<PAGE>
FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE
The following table summarizes the delinquency and loss experience of
mortgage loans owned and serviced by Equity One and its subsidiaries at or for
the years specified therein. A mortgage 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 mortgage loans 60 days or more past
due on a contractual basis and includes mortgage loans where the mortgage loan
is in foreclosure or the borrower has filed for bankruptcy, but excludes
mortgage loans which are real estate owned. You should not consider this
information 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 first paragraph below the table will be
indicative of the actual foreclosure experience on the Loans.
S-17
<PAGE>
LOSS AND DELINQUENCY TABLE(1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
At or for the At or for the
At or for the Year Ended ______ Months ______ Months
November 30, Ended _________, ____ Ended _________, ____
------------------------ --------------------- ---------------------
<S> <C> <C> <C>
Portfolio Unpaid
Principal Balance(2)
Average Portfolio
Unpaid Principal
Balance(3)
60+ Days Delinquent(4)
Real Estate Owned(5)
Total Credit Losses(6) (7) (7)
</TABLE>
- -------------------------------
(1) This table includes only mortgage loans owned and serviced by Equity
One and its subsidiaries and real estate owned by Equity One and its
subsidiaries.
(2) Portfolio Unpaid Principal Balance is the net amount of principal to be
paid on each mortgage loan, excluding unearned finance charges and
other charges, and excludes the principal balance of each mortgage loan
as to which the related mortgaged property had been acquired through
foreclosure or deed in lieu of foreclosure by such date.
(3) Average Portfolio Unpaid Principal Balances are calculated by summing
monthly Portfolio Unpaid Principal Balances and dividing by the number
of months summed (i.e., twelve (12) in the case of the annual figures
and three (3) in the case of the quarterly figures).
(4) Delinquency percentages are calculated as the dollar amount of mortgage
loan principal delinquent as a percentage of the Portfolio Unpaid
Principal Balance. Delinquency percentages do not include the principal
balance of mortgage loans as to which the related mortgaged property
had been acquired through foreclosure or deed in lieu of foreclosure by
such date. Delinquency percentages are only available for mortgage
loans that are delinquent for a period of 60 days or more.
(5) Real estate owned represents the aggregate estimated fair value of the
properties acquired through foreclosure or deed in lieu of foreclosure.
The ____, _____ balance also includes properties securing mortgage
loans which had been in substance, but not legally, foreclosed by such
date.
(6) Total Credit Losses includes charge-offs of principal, net of
subsequent recoveries, relating to mortgage loans written off as
uncollectible. It does not include (a) losses incurred upon transfer of
mortgage loans to real estate owned and subsequent write downs of real
estate owned balances, (b) expenses associated with maintaining,
repairing, and selling foreclosed properties and real estate owned and
(c) losses (gains) on the disposition of real estate owned.
(7) Annualized.
- -------------------------------
S-18
<PAGE>
Historically, a variety of factors, including the appreciation of real
estate values, have limited the loss and delinquency experience on mortgage
loans. There can be no assurance that factors beyond the Master Servicer'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.
IMPACT OF THE YEAR 2000
The Year 2000 issue is the result of many computer programs that were
written using two digits rather than four to define the applicable year. Any
information technology ("IT") systems or non-IT systems (primarily embedded
systems and components) used by the Master Servicer, its affiliates or any of
their suppliers or outside service providers may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations, causing disruption of operations including, among other
things, a temporary inability to process transactions or engage in normal
business activities.
The Master Servicer and its affiliates have assigned certain individuals to
identify and correct Year 2000 compliance issues. IT systems with non-compliant
code are expected to be modified or replaced with systems that are Year 2000
compliant. Similar actions are being taken with respect to non-IT systems. These
individuals are also responsible for investigating the readiness of suppliers,
service providers and other third parties along with the development of
contingency plans where necessary.
All IT systems have been inventoried and assessed for compliance, and
detailed plans are in place for required system modifications or replacements.
Remediation and testing activities are underway with approximately ___% of the
systems already compliant. These systems are expected to be fully compliant by
__________________. Progress of the Year 2000 compliance program is continuously
being monitored by senior management.
The Master Servicer has identified critical suppliers, service providers
and other third parties and has surveyed their Year 2000 compliance programs.
Risk assessments and contingency plans, where necessary, will be finalized in
_________________.
Incremental costs of the Master Servicer directly related to Year 2000
issues are estimated to be insignificant to the overall operating expenses of
the company between 1998 and 2000. Approximately ___% of the total estimated
spending for the Year 2000 represents costs to modify existing systems. This
estimate assumes that the Master Servicer will not incur significant Year 2000
related costs on behalf of suppliers, service providers or other third parties.
The Master Servicer's Year 2000 efforts are ongoing and its overall plan,
as well as the consideration of contingency plans, will continue to evolve as
new information becomes available. While the Master Servicer anticipates no
major interruption of its business activities, that will be dependent in part on
the ability of third parties to properly remediate their IT and non-IT systems
in a timely manner. Although the Master Servicer has implemented the actions
described above to address third party issues, it has no ability to influence
the compliance actions of those parties. Accordingly, while the Master Servicer
believes its actions in this regard should have the effect of reducing Year 2000
risks, it is unable to eliminate them or estimate the ultimate effect Year 2000
risks will have on its operating results.
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 mortgage loans
secured by first and/or subordinate liens on one- to four-family dwellings
(each, a "Residential Loan") and first liens on multi-family properties and
structures which include both residential dwelling units and space used for
retail, professional or other commercial uses (each, a "Mixed Use Loan"). We
expect that Residential Loans secured by one-family detached dwellings will
represent approximately ___% of the Loans. We expect that Mixed Use Loans will
represent less than ___% of the Loans. 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.
S-19
<PAGE>
On ____________, ___ (the "Closing Date") , the Depositor will purchase the
Loans from the Sellers pursuant to a purchase agreement (the "Purchase
Agreement").
The Cut-off Date Pool Principal Balance is $_____________ , which is equal
to the aggregate principal balance of the Loans as of the Cut-off Date. As of
the Cut-off Date, the Loans were not more than [ ] days delinquent. The average
Cut-off Date Principal Balance was approximately $____________, the minimum
Cut-off Date Principal Balance was zero, the maximum Cut-off Date Principal
Balance was $_________, the minimum loan rate and the maximum loan rate as of
the Cut-off Date were _______% and ________% per annum, respectively, and the
weighted average loan rate as of the Cut-off Date was approximately ______% per
annum. The remaining term to scheduled maturity for the Loans as of the Cut-off
Date ranged from ___ months to ___ months and the weighted average remaining
term to scheduled maturity was approximately ___ months. As of the Cut-off Date,
the Combined Loan-to-Value Ratio of the Loans ranged from __________ % to
_______ % and the weighted average Combined Loan-to-Value Ratio was ___%.
The "Combined Loan-to-Value Ratio" of a Loan is the fraction, expressed as
a percentage, the numerator of which is the principal balance of the Loan at the
date of origination plus, in the case of a Loan secured by a second lien, the
outstanding principal balance of the related first lien mortgage loan on the
date of origination of the second lien 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
o the appraised value based on an appraisal obtained by the originator
from an independent fee appraiser at the time of the origination of
the related Loan, and
o 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 the 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 ________ % 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 (1) _______ years, in the case
of Residential Loans and (2) ______ 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 the pool were
originated or purchased by the Sellers and were originated substantially in
accordance with the Sellers' underwriting criteria for mortgage loans, described
under "The Loan Program--Underwriting Standards."
Scheduled monthly payments made by the mortgagors on the Loans either
earlier or later than the scheduled Due Dates thereof will not affect the
amortization schedule or the relative application of such payments to principal
and interest. Any Loan may be prepaid in full or in part at any time, most
without penalty.
Each Loan was originated after __________________________.
The latest stated maturity date of any Loan is _______________________. The
earliest stated maturity date of ___________________________.
As of the Cut-off Date, no Loan was delinquent more than ___ days.
S-20
<PAGE>
No Loan had a Combined Loan-to-Value Ratio at origination of more than
___%. Approximately ___ % of the Residential Loans had a Combined Loan-to-Value
Ratio at origination of ___%. In general, the Mixed Use Loans had a Combined
Loan to-Value Ratio at origination of not more than ___%.
No borrower of a Loan had a FICO score (issued by the Fair Isaac Credit
Bureau with a higher score generally signifying a better credit history) of less
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. Information presented herein regarding FICO
scores is presented for informational purposes only.
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>
LOAN TABLES
<TABLE>
<CAPTION>
LOAN RATE(1)
AGGREGATE PRINCIPAL PERCENT OF POOL
LOANS RATES (%) NUMBER OF LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
- --------------- --------------- ------------------- ----------------------
<S> <C> <C> <C>
6.250............................ $ %
6.750...........................
6.875............................
7.000............................
7.125............................
7.250...........................
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>
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS (1)
<TABLE>
<CAPTION>
AGGREGATE
ORIGINAL COMBINED PRINCIPAL BALANCE PERCENT OF POOL
LOAN-TO-VALUE RATIOS (%) NUMBER OF LOANS OUTSTANDING (BY PRINCIPAL BALANCE)
- ------------------------ --------------- ----------------- ----------------------
<S> <C> <C> <C>
50.00 and below........
50.01 to 55.00...........
55.00 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 Combined Loan-to-Value Ratio of the Loans is
expected to be approximately _____%.
CURRENT LOAN PRINCIPAL BALANCES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
CURRENT LOAN AMOUNTS LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
-------------------- --------- ------------------- ----------------------
<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>
DOCUMENTATION PROGRAM FOR LOANS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
TYPE OF PROGRAM(1) LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
------------------ --------- ------------------- ----------------------
<S> <C> <C> <C>
Full Doc...................... $ %
NIV.............................
AIV.............................
---------------------- -------
Totals $ 100.00%
====================== =======
</TABLE>
- ----------------
(1) See "The Loan Program--Underwriting Standards" herein and "Loan
Program-Specific Underwriting Criteria; Underwriting Programs" in the
Prospectus.
TYPE OF MORTGAGE PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
PROPERTY TYPE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
------------- --------- ------------------- ----------------------
<S> <C> <C> <C>
Single Family.................... $ %
Condominium......................
Mixed Use........................
Two-to four-Family...............
Planned Unit Development.........
-- ---------------------- -------
Totals $ 100.00%
====================== =======
</TABLE>
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
OCCUPANCY TYPE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
-------------- --------- ------------------- ----------------------
<S> <C> <C> <C>
Primary Residence........... $ %
Investor Property...........
Second Residence............
-- ---------------------- -------
Totals $ 100.00%
====================== =======
</TABLE>
(1) Based upon representation of the related mortgagors at the time of
origination.
S-24
<PAGE>
STATE DISTRIBUTION OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
STATE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
----- --------- ------------------- ----------------------
<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.
OCCUPANCY TYPES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
OCCUPANCY TYPE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
-------------- --------- ------------------- ----------------------
<S> <C> <C> <C>
Non-Owner Occupied......
Owner Occupied..........
Totals 100.00%
=======
</TABLE>
FICO SCORES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
FICO SCORE LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
-------------- --------- ------------------- ----------------------
<S> <C> <C> <C>
Totals 100%
====
</TABLE>
S-25
<PAGE>
REMAINING TERMS TO MATURITY(1)
<TABLE>
<CAPTION>
REMAINING TERMS TO NUMBER OF AGGREGATE PRINCIPAL PERCENT OF POOL
MATURITY (MONTHS) LOANS BALANCE OUTSTANDING (BY PRINCIPAL BALANCE)
------------------ --------- ------------------- ----------------------
<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......................
158......................
147......................
146......................
145......................
144......................
-- ------------------- -------
Totals................... $ 100.00%
=================== =======
</TABLE>
(1) As of the Cut-off Date, the weighted remaining term to maturity of the
Loans is expected to be approximately _____ months.
S-26
<PAGE>
SALE OF LOANS
At the time of issuance of the Securities, the Depositor will sell, assign
and transfer to the Trust Fund all of its right, title and interest in and to
each Loan (including its right to purchase any Additional Balances arising in
the future), related Loan Agreements, mortgages [, security agreements] and
other related documents (collectively, the "Related Documents") , without
recourse, including all collections received on or with respect to each such
Loan after the Cut-off Date (exclusive of payments in respect of accrued
interest due on or prior to the Cut-off Date or due in the month of________).
The Owner Trustee, concurrently with this 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.
This schedule will include information as to the Cut-off Date Principal Balance
of each Loan, as well as information with respect to the Loan's 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,
o 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
principal balance of the Defective Loan;
o 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 the Defective Loan;
o 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;
o 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;
o 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;
o 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);
o in general, have an original Combined Loan-to-Value Ratio not greater
than that of the Defective Loans; and
o 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.
S-27
<PAGE>
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, that 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 of these representations and warranties that
materially and adversely affects the interests of the holders or the [Letter of
Credit] [Surety Bond] provider in the related Loan and Related Documents, the
Seller of the Loan will have a period of 90 days after discovery or notice of
the breach to effect a cure. If the breach cannot be cured within the 90-day
period, the Seller will be obligated to repurchase or substitute the Defective
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."
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. 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 these provisions, unless 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. In addition, the
Servicer and its affiliates periodically conduct mass mailings to their existing
customers with respect to the refinancing of existing mortgage loans. Although
these marketing efforts are not specifically directed to customers who have
mortgage loans included in a trust fund, these customers may receive the
marketing materials as part of a broader mailing, which may result in an
increase in the rate of prepayments of mortgage loans included in a trust fund
through refinancings. 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 the 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 some borrowers will
not prepay their Loans to any significant degree. See "Yield and Prepayment
Considerations" in the Prospectus.
S-28
<PAGE>
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. 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 these
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 the 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
o 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,
o 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,
o a segregated trust account maintained with the Owner Trustee or an
affiliate of the Owner Trustee in its fiduciary capacity, or
o 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.
"Eligible Investments" are specified in the Master Servicing Agreement
and are limited to
o obligations of the United States or any agency thereof, provided such
obligations are backed by the full faith and credit of the United
States;
o 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;
o 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;
o 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;
S-29
<PAGE>
o 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;
o 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;
o repurchase obligations with respect to any security described in the
first two bullets above, in either case entered into with a depository
institution or trust company (acting as principal) described in the
fourth bullet above;
o 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
o 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, 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
o 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
o 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
o the Cut-off Date Principal Balance thereof, plus
o any Additional Balances in respect of that Loan, minus
o all collections credited against the principal balance of that Loan in
accordance with the related Loan Agreement prior to that day. The
principal balance of a Liquidated Loan after final recovery of related
Liquidation Proceeds will be zero.
S-30
<PAGE>
HAZARD INSURANCE
The Master Servicing Agreement provides that the Master Servicer maintain
hazard insurance on the mortgaged properties relating to the Loans. While the
terms of the related Loan Agreements generally require borrowers to maintain
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 acquired upon foreclosure of a Loan, by deed in lieu of
foreclosure [or upon realization of a security interest], hazard insurance with
extended coverage in an amount equal to the lesser of
o the maximum insurable value of the mortgaged property or
o the outstanding balance of the Loan plus the outstanding balance on
any mortgage loan senior to the 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
hazard insurance obligation by maintaining a blanket policy insuring against
losses on the mortgaged properties underlying the Loans. If this 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 that clause. 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. Most of these 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 defaulted Loans 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 this foreclosure or other conversion, the Master Servicer
will follow the practices that it deems necessary or advisable and that are in
keeping with its general mortgage servicing activities. 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, the 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 Collection Period.
The Master Servicer will retain all assumption fees, late payment charges and
other fees and charges, to the extent collected from borrowers, as additional
servicing compensation.
The Master Servicer will pay certain ongoing expenses associated with the
Trust Fund and incurred by it in connection with its responsibilities under the
Master Servicing Agreement, including, without limitation, payment of the fees
and disbursements of the Trustee, any custodian appointed by the Trustee, the
entity maintaining the Security Register relating to the Securities and any
paying agent. In addition, the Master Servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with defaulted Loans and in
S-31
<PAGE>
connection with the restoration of mortgaged properties, these right of
reimbursement being prior to the rights of holders to receive any related Net
Liquidation Proceeds.
DESCRIPTION OF THE SECURITIES
GENERAL
The Asset-Backed Notes, Series _______-_____ (the "Notes") will be issued
pursuant to the Indenture (the "Indenture") dated as of _______________, 199_,
between the Trust Fund and ___________ as Indenture Trustee (the "Indenture
Trustee") . The Asset-Backed Certificates, Series _______-_____ (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 Notes
and Certificates (collectively, the "Securities") , and the Indenture and Trust
Agreement. As used herein, "Agreement" shall mean either the Trust Agreement or
the Indenture, as the context requires.
The Certificates will be freely transferable and exchangeable at the
corporate trust office of the Owner Trustee. The Notes will be freely
transferable and exchangeable at the corporate trust office of the Indenture
Trustee.
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 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 these systems, or indirectly through organizations that are
participants in these 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 beneficial interests in the Book-Entry Securities in minimum
denominations of $1,000 and in integral multiples of $1.00 in excess thereof.
Except as described below, no person acquiring a Book-Entry Security will be
entitled to receive a physical certificate representing that 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 can only 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:
o to the Master Servicer, the Servicing Fee;
o as payment for the accrued interest due and any overdue accrued
interest on the respective principal balance of the Notes and the
Certificates;
o 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 principal balances;
o as principal on the Securities, as payment for any Liquidation Loss
Amounts on the Loans;
o as payment for the premium for the [Letter of Credit] [Surety Bond];
o to reimburse prior draws made on the [Letter of Credit] [Surety Bond];
and
o any remaining amounts to the Seller.
S-32
<PAGE>
As to any Distribution Date, the "Collection Period" is the calendar month
preceding the month of that 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 that 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 principal balance of the
Notes at the per annum rate (the "Note Rate") equal to __% per annum and be
payable on each Distribution Date with respect to the calendar month preceding
such 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 a 360-day year made up of twelve 30-day months. 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 principal balance of
the Certificates at the per annum rate (the "Pass-Through Rate") equal to __ %
per annum and be payable on each Distribution Date with respect to the calendar
month preceding such Distribution Date at [a floating rate equal to LIBOR (as
defined herein) plus ___%] [__%]. Interest will be calculated on the basis of a
360-day year made up of twelve 30-day months. 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
o ___________________ and
o 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,
those 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 the 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.
S-33
<PAGE>
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, events of default under the Indenture will
consist of the following:
o a default for five days or more in the payment of any interest on any
Note;
o 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;
o a default in the observance or performance of any covenant or
agreement of the Trust Fund made in the Indenture and the continuation
of any such default for a period of 30 days after notice thereof is
given to the Trust Fund by the Indenture Trustee or to the Trust Fund
and the Indenture Trustee by the holders of at least 25% in principal
amount of the Notes then outstanding;
o 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
o 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 the 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 the unpaid interest at the
interest rate on the Note (to the extent lawful) until the interest is paid. The
additional interest on unpaid interest shall be due at the time that 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 that principal at the
interest rate on the Note until that 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 the Notes to be immediately due and payable. This
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
o such holder previously has given the Indenture Trustee written notice
of a continuing event of default,
o 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,
o such holder or holders have offered the Indenture Trustee reasonable
indemnity,
S-34
<PAGE>
o the Indenture Trustee has for 60 days failed to institute such
proceeding and
o 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
o 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,
o 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,
o no event of default shall have occurred and be continuing immediately
after such merger or consolidation,
o 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
o 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,
o except as expressly permitted by the Indenture, sell, transfer,
exchange or otherwise dispose of any of the assets of the Trust Fund,
o claim any credit on or make any deduction from the principal and
interest payable in respect of the Notes (other than amounts withheld
under the Code or applicable state law) or assert any claim against
any present or former noteholder because of the payment of taxes
levied or assessed upon the Trust Fund,
o dissolve or liquidate in whole or in part,
o 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
o 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.
S-35
<PAGE>
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 changes of this nature have occurred,
then no report will 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
o 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;
o impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment;
o 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;
o 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;
o 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
o 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.
S-36
<PAGE>
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. However, 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 indemnification of this nature 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
that 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, those 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 Depositor and the Owner Trustee may amend the Trust Agreement, 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 the holders. However, this action cannot, as evidenced by
an opinion of counsel satisfactory to the Owner Trustee, adversely affect in any
material respect the interests of any holders. The Depositor and the Owner
Trustee also may amend the Trust Agreement 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 aggregating not
less than a majority of the aggregate Voting Interests for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Trust Agreement or modifying in any manner the rights of the holders.
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
that person and certain actions by that 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 this 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.
S-37
<PAGE>
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"). However,
o 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
o in determining whether the Owner Trustee is protected in relying upon
any 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 those 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. However, 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 the Trust
Agreement or by reason of reckless disregard of its obligations and duties under
the Trust Agreement. Any indemnification of this nature 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 that merger or consolidation will be the successor of the Owner
Trustee under each Trust Agreement.
ADMINISTRATION AGREEMENT
______________ 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 the 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.
S-38
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by the
Depositor towards the purchase price of the Loans.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material United States
federal income tax aspects of the purchase, ownership and disposition of the
Notes and Certificates, is based on the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder, and published rulings and court decisions in effect as of the date
hereof, all of which are subject to change, possibly retroactively. This
discussion does not address every aspect of the United States federal income tax
laws which may be relevant to noteholders and certificateholders in light of
their personal investment circumstances or to certain types of
certificateholders subject to special treatment under the United States federal
income tax laws (for example, tax exempt investors, banks and life insurance
companies). Accordingly, investors should consult their tax advisors regarding
United States federal, state, local, foreign and any other tax consequences to
them of investing in the Notes and Certificates.
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
Stradley, Ronon, Stevens & Young, LLP, special counsel to the Depositor
("Tax Counsel"), is of the opinion that the Trust Fund will not be an
association (or a publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion is based on the assumption that the
terms of the Trust Agreement and related documents will be complied with, and on
Tax Counsel's conclusions that
o the Trust Fund will not have certain characteristics necessary for a
business trust to be classified as an association taxable as a
corporation and
o 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.
S-39
<PAGE>
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
The Trust Fund and the Master Servicer will agree, and the
certificateholders will agree by their purchase of Certificates, to treat the
Trust Fund as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust Fund, the partners
of the partnership being the certificateholders, and the Notes being debt of the
partnership. However, the proper characterization of the arrangement involving
the Trust Fund, the Certificates, the Notes, and the Master Servicer is not
clear because there is no authority on transactions closely comparable to that
contemplated herein. For example, because the Certificates have certain features
characteristic of debt, the Certificates might be considered debt of the Trust
Fund. Any such characterization would not result in materially adverse tax
consequences to certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership.
As a partnership, the Trust Fund will not be subject to federal income tax.
Rather, each certificateholder will be required to separately take into account
such holder's allocated share of income, gains, losses, deductions and credits
of the Trust Fund. The Trust Fund's income will consist primarily of interest
and finance charges earned on the Loans (including appropriate adjustments for
market discount, OID and bond premium) and any gain upon collection or
disposition of Loans. The Trust Fund's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Loans. See "Federal
Income Tax Consequences--Tax Consequences to Holders of the Certificates" in the
Prospectus.
The Trust Fund expects to withhold on the portion of its taxable income
that is allocable to foreign certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Trust Fund to change its withholding procedures. See "Federal Income Tax
Consequences--Tax Consequences to Holders of the Certificates--Tax Consequences
to Foreign Certificateholders" in the Prospectus.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" herein, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Securities offered hereunder. State income tax law may differ substantially from
the 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
S-40
<PAGE>
Section 406 of ERISA prohibits Parties in Interest with respect to a Plan
from engaging in certain transactions (including loans) involving a Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
Parties in Interest which engage in non-exempt prohibited transactions.
PLAN ASSET REGULATION
The United States Department of Labor ("DOL") has issued final regulations
concerning the definition of what constitutes the assets of a Plan for purposes
of ERISA and the prohibited transaction provisions of the Code (the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan acquires
an "equity interest" in an entity that is neither a "publicly-offered security"
(as defined therein) nor a security issued by an investment company registered
under the Investment Company Act of 1940, the assets of the entity will be
treated as assets of the Plan investor unless certain exceptions apply. If the
[Notes/Certificates] were deemed to be equity interests and no statutory,
regulatory or administrative exemption applies, the Trust Fund could be
considered to hold plan assets by reason of a Plan's investment in the Notes.
Such plan assets would include an undivided interest in any assets held by the
Trust Fund. In such an event, the Trustee and other persons, in providing
services with respect to the Trust Fund's assets, may be parties in interest
with respect to such Plans, subject to the fiduciary responsibility provisions
of Title I of ERISA, including the prohibited transaction provisions of Section
406 of ERISA, and Section 4975 of the Code with respect to transactions
involving the Trust Fund's assets. Under the Plan Asset Regulation, the term
"equity interest" is defined as any interest in an entity other than an
instrument that is treated as indebtedness under "applicable local law" and
which has no "substantial equity features." Although the Plan Assets Regulation
is silent with respect to the question of which law constitutes "applicable
local law" for this purpose, DOL has stated that these determinations should be
made under the state law governing interpretation of the instrument in question.
In the preamble to the Plan Assets Regulation, DOL declined to provide a precise
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
o 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
o the servicing, operation and management of such asset backed
passthrough 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:
o the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated
party;
S-41
<PAGE>
o 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;
o the Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic
rating categories from either Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Moody's Investors Service, Inc,
Duff & Phelps Credit Rating Co. or Fitch Investors Service, Inc.;
o 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;
o the sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not
more than reasonable compensation for underwriting the Certificates;
the sum of all payments made to and retain by the Issuer pursuant to
the assignment of the Loans to the Trust Fund represents not more than
the fair market value of such Loans; the sum of all payments made to
and retained by the servicer represents not more than reasonable
compensation for such person's services under a master agreement and
reimbursements of such person's reasonable expenses in connection
therewith; and
o 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
S-42
<PAGE>
$____________. In connection with the purchase and sale of the Securities, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts, concessions or commissions.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof The Depositor is an affiliate of the Underwriter. The
Underwriter is an affiliate of the Depositor.
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed upon
for the Depositor by Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
Pennsylvania and for the Underwriter by ________________.
RATINGS
It is a condition to the issuance of the [certificates/notes] that they be
rated "____" by _____________________ ("________") and "____" by
__________________ ("_____" and, together with ________________, the "Rating
Agencies").
The ratings of ____________ and ______________ assigned to
[certificates/notes] address the likelihood of the receipt by the holders of all
distributions to which they are entitled. The rating process addresses
structural and legal aspects associated with the [certificates/notes], including
the nature of the underlying mortgage loans. The ratings assigned to
[certificates/notes] do not represent any assessment of the likelihood that
principal prepayments will be made by the mortgagors or the degree to which the
prepayments will differ from that originally anticipated. The rating of the
[certificates/notes] 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 change in the ratings of the [letter of
credit/surety bond] provider by _________ or ____________ may result in a change
in the ratings on the [certificates/notes]. The ratings do not address the
possibility that holders might suffer a lower than anticipated yield due to
non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
[certificates/notes] are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the [certificates/notes].
The Depositor has not requested that any rating agency rate the
[certificates/notes] other than as stated above. However, there can be no
assurance as to whether any other rating agency will rate the
[certificates/notes], or, if it does, what rating would be assigned by that
rating agency. A rating on the [certificates/notes] by another rating agency, if
assigned at all, may be lower than the ratings assigned to the
[certificates/notes] as stated above.
S-43
<PAGE>
INDEX OF DEFINED TERMS
Administration Agreement.........................S-39
Administrator....................................S-39
Agreement........................................S-31
BIF..............................................S-28
Book-Entry Securities............................S-32
Certificates.....................................S-31
Closing Date.....................................S-19
Code.............................................S-39
Collateral Value.................................S-19
Collection Account...............................S-28
Collection Period................................S-32
Combined Loan-to-Value Ratio.....................S-19
Cut-off Date.....................................S-13
Cut-off Date Pool Principal Balance..............S-19
Defective Loans..................................S-27
Definitive Security..............................S-32
Depositor........................................S-13
Determination Date...............................S-28
DOL..............................................S-42
DTC..............................................S-32
Due Date.........................................S-20
Eligible Account.................................S-28
Eligible Investments.............................S-28
Eligible Substitute Loan.........................S-26
Equity One.......................................S-14
Equity One Standards.............................S-14
ERISA............................................S-41
ERISA Counsel....................................S-42
European Depositories............................S-32
Exemption........................................S-42
FDIC.............................................S-28
Indenture........................................S-31
Indenture Trustee................................S-31
Insolvency Event.................................S-38
Interest Accrual Period..........................S-32
Interest Collections.............................S-29
Issuer...........................................S-13
IT ..............................................S-18
Liquidation Loss Amount..........................S-32
Loan Agreements..................................S-19
Loans............................................S-18
Master Servicer..................................S-13
Master Servicing Agreement.......................S-14
Mixed Use Loan...................................S-19
Mortgage Files...................................S-26
Net Liquidation Proceeds.........................S-30
Note Rate........................................S-32
Notes............................................S-31
OID..............................................S-40
Owner Trustee....................................S-13
Parties in Interest..............................S-41
Pass-Through Rate................................S-33
Plan Asset Regulation............................S-42
Plans............................................S-41
Pool Balance.....................................S-30
Principal Collections............................S-29
Purchase Agreement...............................S-19
Rating Agencies..................................S-44
Refinance Loan...................................S-19
Related Documents................................S-26
Relevant Depository..............................S-32
Repurchase Price.................................S-26
Residential Loan.................................S-18
SAIF.............................................S-28
Securities.......................................S-31
Security Account.................................S-28
Sellers..........................................S-13
Servicing Fee Rate...............................S-31
Tax Counsel......................................S-40
Trust Agreement..................................S-13
Trust Fund.......................................S-13
Underwriter................................S-42, S-44
Underwriting Agreement...........................S-44
Voting Interests.................................S-38
S-44
<PAGE>
$-------------------------------
EQUITY ONE MORTGAGE LOAN TRUST _________-_____
$_________ [] ASSET-BACKED CERTIFICATES, SERIES _________-_____
$_________ [] ASSET-BACKED NOTES, SERIES _________-_____
EQUITY ONE ABS, INC.
(Depositor)
-------------------------------------------------
PROSPECTUS SUPPLEMENT
------------, ----------
-------------------------------------------------
[Underwriter's Logo]
S-45
<PAGE>
Prospectus dated July 23, 1999
EQUITY ONE ABS, INC.
Depositor
ASSET BACKED CERTIFICATES
ASSET BACKED NOTES
(Issuable in Series)
-------------------------------
Equity One ABS, Inc., as depositor, may offer from time to time under this
prospectus and related prospectus supplements securities that are asset-backed
certificates or asset-backed notes. The depositor will sell these securities
from time to time in one or more series, each of which series will be issued in
one or more classes.
- ----------------------------------
BEFORE BUYING SECURITIES, The related prospectus supplement
CONSIDER CAREFULLY THE RISK will set forth the specific assets
FACTORS BEGINNING ON PAGE 5 OF of the trust fund and the seller or
THIS PROSPECTUS. sellers from whom the assets are
acquired.
Neither the securities of EACH TRUST FUND'S ASSETS MAY
any series nor the underlying INCLUDE--
loans will be insured or
guaranteed by any governmental o one or more pools of
agency or instrumentality, or
by any other entity. o mortgage loans secured by first
and/or subordinate mortgages on
The securities of each series o one- to four-family
will represent interests in the residential properties and
related trust fund only and will
not represent interests in or be o mixed commercial/residential
obligations of any other entity. use properties and other
multi-family residential
This prospectus may be used to properties,
offer and sell any series of
securities only if it is o revolving home equity loans or
accompanied by the prospectus balances thereof secured by
supplement for that series. first and/or subordinate
mortgages on one- to four-
family residential properties,
o all monies due under the above
assets, which may be net of some
of the amounts payable to the
servicer, and
o other funds, credit enhancement
and other assets.
The assets comprising the trust
fund may be divided into one or
more asset groups and each class of
the related series will evidence
beneficial ownership of the
corresponding asset group, as
applicable.
The prospectus supplement will
state if the trust fund will make a
REMIC election for federal income
tax purposes.
- ----------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Information about the securities is presented in two separate documents
that progressively provide more detail: (1) this prospectus, which provides
general information, some of which may not apply to your series of securities,
and (2) the accompanying prospectus supplement, which will describe the specific
terms of your series of securities, including:
o the principal balances and/or interest rates of each class;
o the timing and priority of interest and principal payments;
o statistical and other information about the loans;
o information about credit enhancement, if any, for each class;
o the ratings for each class; and
o the method for selling the securities.
We strongly encourage you to read both this prospectus and the accompanying
prospectus supplement in full. You should rely only on the information contained
or incorporated by reference in this prospectus and the accompanying prospectus
supplement. We have not authorized anyone to provide you with different
information.
If the description of the terms of your securities varies between this
prospectus and the accompanying prospectus supplement, you should rely on the
information in the prospectus supplement.
We are not offering securities in any state where the offer is not
permitted.
We do not claim that the information in this prospectus and the
accompanying prospectus supplement is accurate as of any date other than the
dates stated on the cover of each document.
We have made cross-references to captions in this prospectus and the
accompanying prospectus supplement under which you can find further related
discussions. The following table of contents and the table of contents in the
related prospectus supplement indicate where these captions are located.
2
<PAGE>
TABLE OF CONTENTS
RISK FACTORS................................................................. 6
Liquidation Value of Trust Fund Assets May be Insufficient to Satisfy
All Claims Against Trust Fund........................................... 6
Decreases in the Value of Mortgaged Property will Disproportionately
Affect Junior Lienholders............................................... 6
Liquidations Could Result in Payment Delays and Losses.................... 6
Junior Liens May Result in Losses in Foreclosure Proceedings.............. 7
Proceeds of Liquidation of Mixed Use Loans May Take Longer to Recover..... 7
Balloon Loans May Bear Higher Risk of Loss................................ 7
Pre-Funding Accounts and Possibility of Prepayment........................ 7
Limits on Credit Enhancement.............................................. 8
The Depositor has Limited Assets.......................................... 8
Limited Recourse to Sellers, Depositor or Servicer........................ 9
Bankruptcy and Insolvency Risks; Reclassification of Sale of Loans a
Financing............................................................... 9
Prepayments of Loans and Other Factors May Result in Lower Yield..........10
Book-Entry Securities May Pose Limitations................................10
Book-Entry Securities May Result in Delayed Receipt of Distributions......10
Some Securities May be Issued With Original Issue Discount................11
Limited Liquidity May Result in Delays in Liquidation or Lower Returns....11
Violations of Lending Laws Could Cause Losses.............................11
Mortgaged Properties may be Subject to Environmental Risks................11
Ratings of the Securities Relate to Credit Risk Only......................12
THE TRUST FUND...............................................................12
General...................................................................12
The Loans.................................................................13
Substitution of Trust Fund Assets.........................................16
USE OF PROCEEDS..............................................................16
THE DEPOSITOR................................................................16
LOAN PROGRAM.................................................................16
Underwriting Standards....................................................17
Specific Underwriting Criteria; Underwriting Programs.....................17
Summary of Underwriting Requirements by Program...........................18
Qualifications of Sellers and Servicer....................................21
Representations by Sellers; Repurchases...................................21
DESCRIPTION OF THE SECURITIES................................................22
General...................................................................22
Distributions on Securities...............................................24
Advances..................................................................26
Reports to Securityholders................................................26
Categories of Classes of Securities.......................................27
Indices Applicable to Floating Rate and Inverse Floating Rate Classes.....30
Book-Entry Registration of Securities.....................................32
CREDIT ENHANCEMENT...........................................................35
General...................................................................35
Subordination.............................................................35
Letter of Credit..........................................................36
3
<PAGE>
Insurance Policies, Surety Bonds and Guaranties...........................36
Over-Collateralization....................................................37
Reserve Accounts..........................................................37
Pool Insurance Policies...................................................38
Cross-Collateralization...................................................39
YIELD AND PREPAYMENT CONSIDERATIONS..........................................39
THE AGREEMENTS...............................................................41
Assignment of the Trust Fund Assets.......................................41
Payments on Loans; Deposits to Security Account...........................42
Pre-Funding Account.......................................................44
Sub-Servicing by Sellers..................................................45
Collection Procedures.....................................................45
Hazard Insurance..........................................................45
Realization Upon Defaulted Loans..........................................47
Servicing and Other Compensation and Payment of Expenses..................48
Evidence as to Compliance.................................................48
Certain Matters Regarding the Servicer and the Depositor..................48
Events of Default; Rights Upon Event of Default...........................49
Amendment.................................................................51
Termination; Optional Termination.........................................51
The Trustee...............................................................52
LEGAL ASPECTS OF THE LOANS...................................................52
General...................................................................52
Foreclosure/Repossession..................................................53
Environmental Risks.......................................................55
Rights of Redemption......................................................56
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens...................56
Due-on-Sale Clauses.......................................................56
Enforceability of Prepayment and Late Payment Fees........................57
Equitable Limitations on Remedies.........................................57
Applicability of Usury Laws...............................................58
Soldiers'and Sailors' Civil Relief Act....................................58
Junior Mortgages; Rights of Senior Mortgagees.............................58
The Title I Program.......................................................59
Consumer Protection Laws..................................................62
FEDERAL INCOME TAX CONSEQUENCES..............................................62
General...................................................................62
Status as Real Property Loans.............................................63
Taxation of Debt Securities...............................................63
Taxation of the REMIC and its Holders.....................................67
REMIC Expenses; Single Class REMICs.......................................68
Taxation of the REMIC.....................................................68
Taxation of Holders of Residual Interest Securities.......................70
Administrative Matters....................................................72
Tax Status as a Grantor Trust.............................................72
Sale or Exchange..........................................................74
Miscellaneous Tax Aspects.................................................75
Tax Treatment of Foreign Investors........................................75
Tax Characterization of the Trust Fund as a Partnership...................76
Tax Consequences to Holders of the Notes..................................77
Tax Consequences to Holders of the Certificates Issued by a Partnership...78
STATE TAX CONSIDERATIONS.....................................................82
ERISA CONSIDERATIONS.........................................................82
LEGAL INVESTMENT.............................................................86
METHOD OF DISTRIBUTION.......................................................87
LEGAL MATTERS................................................................87
4
<PAGE>
RATING.......................................................................87
AVAILABLE INFORMATION........................................................88
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................89
INDEX OF DEFINED TERMS.......................................................90
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors prior to any
purchase of securities.
LIQUIDATION VALUE OF TRUST FUND ASSETS MAY BE INSUFFICIENT TO SATISFY ALL CLAIMS
AGAINST TRUST FUND.
There is no assurance that the market value of the primary assets or any
other assets for a series of securities will at any time be equal to or greater
than the aggregate principal amount of the securities of that series then
outstanding, plus accrued interest thereon. In addition, upon an event of
default under the indenture for a series of notes and a sale of the assets in
the trust fund or upon a sale of the assets of a trust fund for a series of
certificates, the trustee, the servicer, if any, the credit enhancer and any
other service provider specified in the related prospectus supplement generally
will be entitled to receive the proceeds of the sale to the extent of unpaid
fees and other amounts owing to those persons under the related agreement prior
to distributions to holders of securities. Upon any sale of trust fund assets,
the proceeds from the sale may be insufficient to pay in full the principal of
and interest on the securities of the related series.
Liquidation expenses for 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 larger principal balance, the amount realized after
expenses of liquidation would be smaller as a percentage of the outstanding
principal balance of the smaller loan than would be the case with a larger loan.
Because the average outstanding principal balances of the loans are small
relative to the size of the loans in a typical pool of first mortgages,
realizations net of liquidation expenses on defaulted loans may also be smaller
as a percentage of the principal amount of the loans than in the case of a
typical pool of first mortgage loans. The payment of these expenses will reduce
the portion of the amount realized that will be available to make payments on
the securities and may result in the related securityholders suffering a loss.
We refer you to "Yield and Prepayment Considerations."
DECREASES IN THE VALUE OF MORTGAGED PROPERTY WILL DISPROPORTIONATELY AFFECT
JUNIOR LIENHOLDERS.
There are several factors that could adversely affect the value of a
mortgaged property by causing the outstanding balance of the related loan,
together with any senior financing on the mortgaged property, to equal or exceed
the value of the mortgaged property. Among the factors that could adversely
affect the value of mortgaged properties are an overall decline in the
residential 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 the failure of borrowers to maintain them adequately or natural
disasters that are not covered by insurance, including earthquakes and floods.
Any decline of this type could extinguish the value of a junior interest in a
mortgaged property before having any effect on the related senior interest
therein. If a decline of this type occurs, the actual rates of delinquencies,
foreclosure and losses on the junior loans could be higher than those currently
experienced in the mortgage lending industry in general.
We refer you to "The Trust Fund--The Loans--Additional Information."
LIQUIDATIONS COULD RESULT IN PAYMENT DELAYS AND LOSSES.
Even if 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 on your
securities could occur. Corresponding delays in your receipt of related proceeds
could occur if the credit enhancement for your series, as described in the
accompanying prospectus supplement, does not cover these shortfalls. Also,
liquidation expenses (such as legal fees, real estate taxes, and maintenance and
preservation
6
<PAGE>
expenses) will be paid first, thereby reducing the proceeds payable on your
securities and the security for the loans. Loans secured by junior liens on the
related properties will also generally be subject to the prior payment of loans
secured by senior liens on those properties. If any of the mortgaged properties
fail to provide adequate security for the related loans, you could experience a
loss if the credit enhancement for your series does not cover these shortfalls.
We refer you to "Yield and Prepayment Considerations."
JUNIOR LIENS MAY RESULT IN LOSSES IN FORECLOSURE PROCEEDINGS.
Some of the mortgages serving as collateral for your series may be junior
liens subordinate to the rights of the mortgagee under the related senior
mortgage or mortgages. The proceeds from any liquidation, insurance or
condemnation proceedings in connection with a mortgage will be available to
satisfy the outstanding balance of the junior mortgage only after the claims of
all 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 the senior
mortgages, in which case it must either pay the entire amount due on the senior
mortgages to the senior mortgagees at or prior to the foreclosure sale or
undertake the obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder. The trust fund will not have any source
of funds to satisfy any senior mortgages or make payments due to any senior
mortgagees and may therefore be prevented from foreclosing on the related
mortgaged property.
We refer you to "Legal Aspects of the Loans--Junior Mortgages; Rights of
Senior Mortgagees."
PROCEEDS OF LIQUIDATION OF MIXED USE LOANS MAY TAKE LONGER TO RECOVER.
Mixed use loans are mortgage loans secured by multi-family properties and
structures that include both residential dwelling units and/or space used for
retail, professional or other commercial uses. Due to the limited market for the
type of properties securing mixed use loans, in the event of a foreclosure we
expect that it will take longer to recover proceeds from the liquidation of a
mixed use loan than it would for a mortgage loan secured by a one- to
four-family dwelling.
We refer you to "The Trust Fund--The Loans--General."
BALLOON LOANS MAY BEAR HIGHER RISK OF LOSS.
Some of the loans underlying the securities may be balloon loans, which
generally provide for equal monthly payments and a final monthly payment
substantially greater than the preceding monthly payments. Balloon loans may
have a greater risk of loss at their final maturity date because of the
substantially greater monthly payment to be made by the mortgagor on that date.
The mortgagor on a balloon loan will generally attempt to refinance a balloon
loan or sell the underlying mortgaged property on or prior to the stated
maturity date in order to avoid payment of the final balloon payment. A
mortgagor's ability to accomplish either of these goals may be adversely
affected by a number of factors, however, 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. You may bear a portion of losses on
balloon loans that are not otherwise covered by the credit enhancement for your
series of securities.
PRE-FUNDING ACCOUNTS AND POSSIBILITY OF PREPAYMENT.
If the prospectus supplement relating to your series of securities provides
for pre-funding, on the closing date the depositor will deposit a specified
amount of cash into a pre-funding account. The amount of cash deposited will not
exceed 25% of the initial aggregate principal amount of the related series of
securities. The deposited cash
7
<PAGE>
will be used to purchase loans from the depositor (which, in turn, will acquire
these loans from the seller or sellers specified in the related prospectus
supplement), during the funding period, which is a period from the earliest to
occur of:
o the date the amount on deposit in the pre-funding account is less than
the amount specified in the agreement(s) relating to that series;
o the date an event of default occurs under the related agreement(s); or
o the date which is the later of three months or 90 days after the
related closing date.
These subsequently purchased loans will be required to conform to the
requirements set forth in the related agreement(s) and described in the related
prospectus supplement. The Trustee will maintain the pre-funding account for the
related series of securities for the sole purpose of holding funds to be paid by
the trustee during the above-described funding period to the depositor the
purchase price of these 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 amount of cash in the pre-funding account has not been
used to purchase 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 securities 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. The holders of the
related class of securities will bear any reinvestment risk resulting from this
prepayment.
LIMITS ON CREDIT ENHANCEMENT.
Although credit enhancement for the securities is intended to reduce the
risk of delinquent payments or losses to holders of securities entitled to the
benefit thereof, the amount of the enhancement will be limited as set forth in
the related prospectus supplement. The amount of credit enhancement available
will decline and could be depleted under certain circumstances prior to the
payment in full of the related series of securities, and as a result you may
suffer losses. In addition, credit enhancement for your series of securities
will not cover all potential losses or risks.
We refer you to "Credit Enhancement."
THE DEPOSITOR HAS LIMITED ASSETS.
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 assets of the
trust fund for those securities. There will be no recourse to the depositor or
any other person for any default on the notes or any failure to receive
distributions on the certificates.
Further, unless otherwise stated in the related prospectus supplement, at
the times set forth in the related prospectus supplement, some of the primary
assets and/or any balance remaining in the security account or distribution
account immediately after making all payments due on the securities of the
related series and other payments specified in the related prospectus
supplement, may be promptly released or remitted to the depositor, the servicer,
the provider of any credit enhancement or any other person entitled thereto and
will no longer be available for making payments to holders of securities.
Consequently, holders of securities of each series must rely solely upon
payments from the primary 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 that series, for the payment of principal
of and interest on the securities of that series.
Holders of notes will be required under the indenture for their series to
proceed only against the primary assets and other assets constituting the
related trust fund in the case of a default on the notes and may not proceed
against any assets of the depositor. If payments from the assets securing a
series of notes, including any credit enhancement, were to become insufficient
to make payments on those notes, no other assets would be available for payment
of the deficiency and you may experience a loss.
8
<PAGE>
LIMITED RECOURSE TO SELLERS, DEPOSITOR OR SERVICER.
The only obligations, if any, of the depositor to the securities of any
series will be pursuant to representations and warranties made by the depositor.
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 primary
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 primary
asset, its only sources of funds to make the repurchase would be from funds
obtained from the enforcement of a corresponding obligation, if any, on the part
of the originator of the primary assets, the servicer or a seller, as the case
may be, or from a reserve fund established to provide funds for these
repurchases.
The only obligations of the servicer, other than its servicing obligations,
to the assets of the trust fund or the securities of any series will be pursuant
to representations and warranties made by the servicer. The servicer may be
required to repurchase or substitute for any loan with respect to which its
representations and warranties are breached. There is no assurance, however,
that the servicer will have the financial ability to effect any repurchase or
substitution of loans.
The only obligations of any seller of loans (and Equity One, Inc., where
the seller is a subsidiary of Equity One, Inc.) to assets of the trust fund or
the securities of any series will be pursuant to representations and warranties
made by the relevant entity and document delivery requirements. A seller (and
Equity One, Inc., where the seller is a subsidiary of Equity One, Inc.) may be
required to repurchase or substitute for any loan with respect to which its
representations and warranties or document delivery requirements are breached.
There is no assurance, however, that a seller (and Equity One, Inc., where the
seller is a subsidiary of Equity One, Inc.) will have the financial ability to
effect a repurchase or substitution.
We refer you to "Loan Program--Representations by Sellers; Repurchases."
BANKRUPTCY AND INSOLVENCY RISKS; RECLASSIFICATION OF SALE OF LOANS AS FINANCING.
The servicer, the sellers and the depositor will treat each conveyance of
loans by the sellers to the depositor as a sale of those loans. The depositor
will treat each conveyance of loans from the depositor to the trust fund as a
sale of those loans. If the conveyance of the loans by the sellers to the
depositor is treated as a sale, those loans would not be part of the related
seller's bankruptcy estate and would not be available to that seller's
creditors. If a seller becomes bankrupt or insolvent, however, the bankruptcy
trustee, a conservator or a 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, if the conveyance of the loans by the
depositor to the trust fund is treated as a sale, those loans would not be part
of the depositor's bankruptcy estate and would not be available to the
depositor's creditors. In the event of the bankruptcy or insolvency of the
depositor, however, the bankruptcy trustee, a conservator or a 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 your securities and result in a reduction of
payments due on your securities.
In addition, we anticipate 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.
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.
In addition, federal and state statutory provisions, including the
Bankruptcy Reform Act of 1978 and state laws affording relief to debtors, may
interfere with or affect the ability of a secured mortgage lender to realize
upon its security. For example, in a proceeding under the Bankruptcy Reform Act
of 1978, a lender may not foreclose on a mortgaged property without the
permission of the bankruptcy court. 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, the
debtor's proposed rehabilitation plan may provide 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. The debtor's proposed plan may also reduce the
9
<PAGE>
monthly payments due under the mortgage loan, change the rate of interest and/or
alter the mortgage loan repayment schedule. These proceedings under the
Bankruptcy Reform Act of 1978, including but not limited to any automatic stay,
could cause delays in receiving payments on the loans underlying a series of
securities and possible reductions in, or eliminations of, the aggregate amount
of these payments.
PREPAYMENTS OF LOANS AND OTHER FACTORS MAY RESULT IN LOWER YIELD.
The timing of principal payments of the securities of a series will be
affected by a number of factors, including: (1) the extent of prepayments of the
loans underlying that series of securities, which may be influenced by a variety
of factors (including prepayments resulting from refinancing or liquidations of
loans due to defaults, casualties, condemnations and repurchases by the
depositor, the servicer or a seller due to material breaches of their
representations and warranties regarding the loans), (2) the manner of
allocating principal payments among the classes of securities of a series as
specified in the related prospectus supplement, (3) the exercise by the party
entitled thereto of any right of optional termination of a series of securities
and (4) the rate and timing of payment defaults and losses incurred on the
assets underlying the series. The yields to maturity and weighted average lives
of a series of securities will be affected primarily by the rate and timing of
prepayment of the loans representing assets underlying a series. The yields to
maturity and weighted average lives of securities will also 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 prepayments of loans held by a trust fund will be borne
entirely by the holders of one or more classes of a related series of
securities.
We refer you to "Loan Program--Representations by Sellers; Repurchases,"
"Yield and Prepayment Considerations" and "The Agreements--Pre-Funding Account."
Interest payable on the securities of a series on each distribution date
will include all interest accrued during the period specified in the related
prospectus supplement. If interest accrues during the calendar month prior to a
distribution date, the effective yield to holders 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 each distribution date, and the
effective yield (at par) to holders will be less than the indicated coupon rate.
We refer you to "Description of the Securities--Distributions on
Securities--Distributions of Interest."
BOOK-ENTRY SECURITIES MAY POSE LIMITATIONS.
If the securities are issued in book-entry form, you may have difficulty
selling your securities in the secondary trading market since investors may be
unwilling to purchase securities for which they cannot obtain physical
certificates. In addition, since transactions in book-entry securities can be
effected only through the Depository Trust Company (which is referred to
hereafter as DTC) participating organizations, indirect participants and some
banks, your ability to pledge your securities to persons or entities that do not
participate in the DTC system may be limited due to lack of a physical
certificate representing your securities.
We refer you to "Description of the Securities--Book-Entry Registration of
Securities."
BOOK-ENTRY SECURITIES MAY RESULT IN DELAYED RECEIPT OF DISTRIBUTIONS.
As a beneficial owner of book-entry securities, you may experience some
delay in receiving payments on your securities since these payments will be:
o forwarded by the trustee to DTC;
o credited by DTC to the accounts of DTC participants; and
o ultimately credited to your account by a DTC participant.
10
<PAGE>
We refer you to "Description of the Securities--Book-Entry Registration of
Securities."
SOME SECURITIES MAY BE ISSUED WITH ORIGINAL ISSUE DISCOUNT.
Some classes of securities will be issued with original issue discount for
federal income tax purposes. If you hold securities issued with original issue
discount, you will be required to include original issue discount in ordinary
gross income for federal income tax purposes as it accrues, in advance of
receipt of the cash attributable to that income. Accrued but unpaid interest on
securities that are accrual securities generally will be treated as original
issue discount for this purpose.
We refer you to "Federal Income Tax Consequences--Taxation of Debt
Securities--Interest and Acquisition Discount" and "--Market Discount."
LIMITED LIQUIDITY MAY RESULT IN DELAYS IN LIQUIDATION OR LOWER RETURNS.
There will be no market for the securities of any series prior to its
issuance, and there can be no assurance that a secondary market will develop or,
if it does develop, that it will provide holders with liquidity of investment or
that any market will continue for the life of the securities of any series. Any
underwriter(s) specified in the related prospectus supplement may make a
secondary market in the securities, but have no obligation to do so. Absent a
secondary market for the securities you may experience a delay if you choose to
sell your securities or the price you receive may be less than that which is
offered for a comparable liquid security.
VIOLATIONS OF LENDING LAWS COULD CAUSE LOSSES.
Applicable state laws generally regulate interest rates and other charges
and require specific types of disclosures. In addition, other state laws, public
policy and general principles of equity relating to the protection of consumers,
unfair and deceptive practices and debt collection practices may apply to the
origination, servicing and collection of the 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 related trust fund as the owner of the loan, to
damages and administrative enforcement.
The loans are also subject to federal laws, including laws that require
specific types of disclosures to borrowers, that prohibit discrimination and
that regulate the use and reporting of information relating to the borrower's
credit experience. Violations of some of the 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 related trust fund to
damages and administrative enforcement. You may experience a loss if the credit
enhancement for your series of securities, as described in the accompanying
prospectus supplement, does not cover these types of losses on the loans.
We refer you to "Legal Aspects of the Loans."
MORTGAGED PROPERTIES MAY BE SUBJECT TO ENVIRONMENTAL RISKS.
Real property pledged as security to a lender may be subject to
environmental risks. Under the laws of some states, contamination of a property
may give rise to a lien on the property to assure the costs of clean-up. In
several states, this type of lien has priority over the lien of an existing
mortgage or owner interest against the property. In addition, under the laws of
some states and under the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 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
11
<PAGE>
or not the environmental damage or threat was caused by a prior owner. A lender
also risks this liability on foreclosure of the mortgaged property securing a
mortgage.
We refer you to "Legal Aspects of the Loans--Environmental Risks."
RATINGS OF THE SECURITIES RELATE TO CREDIT RISK ONLY; REDUCTION OF WITHDRAWAL OR
RATINGS WILL ADVERSELY EFFECT SECURITIES.
The issuance of a series of securities offered hereby may be conditioned on
their being rated in specific rating categories of the rating agency specified
in the related prospectus supplement. The rating of a series of securities will
be based on, among other things, the adequacy of the value of the primary assets
and any credit enhancement relating to the series. A securities rating should
not be deemed a recommendation to purchase, hold or sell securities, since it
does not address market price or suitability for a particular investor. There is
also no assurance that any rating will remain in effect for any given period of
time or that it may not be lowered or withdrawn entirely by a rating agency
based on its subjective assessment of the circumstances. A securities rating may
be lowered or withdrawn, among other reasons, due to a decrease in the value of
assets underlying the securities, because of an adverse change in the financial
or other condition of the credit enhancement for the securities or a change in
the rating of an enhancer's long term debt. Any reduction or withdrawal of a
rating will have an adverse effect on the value of the related securities.
We refer you to "Rating."
THE TRUST FUND
GENERAL
The certificates of each series will represent interests in the assets of a
related trust fund, and the notes of each series will be secured by the pledge
of the assets of a related trust fund. The entity named in the related
prospectus supplement as trustee (the "Trustee") will hold the trust fund for a
series of securities for the benefit of the related securityholders. Each trust
fund will consist of a group of assets (the "Trust Fund Assets"), including a
pool of loans (the "Loans") and payments in respect of these Loans, as specified
in the related prospectus supplement.* The pool of Loans will be created on
the first day of the month of the issuance of the related series of securities
or another 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 Equity One ABS, Inc., as depositor (the "Depositor").
The Depositor will acquire the Trust Fund Assets, either directly or
through affiliates, from originators or sellers that may be affiliates of the
Depositor (collectively, the "Sellers") pursuant to a pooling and servicing
agreement (each, a "Pooling and Servicing Agreement") for a series consisting
solely of certificates, or a purchase agreement (each, a "Purchase Agreement")
for a series consisting of certificates and notes. The Depositor will then
convey the Trust Fund Assets without recourse to the related trust fund. The
Depositor will acquire loans that were 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." We refer you to "Loan Program--Underwriting
Standards," "--Specific Underwriting Criteria; Underwriting Programs" and
"--Summary of Underwriting Requirements by Program."
- ----------
* Whenever the terms "pool," "certificates," "notes" and "securities" are
used in this prospectus, they 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.
12
<PAGE>
The Depositor will cause the Trust Fund Assets to be conveyed to the
Trustee for the benefit of the holders of the securities of the related series.
The entity named as servicer in the related prospectus supplement, which may be
an affiliate of the Depositor (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 for a series
consisting solely of certificates, or a master servicing agreement (each, a
"Master Servicing Agreement") between the trust fund and the Servicer for a
series consisting of certificates and notes. The Servicer will receive a fee for
these services. We refer you to "Loan Program" and "The Agreements." If the
Servicer services Trust Fund Assets through a Sub-Servicer, the Servicer will
remain liable for its servicing obligations under the related Agreement as if
the Servicer alone were servicing the Trust Fund Assets.
As used herein, "Agreement" means, for a series consisting solely of
certificates, the Pooling and Servicing Agreement, and for 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
the trust fund.
No trust fund will have any assets or liabilities prior to the initial
offering of the related series of securities. No trust fund is expected to
engage in any activities other than purchasing, managing and holding the related
Trust Fund Assets and other assets contemplated herein or specified in the
related prospectus supplement and the proceeds thereof, issuing securities,
making payments and distributions on securities and related activities. No trust
fund is expected to have any source of capital other than its assets and any
related credit enhancement.
The Depositor's only obligations to a series of securities will be to
obtain specific representations and warranties from Equity One, Inc. ("Equity
One") and the Sellers and to assign to the Trustee for that series of securities
the Depositor's rights attaching to those representations and warranties. We
refer you to "Loan Program--Representations by Sellers; Repurchases" and "The
Agreements--Assignment of the Trust Fund Assets." The Servicer's obligations to
the Trust Fund Assets 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 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 Servicer's
obligation to make advances may be subject to limitations, to the extent
provided herein and in the related prospectus supplement.
The following is a brief description of the assets expected to be included
in the trust funds. If specific information respecting the Trust Fund Assets is
not known at the time the related series of securities initially is offered,
more general information of the nature described below will be provided in the
related prospectus supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of the securities. A copy of the
Agreement for 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 that series will be attached to the Agreement delivered to the Trustee upon
delivery of the securities.
THE LOANS
General. The Loans will consist of (1) 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 (2) revolving home equity loans or balances thereof
(the "Revolving Credit Line Loans") secured by first and/or subordinate liens on
one- to four-family residential properties. All Loans will be 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 like the Federal Housing Administration ("FHA") or
Department of Veterans Affairs ("VA").
13
<PAGE>
All of the Loans 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 a 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 specific 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 these limitations. Accrued interest may be deferred and
added to the principal of a Loan for the periods and under the
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 of the Loan 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 in equal installments over the term of
the Loan, may be calculated on the basis of an assumed term to maturity
that is significantly longer than the actual term to maturity (resulting in
the need to make a larger "balloon" payment upon final maturity) or on an
interest rate that is different from the Loan's specified interest rate, or
may not be payable during all or a portion of the original term. Payment of
all or a substantial portion of the principal may be due on maturity (a
"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 specific periods ("Lockout
Periods"). Some Loans may permit prepayments after expiration of the
applicable Lockout Period and may require the payment of a prepayment fee
in connection with any 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 Loans will be secured by mortgages or deeds of trust or other similar
security instruments creating a lien on the related mortgaged property. In the
case of Revolving Credit Line Loans, these 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 some other dwelling units ("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 ("Mixed Use Properties"). 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 specified Combined Loan-to-Value Ratios and/or principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies. The existence, extent and duration of any 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
14
<PAGE>
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. Some 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 the Loan by 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 some 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.
Additional Information. Each prospectus supplement will contain
information, as of the date of that prospectus supplement and to the extent then
specifically known to the Depositor, regarding the Loans constituting Trust Fund
Assets of the related trust fund, including (1) the aggregate outstanding
principal balance and the average outstanding principal balance of the Loans as
of the applicable Cut-off Date, (2) the type of property securing the Loan
(e.g., Single Family Properties, Mixed Use Properties, or other real property),
(3) the original terms to maturity of the Loans, (4) the largest principal
balance and the smallest principal balance of any of the Loans, (5) the earliest
origination date and latest maturity date of any of the Loans, (6) the Combined
Loan-to-Value Ratios of the Loans, (7) the stated interest rates or annual
percentage rates ("APR") or range of stated interest rates or APRs the Loans,
(8) the maximum and minimum per annum interest rates, and (9) the geographic
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 a report on Form 8-K to be filed with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
securities.
The "Combined 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 (1)
the principal balance of that Loan at the date of origination (or, in the case
of a Revolving Credit Line Loan, the maximum amount thereof available) plus (2)
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 for that 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 for some
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 that
mortgaged property based on an appraisal obtained by the originator at
origination of that 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 the 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 experiences an overall
decline in property values causing 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 trust fund to 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 on any group of Loans. To
the extent that these losses are not covered by subordination provisions or
alternative arrangements, the losses will be borne, at least in part, by the
holders of the securities of the related series.
15
<PAGE>
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted if the representations
and warranties regarding any original Trust Fund Asset are breached or if the
documentation regarding any Trust Fund Asset is determined by the Trustee to be
incomplete. The related prospectus supplement will generally set forth the
period during which substitution will be permitted. Substituted Trust Fund
Assets generally will comply with all of the representations and warranties and
satisfy he criteria set forth in the related Agreement and described in the
related prospectus supplement as of the date of substitution. We refer you to
"Loan Program-Representations by Sellers; Repurchases" and "The
Agreements--Assignment of the Trust Fund Assets."
USE OF PROCEEDS
The Depositor will use all or substantially all of the net proceeds from
the sale of each series of securities for one or more of the following purposes:
o to purchase the related Trust Fund Assets,
o to establish any Reserve Accounts described in the related prospectus
supplement,
o to pay costs of structuring and issuing the securities, including the
costs of obtaining credit enhancement, if any, and
o 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 Popular North America, Inc., a Delaware
corporation ("PNA"). PNA 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"). The Depositor and Equity One
are subject to comprehensive regulation by the Board of Governors of the Federal
Reserve System ("Federal Reserve"). 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 be 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." All such Loans will be underwritten by Equity One's
Central Credit office.
16
<PAGE>
UNDERWRITING STANDARDS
Each Seller operates under 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 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 regarding
the applicant's liabilities, income, credit history, including the principal
balance and payment history regarding any senior mortgage, and employment
history, as well as other personal information which, to the extent specified in
the related prospectus supplement, has 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
regarding the foregoing matters that has been provided by a mortgage brokerage
company prior to funding a loan and periodically audit files based on a random
sample of closed loans. Each borrower is generally required to provide an
authorization to apply for a credit report which summarizes the borrower's
credit history with local and national merchants and lenders, installment debt
payments and any record of defaults, bankruptcies, repossessions, suits or
judgments. In most cases, an employment verification is obtained either in
writing or verbally from the borrower's employer, which verification reports,
among other things, the length of employment with that organization and the
borrower's current salary. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns.
In determining the adequacy of the property to be used as collateral, an
appraisal will generally be made of each property considered for financing in an
amount in excess of $15,000. The appraiser is generally required to inspect the
property, issue a report on its condition and, if applicable, verify
construction, if new, has been completed. The appraisal is based on the market
value of comparable homes, the estimated rental income (if considered applicable
by the appraiser) and the cost of replacing the home. The value of the property
being financed, as indicated by the appraisal, must be high enough to currently
support, and be 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 (1) 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 (2) 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 regarding 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 Combined Loan-to-Value Ratio or other favorable
credit factors exist.
Some 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, some 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 payment amounts increase. These
types of Loans may also be underwritten primarily upon the basis of low Combined
Loan-to-Value Ratios or other favorable credit factors. A trust fund may also
include both first and second lien Loans made to a borrower at the same time on
the same mortgaged property, provided that each such Loan must separately
satisfy the Equity One Standards.
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
17
<PAGE>
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 three types of income
documentation programs are used
o full income documentation ("Full Doc"),
o no income verification ("NIV"), and
o alternative income verification ("AIV") .
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. Under the AIV program, the
borrower must submit bank statements for the past twenty-four months to verify
the average monthly income used to qualify the borrower. Tax returns are
generally not required under any income documentation program, however, each
lender always has the right to require tax returns if that is the only means of
verifying income or cash flow.
Underwriting with the NIV or AIV 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.
For loans underwritten pursuant to the AIV program, the Debt-to-Income Ratio is
based on a maximum of 50% of average monthly income over the past twenty-four
months, as verified through monthly bank statements.
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 the 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 the 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 (1) one 30 day delinquency in his or her mortgage payment history
(consecutive 30 day delinquencies are treated as one 30 day account), (2) three
major credit cards with a maximum of one 30 day delinquency and (3) three retail
credit cards with a maximum of two 30 day delinquencies.
2. Generally, the borrower must have (1) been employed for not less than
three years with the same employer or (2) established comparable stability in a
particular field of work.
3. Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to
the following criteria: (except that the Combined Loan-to-Value Ratio may
exceed the maximum indicated up to a maximum of 100% solely as a result of
including credit insurance premiums and discount points financed as part of the
loan in the calculation of such ratio):
18
<PAGE>
<TABLE>
<CAPTION>
Maximum Combined Maximum Debt-
Property Type Loan-to-Value-Ratio to-Income Ratio
- ------------- ------------------- ---------------
<S> <C> <C>
Owner occupied one- to four-family
dwellings, townhouses, condominiums,
true second homes 95% 50%
Non-owner occupied single family
dwellings, townhouses, condominiums
80% 50%
Non-owner occupied two- to
four-family dwellings 75% 50%
Mixed use: Purchase 75% Minimum Debt
Refinance 70% Service Coverage 1.15
</TABLE>
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 reestablished 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 (1) more than two 30 day delinquencies in his or her mortgage
payment history (consecutive 30 day delinquencies are treated as one 30 day
account), (2) more than four major credit cards or installment debts with a
maximum of two 30 day delinquencies, (3) any retail credit cards with more than
three 30 day delinquencies and (4) more than two retail credit cards with a
maximum of one 60 day delinquency.
2. Generally, the borrower must have (1) been employed for not less than
three years with the same employer or (2) established comparable stability in a
particular field of work.
3. Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to
the following criteria: (except that the Combined Loan-to-Value Ratio may
exceed the maximum indicated up to a maximum of 100% solely as a result of
including credit insurance premiums and discount points financed as part of the
loan in the calculation of such ratio):
19
<PAGE>
<TABLE>
<CAPTION>
Maximum Combined Maximum Debt-
Property Type Loan-to-Value-Ratio to-Income Ratio
- ------------- ------------------- ---------------
<S> <C> <C>
Owner occupied one- to four-family
dwellings, townhouses, condominiums
95% 50%
True Second Homes, condominiums 90% 50%
Non-owner occupied single family
dwellings, townhouses, condominiums
80% 50%
Non-owner occupied two- to
four-family dwellings 75% 50%
Mixed use: Purchase 70% Minimum Debt
Refinance 65% Service Coverage 1.15
</TABLE>
Grade C Credits. For Grade C Credits, the following criteria generally
apply:
1. An in-file credit report on the borrower by an independent credit
reporting agency reflecting the borrower's complete credit history is required.
Typically, a fair to satisfactory credit history of at least one year is
required. A discharged Chapter 7 bankruptcy is acceptable with one year of
re-established credit. A non-discharged Chapter 13 bankruptcy will be considered
with a minimum of a two year satisfactory payment plan, one year of
re-established credit and trustee permission. A written explanation of
derogatory credit is required. Mortgage payment history may not reflect any more
than three 30 day delinquencies and one 60 day delinquency during the most
recent 12 months (consecutive 30 day delinquencies are treated as one 30 day
account). In addition, all accounts that are delinquent for 60 days or longer
must be paid from proceeds.
2. Generally, the borrower must have (1) been employed for not less than
one year with the same employer or (2) established comparable stability in a
particular field of work.
3. Combined Loan-to-Value Ratios and Debt-to-Income Ratios must conform to
the following criteria: (except that the Combined Loan-to-Value Ratio may
exceed the maximum indicated up to a maximum of 100% solely as a result of
including credit insurance premiums and discount points financed as part of the
loan in the calculation of such ratio):
20
<PAGE>
<TABLE>
<CAPTION>
Maximum Combined Maximum Debt-
Property Type Loan-to-Value-Ratio to-Income Ratio
- ------------- ------------------- ---------------
<S> <C> <C>
Owner occupied single family
dwellings, townhouses 80% 50%
Owner occupied two- to four-family
dwellings 75% 50%
Owner occupied condominiums 70% 50%
True Second Homes 75% 50%
Non-owner occupied one- to
four-family dwellings 70% 50%
</TABLE>
If the Combined Loan-to-Value Ratio of a particular borrower's loan exceeds 85%,
in determining the credit grade of the borrower's loan each Seller will also
analyze standardized credit history data available from credit bureaus in the
form of a credit "score" of the borrower based on the borrower's past credit
history. Generally, a higher credit score signifies that a borrower has a better
credit history. Currently, the Sellers employ the credit scoring system of the
Fair Isaac Credit Bureau in assessing borrowers under these circumstances. If a
borrower's credit score becomes relevant because the borrower's loan has a high
Combined Loan-to-Value Ratio, the borrower's loan may receive a lower credit
grade from a Seller if his or her credit score does not meet a minimum
threshold.
QUALIFICATIONS OF SELLERS AND SERVICER
Each Seller is required to be an institution experienced in originating
loans of the type contained in the related trust fund in accordance with
accepted practices and prudent guidelines and must maintain satisfactory
facilities to originate those loans. The Servicer is required to be an
institution experienced in originating and servicing loans of the type contained
in the related trust fund in accordance with accepted practices and prudent
guidelines and must maintain satisfactory facilities to originate and service
those loans. Each Seller must maintain 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 make representations and warranties in respect of the Loans sold by the
Seller to a trust fund. These representations and warranties may include, among
other things: (1) that (except for Loans in amounts less than $15,000) title
insurance (or in the case of mortgaged properties located in areas where these
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; (2) that Seller had good title to each Loan and that each Loan was
subject to no offsets, defenses, counterclaims or rights of rescission except to
the extent that any buydown agreement may forgive some indebtedness of a
borrower; (3) that each Loan constituted a valid lien on, or a perfected
security interest attaching to the mortgaged property (subject only to
permissible liens disclosed, if applicable, title insurance exceptions, if
applicable, and other exceptions described in the Agreement) and that the
mortgaged property was free from damage and was in acceptable condition; (4)
that there were no delinquent tax or assessment liens against the mortgaged
property; (5) that no required payment on a Loan was delinquent more than the
number of days specified in the related prospectus supplement; and (6) 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 holders of the
securities secured by the Loan. If the Seller cannot cure a breach within 90
days following notice from the Servicer or the Trustee, as the case may be,
21
<PAGE>
then the Seller will be obligated either to (1) repurchase the 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's stated interest rate (less any Advances or amount payable as related
servicing compensation if the Seller is the Servicer) or (2) substitute for the
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 for 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 repurchase or
substitution and the Trustee must have received a satisfactory opinion of
counsel that the 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 payment
from the assets of the related trust fund or from any holder of the related
residual certificate. We refer you to "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 the 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 for 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 for 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 will be issued pursuant to
either (1) a Pooling and Servicing Agreement among the Depositor, the Servicer,
the Trustee and the Sellers or (2) 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 will be issued pursuant to an
Indenture between the related trust fund established by the Depositor 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 various parties which may include, without limitation, the Depositor, the
Servicer, the Sellers and/or the Trustee for the benefit of the holders of the
securities of that series. The provisions of each Agreement will vary depending
upon the nature of the securities to be issued thereunder and the nature of the
related trust fund. The following are descriptions of the material provisions
which may appear in each Agreement. The descriptions are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Agreement for each series of securities and the applicable prospectus
supplement.
GENERAL
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 asset-backed certificates, evidence specified beneficial
ownership interests in, and in the case of asset-backed 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. Some 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:
o 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 (each, a "Retained Interest")), including all
payments of interest and principal received on the Loans after the
Cut-off Date (to the extent not
22
<PAGE>
applied in computing the principal balance of the Loans as of the
Cut-off Date (the "Cut-off Date Principal Balance")),
o assets that from time to time are required to be deposited in the
related Security Account, as described below under "The
Agreements--Payments on Loans; Deposits to Security Account,"
o property which secured a Loan and which is acquired on behalf of the
holders of securities of the related series by foreclosure or deed in
lieu of foreclosure, and
o any insurance policies or other forms of credit enhancement required
to be maintained pursuant to the related Agreement.
If so specified in the 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 asset-backed 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 asset-backed 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 that series. Some 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
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 other
intervals and on other dates as 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; 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 the final distribution.
The securities will be freely transferable and exchangeable at the
corporate trust office of the Trustee as set forth in the related prospectus
supplement. No service charge will be made for any registration of exchange or
transfer of securities of any series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a class of securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of either interest or principal on the related
Loans or a class of securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of 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 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. We
refer you to "ERISA Considerations." The transfer of securities of this type of
class will not be registered unless the transferee (1) represents that it is
not, and is not purchasing on behalf of, any plan, account or arrangement or (2)
provides an opinion of counsel satisfactory to the Trustee and the Depositor
that the purchase of securities of that class by or on behalf of the 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.
23
<PAGE>
An election may be made to treat the trust fund related to each series 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 specific conditions are
satisfied. The terms and provisions applicable to the making of a REMIC election
for a particular series will be set forth in the related prospectus supplement.
If a REMIC election is made for 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 that series will
constitute "regular interests" in the related REMIC, as defined in the Code. If
a REMIC election is made for a particular series, 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
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
enhancement, if any, that is used for that series. We refer you to "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 that 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 therefor (a "Reserve Account"). The
related prospectus supplement will describe the method for allocating
distributions made on any Distribution Date among securities of different
classes and between distributions of principal (and, if applicable, between
distributions of Principal Prepayments, as defined below, and scheduled payments
of principal) and interest. 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 that
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 (or, in the case of securities entitled only to distributions allocable
to interest, the aggregate notional amount) of each class of securities 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 the related prospectus supplement), and for the periods specified
in the related prospectus supplement. "Pass-Through Rate" means a rate equal to
the interest rate borne by the underlying Loans 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 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 principal balance of that class of securities has been distributed in
full or, in the case of securities entitled only to distributions allocable to
interest, until the aggregate notional amount of those securities is reduced to
zero or for the period of time designated in the related prospectus supplement.
The original aggregate principal balance of each class of securities will equal
the aggregate distributions allocable to principal to which that 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 that 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 other specified 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
24
<PAGE>
preceding that Distribution Date, and the effective yield (at par) to
securityholders will be less than the indicated coupon rate.
If specified in the related prospectus supplement, any interest that has
accrued on a class of Accrual Securities but is not paid on a given Distribution
Date will be added to the aggregate principal balance of that class of Accrual
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 the related prospectus supplement. Until distribution of interest
commences, the beneficial ownership interest in the trust fund or the principal
balance, as applicable, of that class of Accrual Securities, will increase on
each Distribution Date by the amount of interest that accrued on that class of
securities during the preceding interest accrual period but was not distributed
to that class on that Distribution Date. Each class of Accrual Securities will
thereafter accrue interest on its outstanding aggregate principal 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 principal
will be allocated among the classes of securities entitled to distributions of
principal. The aggregate principal balance of any class of securities entitled
to distributions of principal generally will be the initial aggregate principal
balance of that class of securities specified in the related prospectus
supplement, reduced by all distributions reported to the holders of those
securities as allocable to principal and, (1) in the case of Accrual Securities,
increased by all interest accrued but not then distributable on the Accrual
Securities and (2) 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 these payments ("Principal Prepayments") in the
percentages and under the circumstances or for the periods specified in the
related prospectus supplement. Any allocation of Principal Prepayments to a
class or classes of securities will have the effect of accelerating the
amortization of those 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 specific securities is
intended to preserve the availability of the subordination provided by the 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 the prospectus supplement. If applicable, the Trustee
will be required to make unscheduled distributions on the day and in the amount
specified in the related prospectus supplement if, due to substantial payments
of principal (including Principal Prepayments) on the Trust Fund Assets, the
Trustee or the Servicer determines that the funds available or anticipated to be
available from the Security Account and, if applicable, any Reserve Account, may
be insufficient to make required distributions on the securities on that
Distribution Date. The amount of any 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 the related prospectus supplement.
25
<PAGE>
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 that term is defined in the
related prospectus supplement), subject to the Servicer's determination that the
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 these funds on or before any future Distribution Date to
the extent that funds in the applicable Security Account on that Distribution
Date would be less than the amount required to be available for distributions to
securityholders on that date. Each Advance will be reimbursable to the Servicer
out of recoveries on the specific Loans with respect to which the 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 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, for some taxes and insurance premiums not paid by
borrowers on a timely basis. These 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 the Advance in its capacity as successor servicer. If
the Trustee makes an Advance, it will be entitled to be reimbursed for the
Advance to the same extent and degree as the Servicer is entitled to be
reimbursed for Advances. We refer you to "Description of the
Securities--Distributions on Securities."
REPORTS TO SECURITYHOLDERS
Before distributing funds on a Distribution Date, the Servicer or the
Trustee will furnish to each securityholder of record of the related series (if
applicable to that series of securities) a statement setting forth the following
information as well as other specified information:
o the amount of the 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,
o the amount of the distribution allocable to interest,
o the amount of any Advance,
o the aggregate amount (1) otherwise allocable to Subordinated
Securities on that Distribution Date, and (2) withdrawn from the
Reserve Account, if any, that is included in the amounts distributed
to the Senior Securities,
o the outstanding principal balance or notional amount of each class of
the related series after giving effect to the distribution of
principal on that Distribution Date,
o the percentage of principal payments on the Loans (excluding Principal
Prepayments), if any, which each class will be entitled to receive on
the following Distribution Date,
o the percentage of Principal Prepayments on the Loans, if any, which
each class will be entitled to receive on the following Distribution
Date,
o the related amount of the servicing compensation retained or withdrawn
from the Security Account by the 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,
26
<PAGE>
o the number and aggregate principal balances of Loans (1) delinquent
(exclusive of Loans in foreclosure) (a) 1 to 30 days, (b) 31 to 60
days, (c) 61 to 90 days and (d) 91 or more days and (2) in foreclosure
and delinquent (a) 1 to 30 days, (b) 31 to 60 days, (c) 61 to 90 days
and (d) 91 or more days, as of the close of business on the last day
of the calendar month preceding that Distribution Date,
o the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure,
o the Pass-Through Rate or interest rate, as applicable, if adjusted
from the date of the last statement, of any class expected to be
applicable to the next distribution to that class,
o if applicable, the amount remaining in any Reserve Account at the
close of business on the Distribution Date,
o the Pass-Through Rate or interest rate, as applicable, as of the day
prior to the immediately preceding Distribution Date, and
o any amounts remaining under letters of credit, pool 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 that calendar year a report (a) as to the aggregate of
amounts reported pursuant to the first two items above for that calendar year
or, in the event that person was a securityholder of record during a portion of
that calendar year, for the applicable portion of that year and (b) other
customary information 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. The
different classes of securities in a series, in general, will fall into
different categories. The following chart identifies and generally defines some
of the more typical categories. The prospectus supplement for a series of
securities may identify the classes which comprise that series by reference to
the following categories.
CATEGORIES OF CLASSES DEFINITION
- --------------------- ----------
PRINCIPAL TYPES
Accretion Directed Class.......... A class that receives principal payments
from the accreted interest from specified
Accrual Classes. An Accretion Directed Class
also may receive principal payments from
principal paid on the underlying Trust Fund
Assets for the related series.
Component Class................... A class consisting of "components." The
components of a Component Class may have
different principal and/or interest payment
characteristics but together constitute a
single class. Each component of a Component
Class may 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.
27
<PAGE>
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 that series. The prospectus supplement
relating to each Planned Principal Class
will disclose the principal balance schedule
pertaining to that 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 regarding original
terms to maturity, the remaining terms to
maturity, and interest rates of the
underlying Loans, and the assumptions some
the rate of prepayment on the underlying
Loans.
Scheduled
Principal Class................... A class that is designed to receive
principal payments using a predetermined
principal balance schedule but is not
designated as a Planned Principal Class or
Targeted Principal Class. In many cases, the
schedule is derived by assuming two constant
prepayment rates for the underlying Trust
Fund Assets. These two rates are the
endpoints for the "structuring range" for
the Scheduled Principal Class.
Sequential Pay Class.............. Classes that receive principal payments in a
prescribed sequence, that do not have
predetermined principal balance schedules
and that under all circumstances receive
payments of principal continuously from the
first Distribution Date on which they
receive principal until they are retired. A
single class that receives principal
payments before or after all other classes
in the same series of securities may be
identified as a Sequential Pay Class.
Strip Class....................... A class that receives a constant proportion,
or "strip," of the principal payments on the
underlying Trust Fund Assets.
Support Class (also
sometimes referred to
as a "Companion Class").......... A class that receives principal payments on
any Distribution Date only if scheduled
payments have been made on specified Planned
Principal Classes, Targeted Principal
Classes and/or Scheduled Principal Classes.
28
<PAGE>
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
that 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 regarding original
terms to maturity, the remaining terms to
maturity, and interest rates of the
underlying Loans, and the assumptions
regarding the rate of prepayment on the
underlying Loans.
Non-amortizing Sequential Class... A class that generally receives no principal
payments for a designated number of
Distribution Dates and then receives a
disproportionately small or large portion of
the funds available for principal payments
on subsequent Distribution Dates.
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 that 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
that index.
Variable Rate Class............... A class with an interest rate that resets
periodically and is calculated by reference
to the rate or rates of interest applicable
to specified assets or instruments (e.g.,
the interest 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.
29
<PAGE>
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 that class on each applicable
Distribution Date, with the remainder of
accrued interest to be distributed currently
as interest to that class. This accretion
may continue until a specified event has
occurred or until the Partial Accrual Class
is retired.
Accrual Class..................... A class that accretes the amount of accrued
interest otherwise distributable on the
class, which amount will be added as
principal to the principal balance of the
class on each applicable Distribution Date.
This accretion may continue until some
specified event has occurred or until the
Accrual Class is retired.
INDICES APPLICABLE TO FLOATING RATE AND INVERSE FLOATING RATE CLASSES
General. Except as otherwise specified in the related prospectus
supplement, the indices applicable to Floating Rate and Inverse Floating Rate
Classes will be limited to the indices described below.
LIBOR. On the LIBOR Determination Date (as this 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 in accordance with one
of the two methods described below (which method will be specified in the
related Prospectus Supplement):
LIBO Method. If using this method to calculate LIBOR, the Calculation Agent
will determine LIBOR by reference to the quotations, as set forth on the Reuters
Screen LIBO Page (as defined in the International Swaps and Derivatives
Association, Inc. Code of Standard Wording, Assumptions and Provisions for
Swaps, 1986 Edition), offered by the principal London office of each of the
designated reference banks meeting the criteria set forth herein (the "Reference
Banks") for making United States dollar deposits of the applicable duration in
leading banks in the London Interbank market, as of 11:00 a.m. (London time) on
such LIBOR Determination Date. In lieu of relying on the quotations for those
Reference Banks that appear at such time on the Reuters Screen LIBO Page, the
Calculation Agent will request each of the Reference Banks to provide such
offered quotations at such time.
LIBOR will be established by the Calculation Agent on each LIBOR
Determination Date as follows:
(a) If on any LIBOR Determination Date two or more Reference Banks
provide offered quotations, LIBOR for the next Interest Accrual Period, as
this term is defined in the related prospectus supplement, shall be the
arithmetic mean of the 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 offered quotations, LIBOR for the next Interest
Accrual Period (as this term is defined in the related prospectus
supplement) shall be whichever is the higher of (1) LIBOR as determined on
the previous LIBOR Determination Date or (2) the Reserve Interest Rate. The
"Reserve Interest Rate" shall be the rate per annum which the Calculation
Agent determines to be either (1) 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 these
30
<PAGE>
quotations are, in the opinion of the Calculation Agent, being so made, or
(2) in the event that the Calculation Agent can not determine the
arithmetic mean, the lowest one-month United States dollar lending rate
which New York City banks selected by the Calculation Agent are quoting on
that 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 in the related prospectus supplement.
Each Reference Bank (1) must be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market; (2) may not
control, be controlled by, or be under common control with the Calculation
Agent, and (3) must have an established place of business in London. If any
Reference Bank is unwilling or unable to act in that capacity or if appointment
of any Reference Bank is terminated, another leading bank meeting the criteria
specified above will be appointed.
BBA Method. If using this method of determining LIBOR, the Calculation
Agent will determine LIBOR on the basis of the British Bankers' Association
("BBA") "Interest Supplement Rate" for one-month deposits in United States
dollars as found on Telerate page 3750 as of 11:00 a.m. London time on each
LIBOR Determination Date. Interest Settlement Rates currently are based on rates
quoted by eight BBA designated banks as being, in the view of such banks, the
offered rate at which deposits are being quoted to prime banks in the London
interbank market. Such Interest Settlement Rates are calculated by eliminating
the two highest rates and the two lowest rates, averaging the four remaining
rates, carrying the result (expressed as a percentage) out to six decimal
places, and rounding to five decimal places.
If on any LIBOR Determination Date, the Calculation Agent is unable to
calculate LIBOR in accordance with the method set forth in the immediately
preceding paragraph, LIBOR for the next Interest Accrual Period shall be
calculated in accordance with the LIBOR method described above under "--LIBO
Method."
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 this 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
that date), expressed as a per annum percentage rate, on (1) U.S. Treasury
securities adjusted to the "constant maturity" (as further described below)
specified in the related prospectus supplement or (2) if no "constant maturity"
is so specified, United States Treasury securities trading on the secondary
market having the maturity specified in the related 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 that week, then it will use
the 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. If the
Treasury Index is no longer published, a new index based upon comparable data
and methodology will be designated in accordance with the Agreement relating to
the particular series of securities. The Calculation Agent's determination of
the Treasury Index, and its calculation of the rates of interest
31
<PAGE>
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 this 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 the range will be used. If 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 be equal to
the actual index or indices employed under applicable Loan documents in
calculating the interest rates on Loans in the relevant class or classes of
securities (the "Loan Indices"). If this type of interest rate mismatch occurs,
the amounts available for payment of interest on the relevant class or classes
of securities may increase or decrease depending upon the divergence 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 the relevant class or classes of securities to pay
the interest accruing on those class or classes of securities, the availability
of interest rate hedging protection, if any, will 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 Book-Entry Securities ("Beneficial Owners") will hold their
Book-Entry Securities through DTC in the United States, or Cedel ("CEDEL") or
Euroclear System ("Euroclear") in Europe, if they are participants of those
systems, or indirectly through organizations which are participants in those
systems. The Book-Entry Securities will be issued in one or more certificates
which equal the aggregate principal balance of the relevant class of 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 omnibus 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 these 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 his or her security (a "Definitive Security"). Unless
and until Definitive Securities are issued, it is anticipated that the only
record holder of Book-Entry Securities will be Cede & Co., as nominee of DTC.
Beneficial Owners are only permitted to exercise their rights in Book-Entry
Securities indirectly through DTC Participants and DTC.
Each 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 that purpose. In turn, the Financial
Intermediary's ownership of a Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant, and on
the records of CEDEL or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, Book-Entry 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 for the
Book-Entry Securities and is required to receive and transmit distributions of
principal of, and interest
32
<PAGE>
on, Book-Entry Securities. DTC Participants and indirect participants with whom
Beneficial Owners have accounts for their Book-Entry Securities are similarly
required to make book-entry transfers and receive and transmit 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 DTC Participants and indirect participants to
transfer securities, by book-entry transfer, through DTC for the account of the
purchasers of the 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. These credits or any transactions in the
securities settled during processing will be reported to the relevant Euroclear
Participants or CEDEL Participants on that 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, these cross-market transactions will
require delivery of instructions to CEDEL or Euroclear, as the case may be, by
the counterparty in that 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 and facilitate the clearance and the settlement of securities
transactions between DTC 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 some 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
33
<PAGE>
dealers, banks, trust companies, clearing corporations and some 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 this 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. 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 on 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 these payments
will be forwarded by the Trustee to Cede & Co., as nominee of DTC. Distributions
on securities held through CEDEL or Euroclear will be credited to the cash
accounts of CEDEL Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depository. These 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 Book-Entry
Securities. In addition, issuance of the Book-Entry Securities in book-entry
form may reduce the liquidity of these securities in the secondary market since
some 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 the 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 these actions are taken on behalf of
Financial Intermediaries whose holdings include 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
these actions on its behalf through DTC. DTC may take actions, at the direction
of the related DTC Participants, for some securities which conflict with actions
taken for other securities.
34
<PAGE>
Definitive Securities will be issued to securityholders only if (1) the
Servicer advises the applicable Trustee in writing that DTC is no longer willing
or able to discharge properly its responsibilities as depository for the
securities and the Trustee is unable to locate a qualified successor, (2) the
Servicer at its option, elects to terminate the book-entry system through DTC or
(3) after the occurrence of an Event of Default or the resignation or removal of
the Servicer for these securities, holders representing at least a majority of
the outstanding principal amount of the related securities of that 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) for those securities is
no longer in the best interest of the holders of the 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 the 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 the 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
these procedures and they 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 beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided for one or more classes of a series of
securities or for 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 that 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,
over-collateralization, 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, one or more classes
of a series of securities (the "Senior Securities") may be credit enhanced by
granting Senior Securities the preferential right to receive distributions of
scheduled principal, Principal Prepayments, interest or any combination thereof
prior to holders of one or more other classes of that series ("Subordinated
Securities") as specified in the related prospectus supplement. Protection may
also be afforded to the holders of Senior Securities of a series by: (1)
reducing the ownership interest (if applicable) of the related Subordinated
Securities; (2) a combination of the immediately preceding sentence and clause
(1) above; or (3) 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 the related 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 home 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
35
<PAGE>
payments on the Loans or aggregate losses in respect of the 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. These 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 some classes of
securities at the times and under the circumstances specified in the related
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 some distributions to other classes of Senior and
Subordinated Securities, respectively, through a cross-collateralization
mechanism or otherwise.
Distributions may be allocated among classes of Senior Securities and among
classes of Subordinated Securities (1) in the order of their scheduled final
distribution dates, (2) in accordance with a schedule or formula, (3) in
relation to the occurrence of events, or (4) otherwise, in each case as
specified in the related prospectus supplement.
LETTER OF CREDIT
The letter of credit, if any, for 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 some 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 related trust
fund. We refer you to "The Agreements--Termination; Optional Termination." A
copy of the letter of credit for a series, if any, will be filed with the
Securities and Exchange Commission (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 those securities or some classes
thereof will be covered by insurance policies and/or surety bonds provided by
one or more insurance companies or sureties. These instruments may cover timely
distributions of interest and/or full distributions of principal for one or more
classes of securities of the related series 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 (1)
maintaining timely payments or providing additional protection against losses on
the assets included in the trust fund, (2) paying administrative expenses or (3)
establishing a minimum reinvestment rate on the payments made in respect of
those assets or principal payment rate on those assets. These arrangements may
include agreements under which securityholders are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms specified in
the related prospectus supplement. A copy of any 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.
36
<PAGE>
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
specific class or classes of securities and, thus, accelerate the rate of
payment of principal on those securities.
RESERVE ACCOUNTS
If specified in the related prospectus supplement, credit enhancement for a
series of securities will be provided by the establishment and maintenance with
the Trustee for that series of securities, in trust, of one or more Reserve
Accounts for that series. The related prospectus supplement will specify whether
or not any Reserve Accounts will be included in the trust fund for that series.
The Reserve Account for a series will be funded (1) 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, (2) by the deposit therein from
time to time of amounts, as specified in the related prospectus supplement to
which the holders of Subordinated Securities, if any, would otherwise be
entitled or (3) in another manner 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 (1) obligations of the United States or any
agency thereof, provided these obligations are backed by the full faith and
credit of the United States; (2) 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 (each, a "Rating Agency"), or a lower rating that
will not result in the downgrading or withdrawal of the ratings then assigned to
that securities by each Rating Agency; (3) commercial or finance company paper
which is then receiving the highest commercial or finance company paper rating
of each Rating Agency, or a lower rating that will not result in the downgrading
or withdrawal of the ratings then assigned to that securities by each Rating
Agency; (4) 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 that 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 that holding company, but only if
Moody's Investors Service, Inc. ("Moody's") is not a Rating Agency for that
series of securities) are then rated one of the two highest long-term and the
highest short-term ratings of each Rating Agency for those securities, or any
lower ratings that will not result in the downgrading or withdrawal of the
rating then assigned to those securities by any Rating Agency, (5) demand or
time deposits or certificates of deposit issued by any bank or trust company or
savings institution to the extent that the deposits are fully insured by the
FDIC; (6) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation containing, at the time of the issuance of the
agreements, terms and conditions that will not result in the downgrading or
withdrawal of the rating then assigned to those securities by any Rating Agency;
(7) repurchase obligations for any security described in clauses (1) and (2)
above, in either case entered into with a depository institution or trust
company (acting as principal) described in clause (4) above; (8) 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 that investment, have one of
the two highest ratings of each Rating Agency (except if the Rating Agency is
Moody's, the rating shall be the highest commercial paper rating of Moody's for
those securities), or a lower rating that will not result in the downgrading or
withdrawal of the rating then assigned to those securities by any Rating Agency,
as evidenced by a signed writing delivered by each Rating Agency; (9) interests
in any money market fund which at the date of acquisition of the interests in
the fund and throughout the time those interests are held in the fund has the
highest applicable rating by each Rating Agency or a lower rating that will not
result in the downgrading or withdrawal of the ratings then assigned to those
securities by each Rating Agency; (10) 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 Rating Agency in their respective highest applicable rating
category or a lower rating that will not result in the downgrading or withdrawal
of the ratings then assigned to those securities by each Rating Agency; and (11)
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
37
<PAGE>
downgrading or withdrawal of the rating then assigned to those securities by any
Rating Agency, as evidenced by a signed writing delivered by each Rating Agency;
provided that no instrument shall be a Permitted Investment if the instrument
evidences the right to receive interest-only payments on the obligations
underlying that instrument; and provided further, that no investment specified
in clause (9) or clause (10) above will 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, the 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 regarding instruments deposited in the
Reserve Accounts will be set forth in the related prospectus supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of securities of the related series for the purposes, in the manner and
at the times specified in the related prospectus supplement.
POOL INSURANCE POLICIES
If specified in the related prospectus supplement, a separate pool
insurance policy will be obtained for the Loans in a particular trust fund and
issued by the insurer (the "Pool Insurer") named in the related 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
trust fund in an amount equal to a percentage specified in the related
prospectus supplement of the aggregate principal balance of the Loans on the
Cut-off Date which are not covered as to the 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 the 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 (1) any required primary mortgage insurance policy is in effect
for the defaulted Loan and a claim thereunder has been submitted and settled;
(2) 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; (3) 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 (4) the insured has
acquired good and merchantable title to the mortgaged property free and clear of
liens except specific 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's interest rate to the date
of the purchase and specified 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's interest 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 specified 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 (1) restoration will increase the proceeds to
securityholders on liquidation of the Loan after reimbursement of the Servicer
for its expenses and (2) these 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 losses sustained by reason of a
default arising from, among other things, (1) 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 (2) 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 might give rise to an obligation on the part
of the Seller to repurchase the defaulted Loan if the breach cannot be cured by
the Seller. No pool insurance policy will cover (and many primary mortgage
insurance policies do not cover) a claim in respect of a defaulted
38
<PAGE>
Loan occurring when the servicer of that 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 some expenses incurred by the Servicer as well as accrued interest
on delinquent Loans to the date of payment of the 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 home by the related securityholders.
CROSS-COLLATERALIZATION
If specified in the related prospectus supplement, different classes of the
related series of securities may hold the sole beneficial ownership interest in
separate groups of Trust Fund Assets. In this case, credit enhancement may be
provided by a cross-collateralization feature requiring that distributions be
made on 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 that trust fund.
Cross-collateralization may be provided by (1) the allocation of some excess
amounts generated by one or more asset groups to one or more other asset groups
within the same trust fund or (2) the allocation of losses on one or more asset
groups to one or more other asset groups within the same trust fund. These
excess amounts will be applied and/or these 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 this 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 the credit
enhancement relates and the manner of determining the amount of coverage
provided to those trust funds thereby and of the application of that 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 trust fund will vary
depending upon the type of Loans included therein. Each prospectus supplement
will contain information regarding the type and maturities of the Loans in the
related trust fund. 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 trust fund
will affect the weighted average life of the related series of securities.
The rate of prepayment on the Loans cannot be predicted. 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,
these 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. We refer you to "Legal Aspects of
the Loans--Due-on-Sale Clauses." In addition, the Servicer and its affiliates
periodically conduct mass mailings to their existing customers with respect to
the refinancing of existing mortgage loans. Although these marketing efforts are
not specifically directed to customers who have mortgage loans included in a
trust fund, these customers may receive the marketing materials as part of a
broader mailing, which may result in an increase in the rate of prepayments of
mortgage loans included in a trust fund through refinancings. 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 the investor at the time the
securities were purchased.
39
<PAGE>
Collections on Revolving Credit Line Loans may vary because, among other
things, borrowers may (1) make payments during any month as low as the minimum
monthly payment for that month or, during the interest-only period for some
Revolving Credit Line Loans with respect to which an interest-only payment
option has been selected, the interest and the fees and charges for that month
or (2) 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 some 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 these 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. We refer you to "The Agreements--Collection Procedures" and "Legal
Aspects of the Loans" for a description of some provisions of each Agreement and
some legal developments that may affect the prepayment experience on the Loans.
The rate of prepayments on conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
significantly below the interest rates borne by the Loans, the Loans are more
likely to be subject to higher prepayment rates than if prevailing interest
rates remain at or above those interest rates. Conversely, if prevailing
interest rates rise appreciably above the interest rates borne by the Loans, the
Loans are more likely to experience a lower prepayment rate than if prevailing
rates remain at or below those Loan interest rates. However, there can be no
assurance that this 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 that 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 for defaulted mortgage loans do not vary directly with
the outstanding principal balance of the loan at the time of default. Therefore,
assuming that a Servicer took the same steps in realizing upon a defaulted
mortgage loan having a small remaining principal balance as it would in the case
of a defaulted mortgage loan having a large remaining principal balance, the
amount realized after expenses of liquidation would be smaller as a percentage
of the remaining principal balance of the small mortgage loan than would be the
case with the other defaulted mortgage loan having a large remaining principal
balance.
Applicable state laws generally regulate interest rates and other charges,
require specified disclosures, and require licensing of some 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
40
<PAGE>
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 interest rates will affect the
yield on those 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 interest will not be made earlier
than the month following the month of accrual.
Under some 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
causing earlier retirement of the related series of securities. We refer you to
"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 those securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which is 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, the 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 those
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 the conveyance,
deliver the 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. This 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 interest rate or Annual
Percentage Rate ("APR"), the maturity of the Loan, the Combined Loan-to-Value
Ratio at origination and other specified 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:
o the mortgage note or contract endorsed without recourse in blank or to
the order of the Trustee,
o the mortgage, deed of trust or similar instrument (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 the Mortgage together
with a certificate that the original of the Mortgage was delivered to
that recording office),
o an assignment of the Mortgage to the Trustee, which assignment will be
in recordable form in the case of a Mortgage assignment,
41
<PAGE>
o other assignments deemed necessary by the Trustee, including
assignments of title insurance policies covering the mortgaged
properties, and
o 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 these
Loan documents within the time period specified in the related prospectus
supplement after receipt thereof, and the Trustee will hold those documents in
trust for the benefit of the related securityholders. If any Loan document is
found to be missing or defective in any material respect, the Trustee (or the
custodian) will notify the Servicer and the Depositor, and the Servicer will
notify the related Seller. If the Seller cannot cure the omission or defect
within the time period specified in the related prospectus supplement after
receipt of the notice, the Seller will be obligated to either (1) purchase the
related Loan from the trust fund at the Purchase Price or (2) if so specified in
the related prospectus supplement, remove the Loan from the trust fund and
substitute in its place one or more other Loans that meets the 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
this 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 the Loan if the Seller
defaults on its obligation, unless the 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 representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Agreement. Upon a breach of any 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
a breach of a representation by the Servicer.
Notwithstanding the foregoing provisions, no purchase or substitution of a
Loan will be made for a trust fund which has made a REMIC election if the
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 of the related series or the Trustee for a breach of any
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 for the related trust fund a separate account or accounts for the
collection of payments on the related Trust Fund Assets in the trust fund (the
"Security Account") which must be one of the following:
o 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,
42
<PAGE>
o 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"),
o 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 so that, as evidenced by an
opinion of counsel, the securityholders have a claim on the funds in
the Security Account or a perfected first priority security interest
against any collateral securing these 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
o 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 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):
o all payments on account of principal, including Principal Prepayments
and, if specified in the related prospectus supplement, any applicable
prepayment penalties, on the Loans,
o all payments on account of interest on the Loans, net of applicable
servicing compensation,
o 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 these 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 on any properties
acquired on behalf of the securityholders by foreclosure or deed in
lieu of foreclosure,
o 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,"
o all payments required to be deposited in the Security Account in order
to satisfy any deductible clause in any blanket insurance policy
described under "--Hazard Insurance,"
o 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
o all other amounts required to be deposited in the Security Account
pursuant to the Agreement.
The Servicer (or the Depositor, as applicable) may from time to time direct
the institution that maintains the Security Account to withdraw funds from the
Security Account for the following purposes:
o 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
on funds in the amounts in the Security Account credited thereto,
43
<PAGE>
o to reimburse the Servicer for Advances, this right of reimbursement
for any Loan being limited to amounts received that represent late
recoveries of payments of principal and/or interest on the Loan (or
Insurance Proceeds or Liquidation Proceeds with respect thereto) with
respect to which that Advance was made,
o to reimburse the Servicer for any Advances previously made which the
Servicer has determined to be nonrecoverable,
o to reimburse the Servicer from Insurance Proceeds for expenses
incurred by the Servicer and covered by the related insurance
policies,
o 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, the right of reimbursement
being limited to amounts received representing late recoveries of the
payments for which the advances were made,
o to pay to the Servicer, for 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 the repurchased Loan,
o to reimburse the Servicer or the Depositor for expenses incurred and
reimbursable pursuant to the Agreement,
o to withdraw any amount deposited in the Security Account and not
required to be deposited therein, and
o to clear and terminate the Security Account upon termination of the
Agreement.
In addition, 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 (the "Pre-Funded Amount") specified in the related prospectus
supplement 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 the Trustee during the period from the
related Closing Date to a date specified in the related prospectus supplement
(the "Funding Period") to pay to the Depositor the purchase price for subsequent
Loans ("Subsequent Loans") acquired as Trust Fund Assets. 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. (1)
the date the amount on deposit in the Pre-Funding Account is less than the
minimum dollar amount specified in the related Agreement; (2) the date on which
an event of default occurs under the related Agreement, or (3) 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 another trust account 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 the amount 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
44
<PAGE>
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 the 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 the
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 the Sub-Servicing Agreement. Notwithstanding any 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 collection procedures that are customary for loans
comparable to the Loans. Consistent with the above, the Servicer may, in its
discretion, (1) waive any assumption fee. late payment or other charge in
connection with a Loan and (2) to the extent not inconsistent with the coverage
of the Loan by a pool insurance policy, primary mortgage insurance policy, FHA
insurance, V A 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, the obligation will
remain during any period of this 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 the conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of the Loan under any
due-on-sale clause applicable thereto, but only if the exercise of these 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 the due-on-sale clause or if the 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 the property has been or is about to be conveyed, pursuant to which that
person becomes liable for repayment of the Loan and, to the extent permitted by
applicable law, the mortgagor remains liable thereon. Any fee collected by or on
behalf of the Servicer for entering into an assumption agreement will be
retained by or on behalf of the Servicer as additional servicing compensation.
We refer you to "Certain Legal Aspects of the Loans--Due-on-Sale Clauses." In
connection with any of this type, 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 that mortgaged property is located. Except as
otherwise specified in the related prospectus supplement, this coverage will be
in an amount equal to at least the lesser of
o the sum of the original principal balance of the Loan and the original
principal balance of any other loan on the mortgaged property having
lien priority over the Loan, if any, and
o the greater of
45
<PAGE>
o the maximum insurable value of the improvements on the mortgaged
property and
o an amount sufficient to ensure that the proceeds of the policy will
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. This 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
this 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 halt, 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 of these
policies 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 (1) the replacement
value of the mortgaged property or (2) 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 (1) 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 (2) the same
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of these 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. We refer you to "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 (1)
that the restoration will increase the proceeds to securityholders on
liquidation of the Loan after reimbursement of the Servicer for its expenses and
(2) that these 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 normal practices and procedures that
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 the Loan plus interest accrued
thereon that is payable to securityholders, the trust fund will realize a loss
in the amount of the difference plus the aggregate of expenses incurred by the
Servicer in connection with these proceedings and which are reimbursable under
the Agreement. In the unlikely event that any proceedings result in a total
recovery which is, after reimbursement to the Servicer of its expenses, in
excess of the principal balance of the 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 for the Loan and amounts representing the balance of the excess,
exclusive of any amount required by law to be forwarded to the related borrower,
as additional servicing compensation.
46
<PAGE>
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 a 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 resulting from that Loan. In the
event that the Servicer has expended its own funds to restore the damaged
mortgaged property and these 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 the 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 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. We refer
you to "Credit Enhancement."
The proceeds from any liquidation of a Loan will be applied in the
following order of priority:
o 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 relating
to the Loan,
o second, to reimburse the Servicer for any unreimbursed Advances
relating to the Loan,
o third, to accrued and unpaid interest (to the extent no Advance has
been made for this amount) on the Loan; and fourth, as a recovery of
principal of the 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 the
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. 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 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 the 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 the 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
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 a 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 that series that have been rated.
47
<PAGE>
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 this compensation will be retained by it from collections of interest
on the 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 that 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
these 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 the 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 the statement) of
firms of independent public accountants with respect to the related
Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by two officers of
the Servicer to the effect that the Servicer has fulfilled its obligations under
the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Servicer may be obtained by securityholders of the related series without
charge upon written request to the Servicer at the address set forth in the
related prospectus supplement.
CERTAIN MATTERS REGARDING THE SERVICER AND THE DEPOSITOR
The Servicer under each Pooling and Servicing Agreement or Master Servicing
Agreement, as applicable, will be named in the related prospectus supplement.
The entity serving as Servicer may have normal business relationships with the
Depositor or the Depositor's affiliates.
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 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 director,
48
<PAGE>
officer, employee, or agent of the Servicer or the Depositor 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 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 action which it may deem
necessary or desirable under the Agreement and the rights and duties of the
parties thereto and the interests of the securityholders thereunder. If this
occurs, the legal expenses and costs of the 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 the 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
the merger, consolidation or succession does not adversely affect the then
current rating or ratings of the class or classes of securities of that 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
o any failure by the Servicer to distribute or cause to be distributed
to securityholders of any class any required payment (other than an
Advance) which continues unremedied for five days after the giving of
written notice of 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 that class evidencing not less than 25% of
the total distributions allocated to that class ("Percentage
Interests"),
o any failure by the Servicer to make an Advance as required under the
Agreement, unless cured as specified therein,
o 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 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 that class, and
o certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings 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 a trust
fund described under "Credit Enhancement" herein if payments from these sources
are insufficient to make all payments required in the Agreement. The assets of a
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 under any
other circumstances specified in the Agreement, the Trustee will terminate all
of the rights and obligations of the Servicer under the Agreement relating to
that trust fund and in and to the related Trust Fund Assets, The Trustee will
then succeed
49
<PAGE>
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. If 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 at least $10,000,000 to act as
successor to the Servicer under the Agreement. Pending this appointment, the
Trustee is obligated to act as a successor to the Servicer. The Trustee and any
successor to the Servicer 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 the holder's status as a securityholder,
will have any right under any Agreement to institute any proceeding relating to
the Agreement, unless the holder previously has given to the Trustee written
notice of default and unless the holders of securities of any class of that
series evidencing not less than 25% of the aggregate Percentage Interests
constituting the class have made a written request of the Trustee to institute
the 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 proceeding.
Indenture. Except as otherwise specified in the related prospectus
supplement, events of default under the Indenture for each series of
asset-backed notes shall include:
o a default in the payment of any principal of or interest on any note
of that series which continues unremedied for five days after written
notice of default is given as specified in the related prospectus
supplement,
o 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,
o certain events of bankruptcy, insolvency, receivership or liquidation
of the Depositor or the trust fund, or
o any other event of default provided for 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 the notes.
If an event of default on 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 that series may declare the
principal amount (or, if the notes of that series have an interest rate of 0%,
the 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
that series to be due and payable immediately. The declaration may, under
certain circumstances, be rescinded and annulled by the holders of more than 50%
of the Percentage Interests of the notes of that series.
If, following an event of default on any series of notes, the notes of that
series have been declared to be due and payable, the Trustee may, in its
discretion, notwithstanding acceleration, elect to maintain possession of the
collateral securing the notes of that series and to continue to apply
distributions on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of that series as they would
have become due if there had not been 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 that series for five days or more, unless
(1) the holders of 100% of the Percentage Interests of the notes of that series
consent to the sale, (2) the proceeds of the sale or liquidation are sufficient
to pay in full the principal of and accrued interest, due and unpaid, on the
outstanding notes of that series at the date of the sale or (c) the Trustee
determines that the collateral would not be sufficient on an ongoing basis to
make all payments on the notes as these payments would have become due if the
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 that series.
If 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 liquidation for unpaid fees and
expenses. As a result, upon the occurrence of a payment-related 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
50
<PAGE>
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 this type of 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 notes issued at a discount from par may be
entitled to receive no more than the unpaid principal amount thereof less the
amount of the discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an event of default relating to a series of notes occurs and is
continuing, the Trustee will have 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 that series, unless the holders offer to the Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities which
might be incurred by it in complying with the request or direction. Subject to
these 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 that 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 relating to the notes of
that series, and the holders of a majority of the then aggregate outstanding
amount of the notes of that 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 that 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, with
the consent of the provider of credit enhancement for such series of securities,
if any, but without the consent of any of the securityholders, (1) to cure any
ambiguity; (2) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein; or (3) to make any
other revisions relating to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that the
amendment 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
the amendment obtains a letter from each Rating Agency requested to rate the
class or classes of securities of that series stating that the amendment will
not result in the downgrading or withdrawal of the respective ratings then
assigned to those 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 the change does not adversely affect the then current
rating on the class or classes of securities of that series that have been
rated. In addition, if a REMIC election is made for a trust fund, the related
Agreement may be amended to modify, eliminate or add to any of its provisions to
the extent 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 the action is necessary or helpful to maintain qualification as a
REMIC. 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 that 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 amendment may
(1) 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 the security, or (2) reduce the aforesaid percentage of
securities of any class the holders of which are required to consent to the
amendment without the consent of the holders of all securities of that class
covered by the Agreement then outstanding. If a REMIC election is made for 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 the amendment will not cause the 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
51
<PAGE>
by the Servicer and required to be paid to them pursuant to that Agreement
following the later of (1) 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 Trust Fund Assets remaining in the trust fund
or (2) 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 from the related trust fund of all of the remaining Trust
Fund Assets and all property acquired in respect of those Trust Fund Assets.
Unless otherwise specified by the related prospectus supplement, any
purchase of Trust Fund Assets and property acquired in respect of Trust Fund
Assets evidenced by a series of asset-backed certificates will be made at the
option of the Servicer, the holders of certificates or, if applicable, a holder
of the REMIC residual interest, at a price specified in the related prospectus
supplement. The exercise of this right will effect early retirement of the
asset-backed certificates of that series, but the right of the Servicer, the
holders of certificates or, if applicable, a 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 for a trust fund, any purchase
pursuant to clause (2) 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 for a series of notes (except
for certain continuing rights specified in the Indenture) upon the delivery to
the Trustee for cancellation of all the notes of that series or, with certain
limitations, upon deposit with the Trustee of funds sufficient for the payment
in full of all of the notes of that series.
The Indenture will also provide that, if so specified for the notes of any
series, the related trust fund will be discharged from any and all obligations
to the notes of that series (except for certain obligations relating to
temporary notes and exchanges of notes, to register the transfer of or exchange
notes of that series, to replace stolen, lost or mutilated notes of that series,
to maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States which through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and each
installment of interest on the notes of that series on the last scheduled
Distribution Date for those notes and any installment of interest on those notes
in accordance with the terms of the Indenture and the notes of that series. In
the event of any defeasance and discharge of notes of that series, holders of
notes of that series would be able to look only to that 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.
LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Loans. Because these 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 that 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
52
<PAGE>
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 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, for 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,
foreclosure also may be accomplished by judicial sale in the manner provided for
foreclosure of mortgages.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property.
Actions prior to Commencement of Foreclosure. Many states require notices,
sometimes in prescribed form, be given to borrowers prior to commencement of
foreclosure proceedings in addition to any notice requirements contained in the
mortgage or deed of trust. In some states, a notice of default must be recorded
and a copy sent to the borrower and any other party with an interest in the
property. In some states, the borrower has the right to reinstate the loan at
any time following default until shortly before the sale. If a deed of trust,
security deed or mortgage is not reinstated within any applicable cure period, a
notice of sale must be posted in a public place and, in most states, published
for a specific period of time in one or more newspapers. In addition, some state
laws 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 a deficiency
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 repairs
necessary to render the property suitable for sale at its own expense. 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
53
<PAGE>
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. We refer you to "--Junior Mortgages; Rights of Senior Mortgagees."
54
<PAGE>
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 this lien has priority over the lien of an
existing mortgage against the 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 preexisting, 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 these costs
on any and all "responsible parties," including an owner or operator as that
term is therein defined. In 1996, however, Congress passed the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which substantially modified the definition of "owner or operator" to make
several important exclusions relating to persons who hold indicia of facility
ownership primarily as a means to protect that person's security interest in the
facility (the "Secured Creditor Exclusion"). This exclusion contains several
restrictions, however, under which the lender holding the security interest must
operate to insure that it is not "participating in management" of the facility.
Thus, if a lender's activities begin to encroach on the actual management of a
contaminated facility or property while the borrower is still in possession of
the 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, or fails to market or lease the property at the
earlier practicable, commercially reasonable time, on commercially reasonable
terms, taking into account market conditions and legal and regulatory
requirements.
This new legislation also 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 provides that participation in the management of the property does
not include "merely having the capacity to influence, or unexercised right to
control" operations, which had been one of the major concerns arising from the
Eleventh Circuit's decision in U.S. v. Fleet Factors Corp., 901 F. 2d 1550 (11th
Cir. 1990). A lender does not "participate in the management", the standard for
incurring owner and operator liability under CERCLA, unless it: (1) exercises
decision-making control over environmental compliance related to the property
while the borrower is still in possession of the property or facility; (2)
actually participates in the management or operational affairs of the facility;
or (3) exercises control over substantially all of the non-environmental
compliance operational functions of the property (as opposed to financial or
administrative functions). These amendments do not, however, 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 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 which 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 of the mortgaged properties 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.
55
<PAGE>
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 the security however,
in some of these states, the lender, following judgment on the personal action,
may be deemed to have elected a remedy and may be precluded from exercising
remedies relating to the security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
borrower. In some states, exceptions to the anti-deficiency statutes are
provided for in certain instances where the value of the lender's security has
been impaired by acts or omissions of the borrower, for example, in the event of
waste of the property. Finally, other statutory provisions limit any deficiency
judgment against the former borrower following a foreclosure sale to the excess
of the outstanding debt over the fair market value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the foreclosure sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the Bankruptcy Code, a lender may not foreclose
on a mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of the
mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under the mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any
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 these 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 these clauses in many states. However,
56
<PAGE>
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
these clauses over mortgage loans that were (1) 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 (2) originated by lenders other than national banks,
federal savings institutions and federal credit unions. Freddie Mac has taken
the position in its published mortgage servicing standards that, out of a total
of eleven "window period states," five states (Arizona, Michigan, Minnesota, New
Mexico and Utah) have enacted statutes extending, on various terms and for
varying periods, the prohibition on enforcement of due-on-sale clauses for
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 the 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 when
the prepayments are made 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 on
many of the Loans. The absence of a restraint on prepayment, particularly on
fixed rate Loans having higher interest rates, may increase the likelihood of
refinancing or other early retirement of these loans or contracts. Late charges
and prepayment fees are typically retained by servicers as additional servicing
compensation.
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.
57
<PAGE>
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 this type of 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 the 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 the borrower's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that the 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 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 a 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 junior mortgage, are subordinate to
those of any mortgagee under any senior mortgage. The senior mortgagee has the
right to receive hazard insurance and condemnation proceeds and to cause the
property securing the Loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure a default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply these proceeds and awards to any indebtedness secured
by the mortgage, in the order determined by the mortgagee. 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
58
<PAGE>
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
I 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 these loans which
include a "direct loan" or a "dealer loan." For 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. For 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. For a dealer Title I Loan, a dealer
may include a seller, a contractor or supplier of goods or services.
Loans insured under the Title I Program are required to have fixed interest
rates and, generally, provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually in order to correspond with the borrower's irregular flow of
income. The first or last payments (or both) may vary in amount but may not
exceed 150% of the regular installment payment, and the first payment may be due
no later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest rate
must be negotiated and agreed to by the borrower and 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 tender 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 typical) 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 this 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 the material misstatement of fact or misuse
of loan proceeds was caused by (or was knowingly sanctioned by) the lender or
its employees.
59
<PAGE>
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 the 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 on multiple properties, and a borrower may obtain more
than one Title I Loan on 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 the list of items and activities. Before the lender may disburse funds on
any dealer Title I Loan, the lender must have in its possession a completion
certificate on a HUD approved form, signed by the borrower and the dealer. For a
direct Title I Loan, the lender is required to obtain, promptly upon completion
of the improvements but not later than six months after disbursement of the loan
proceeds with one six month extension if necessary, a completion certificate,
signed by the borrower. The lender is required to conduct an on-site inspection
on any Title I Loan where the principal obligation is $7,500 or more, and on any
direct Title I Loan where the borrower fails to submit a completion certificate.
HUD Insurance Coverage. Under the Title I Program the Secretary of HUD
establishes an insurance coverage reserve account for each lender which has been
granted a Title I insurance contract. The amount of insurance coverage in this
account is 10% of the amount disbursed, advanced or expended by the lender in
originating or purchasing eligible loans registered with the Secretary of HUD
for Title I insurance, with certain adjustments. The balance in the insurance
coverage reserve account is the maximum amount of insurance claims the FHA is
required to pay. Loans to be insured under the Title I Program will be
registered for insurance by the Secretary of HUD and the insurance coverage
attributable to these 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 for loans
insured under the lender's contract of insurance by (1) the amount of insurance
claims approved for payment relating to insured loans and (2) 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 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 relating 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,
60
<PAGE>
equal to 10% of the actual purchase price or the net unpaid principal balance of
the 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 the loan only after the lender
or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the lender
may either (a) proceed against the property under any security instrument, or
(b) make a claim under the lender's contract of insurance. If the lender chooses
to proceed against the property under a security instrument (or if it accepts a
voluntary conveyance or surrender of the property), the lender may file an
insurance claim only with the prior approval of the Secretary of HUD.
When a lender files an insurance claim with the Secretary of HUD under the
Title I Program, the Secretary of HUD reviews the claim, the complete loan file
and documentation of the lender's efforts to obtain recourse against any dealer
who has agreed thereto, certification of compliance with applicable state and
local laws in carrying out any foreclosure or repossession, and evidence that
the lender has properly filed proofs of claims, where the borrower is bankrupt
or deceased. Generally, a claim for reimbursement for loss on any Property
Improvement Loan must be filed with the Secretary of HUD no later than nine
months after the date of default of the 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 of these defects 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 the 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.
61
<PAGE>
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 these 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
offered hereby and represents the opinion of Stradley, Ronon, Stevens & Young,
LLP, special counsel to the Depositor. The summary is based upon the provisions
of the Internal Revenue Code of 1986, as amended (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. This
interpretation is based on statutory provisions, regulations, and
interpretations that are subject to change, including change that could apply
retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special treatment
under the federal income tax laws. This summary focuses primarily on 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 (1) the securities of a series are classified as indebtedness for
federal income tax purposes; (2) one or more elections are made to treat certain
assets of the trust fund relating to a particular series of securities as a real
estate mortgage investment conduit ("REMIC") under the Code; (3) the securities
represent an ownership interest in some or all of the assets included in the
trust fund for a series; or (4) for federal income tax purposes the Trust Fund
relating to a particular Series of Certificates is classified as a partnership
or is disregarded as an entity separate from its owner. 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 for that 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 regarding the validity of the information set forth
under "Federal Income Tax Consequences" herein and in the related prospectus
supplement.
62
<PAGE>
TAXATION OF DEBT SECURITIES
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 OID in gross income as ordinary interest income as
it accrues under a method taking into account an economic accrual of the
discount. In general, OID must be included in income in advance of the receipt
of the cash representing that income. The amount of OID on a Debt Security will
be considered to be zero if it is less than a de minimis amount determined under
the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of Debt Securities is sold for cash on
or prior to the related Closing Date, the issue price for that class will be
treated as the fair market value of that class on the Closing Date. The issue
price of a Debt Security also includes the amount paid by an initial Debt
Security holder for accrued interest that relates to a period prior to the issue
date of the Debt Security. The stated redemption price at maturity of a Debt
Security includes the original principal amount of the Debt Security, but
generally will not include distributions of interest if these 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 these 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
reasonable remedies exist to compel timely payment or the debt instrument
otherwise provides terms and conditions that make the likelihood of late payment
(other than late payment that occurs within a reasonable grace period) or
nonpayment of interest a remote contingency. Certain Debt Securities may provide
for default remedies in the event of late payment or nonpayment of interest. The
interest on 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 may 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
63
<PAGE>
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 the
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 generally will be
considered to be zero if 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 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 this 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.
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 as the Debt Securities. Additionally, the OID
Regulations do not contain provisions specifically interpreting Code Section
1272(a)(6). Until the Treasury issues guidance to the contrary, the Trustee
intends to base its computation on Code Section 1272(a)(6) and the OID
Regulations as described in this prospectus. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that this methodology represents the correct manner of calculating
OID.
The holder of a Debt Security issued with OID must include in gross income,
for all days during its taxable year on which it holds the Debt Security, the
sum of the "daily portions" of the OID. The amount of OID includible in income
by a holder will be computed by allocating to each day during a taxable year a
pro rata portion of the 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 to the Debt Security in all prior periods, other than qualified stated
interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing these
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
64
<PAGE>
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: (1) the
original yield to maturity of the Pay-Through Security (determined on the basis
of compounding at the end of each accrual period and property adjusted for the
length of the accrual period), (2) events which have occurred before the end of
the accrual period and (3) 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 on 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 on 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 these securities as if, solely for the purposes of computing
OID, the separate regular interests were a single debt instrument.
A subsequent holder of a Debt Security will also be required to include OID
in gross income, but a subsequent holder who purchases the 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 the
OID by comparable economic accruals of portions of the excess.
Effects of Defaults and Delinquencies. Holders will be required to report
income from 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 1995 Technical Advice Memorandum, ruled that holders of a debt
instrument having OID must continue to accrue OID, as distinguished from the
accrual of interest, even when there is no reasonable expectation that the
instrument will be redeemed according to its terms due to the issuer's financial
condition. As a result, the amount of income (including OID) reported by a
holder of this type of security in any period could significantly exceed the
amount of cash distributed to the holder in that period. The holder will
eventually be allowed a loss (or will be allowed to report a lesser amount of
income) to the extent that the aggregate amount of distributions on the
securities is reduced as a result of a Loan default. However, the timing and
character of these 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
for 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 of OID should be calculated by including the
aggregate amount of all payments in the stated redemption price, and thus
treating none of the payments under the instrument as qualified stated interest.
However, in the case of Interest Weighted Securities that are entitled to some
payments of principal and that are Regular Interest Securities the IRS could
assert that income derived from an Interest Weighted Security should be
calculated as if the security were a security purchased at a premium equal to
the excess of the price paid by the holder for the security over its stated
principal amount, if any. Under this approach, a holder would be entitled to
amortize the premium only if it has in effect an election under Section 171 of
the Code for all taxable debt instruments held by the 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. This treatment may be more likely in the case of Interest Weighted
Securities that are Stripped Securities as described below. We refer you to
"--Tax Status as a Grantor Trust--Discount or Premium on Pass-Through
Certificates."
65
<PAGE>
Variable Rate Debt Securities. Debt Securities may provide for interest
based on a qualified variable rate (such securities are referred to as "Variable
Rate Debt Securities"). Under the OID Regulations, interest is treated as
payable at a qualified variable rate and not as contingent interest if,
generally, (1) the interest is unconditionally payable at least annually, (2)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments by more than a specified de minimis amount, (3) interest is
based on one or more "qualified floating rates," a single fixed rate and one or
more "qualified floating rates," a single "objective rate," or single fixed rate
and a single "objective rate" that is a "qualified inverse floating rate," where
each qualified floating rate or objective rate is set at a current value of the
rate, and (4) the Debt Security does not provide for any principal payments that
are contingent, as defined in the OID Regulations, except as provided in (2)
above.
In the case of Accrual Securities, certain Interest Weighted Securities,
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. In the
case of Variable Rate Debt Securities bearing interest at a rate that varies
directly, according to a fixed formula, with an objective index, it appears that
(1) the yield to maturity of the Debt Securities and (2) in the case of
Pay-Through Securities, the present value of all payments remaining to be made
on the Debt Securities, should be calculated as if the interest index remained
at its value as of the issue date of these securities if the rate on the
Security is a "qualified floating rate" or "qualified inverse floating rate" or
at a value that reflects the reasonably expected yield of the Security if the
rate on the Security is an "objective rate" (other than a "qualified inverse
floating rate"). 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 the securities for federal income tax purposes.
A variable rate is a qualified floating rate if variations in the value of
the rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds in the currency in which the debt instrument is
denominated. The rate may measure contemporaneous variations in borrowing costs
for the issuer of the debt instrument or for issuers in general. Generally, a
multiple of a qualified floating rate is not a qualified floating rate. If a
debt instrument provides for two or more qualified floating rates that can
reasonably be expected to have approximately the same values throughout the term
of the instrument, the qualified floating rates together constitute a single
qualified floating rate. Two or more qualified floating rates will be
conclusively presumed to meet the requirements of the preceding sentence if the
values of all rates on the issue date are within .25 percentage points of each
other.
An objective rate, for debt instruments issued on or after August 13, 1996,
generally is a rate (other than a qualified floating rate) that is determined
using a single fixed formula and that is based on objective financial or
economic information. An objective rate is a qualified inverse floating rate if
the rate is equal to a fixed rate minus a qualified floating rate and the
variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate disregarding certain
restrictions on the rate.
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. This market discount would
accrue in a manner to be provided in Treasury regulations but, until these
regulations are issued, market discount would in general accrue either (1) on
the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (2) 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 the 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 the 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
66
<PAGE>
security (or, in the case of a Pass-Through Certificate, as described below, the
underlying Loans) with market discount over interest received on the security is
allowed as a current deduction only to the extent this excess is greater than
the market discount that accrued during the taxable year in which the interest
expense was incurred. In general, the deferred portion of any interest expense
will be deductible when the 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 the holder during the taxable year the election is made
and thereafter, in which case the interest deferral rule will not apply.
Premium. A holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) at a cost greater than its
stated redemption price at maturity, generally will be considered to have
purchased the security at a premium, which it may elect to amortize as an offset
to interest income on the 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 that 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, the 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 the holder, and will be irrevocable without the consent
of the IRS. Purchasers who pay a premium for the securities should consult their
tax advisers regarding the election to amortize premium and the method to be
employed.
The IRS has 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 this type of election were to be made for
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
relating to all other debt instruments having market discount that the 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 on all debt instruments having amortizable bond premium
that the holder owns or acquires. The election to accrue interest, discount and
premium on a constant yield method for a Debt Security is irrevocable (except
with the approval of the Internal Revenue Service).
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 for 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 for a series of securities, (1) 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
67
<PAGE>
interest in real property," and other types of assets described in Code Section
7701(a)(19)(C)); and (2) 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 from 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 (1) or (2) above, then a security
will qualify for the tax treatment described in (1) and (2) in the proportion
that the REMIC assets are qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for Thrift Institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the Residual Interest Securities. In the case of a "single
class REMIC," however, the expenses will be allocated, under Treasury
regulations, among the holders of the Regular Interest Securities and the
holders of the Residual Interest Securities (as defined herein) on a daily basis
in proportion to the relative amounts of income accruing to each holder on that
day. In the case of a holder of a Regular Interest Security who is an individual
or a "pass-through interest holder" (including certain pass-through entities but
not including real estate investment trusts), the expenses will be deductible
only to the extent that the expenses, plus other "miscellaneous itemized
deductions" of the holder, exceed 2% of the holder's adjusted gross income. In
addition, for taxable years beginning after December 31, 1990, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (1) 3% of the excess of adjusted gross income over the
applicable amount, or (2) 80% of the amount of itemized deductions otherwise
allowable for that taxable year. For taxable years beginning after December 31,
1997, in the case of a partnership that has 100 or more partners and elects to
be treated as an "electing large partnership," 70 percent of such partnership's
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2 percent floor that would otherwise be applicable to individual
partners. The reduction or disallowance of this deduction may have a significant
impact on the yield of the Regular Interest Security to a holder with that level
of income. In general terms, a single class REMIC is one that either (1) 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 (2) is similar to a
grantor trust and is structured with the principal purpose of avoiding the
single class REMIC rules. Unless otherwise stated in the applicable Prospectus
Supplement, the expenses of the REMIC will be allocated to holders of the
related residual interest securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax, Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
as REMICs ("Tiered REMICs") for federal income tax purposes. Upon the issuance
of any such Series of Certificates, counsel to the Depositors will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing Agreement, the Tiered REMICs will each qualify
as a REMIC and the REMIC Certificates issued by the Tiered REMICs, respectively,
will be considered to evidence ownership of Regular Certificates or Residual
Certificates in the related REMIC within the meaning of the REMIC provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code, and
"loans...secured by an interest in real property" under Section
7701(a)(19)(C)(v) of the Code, and whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code, the Tiered REMICs will
be treated as one REMIC.
68
<PAGE>
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 (1) the gross income produced
by the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (2) deductions, including stated interest and OID
accrued on Regular Interest Securities, amortization of any premium relating 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 these expenses, when aggregated with the holder's other
miscellaneous itemized deductions for that year, do not exceed two percent of
the 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 made by individuals
originated on or after March 2, 1984, and the market discount provisions apply
to loans originated after July 18, 1984. Subject to possible application of the
de minimis rules, the method of accrual by the REMIC of OID income on the loans
will be equivalent to the method under which holders of Pay-Through Securities
accrue 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 the discount in income, but without regard to the de
minimis rules. See "--Taxation of Debt Securities." However, a REMIC that
acquires loans at a market discount must include the market discount in income
currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant yield
method. Although the law is somewhat unclear regarding recovery of premium
attributable to loans originated on or before that date, it is possible that the
premium may be recovered in proportion to payments of loan principal.
Prohibited Transactions and Other Possible Taxes. 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 (1) subject to limited exceptions, the sale or other
disposition of any qualified mortgage transferred to the REMIC; (2) subject to a
limited exception, the sale or other disposition of a cash flow investment; (3)
the receipt of any income from assets not permitted to be held by the REMIC
pursuant to the Code; or (4) 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. REMICs also are subject to
federal income tax at the highest corporate rate on "net income from foreclosure
property," determining by reference to the rules applicable to real estate
investment trusts. "Net income from foreclosure property" generally means gain
from the sale of foreclosure property that is inventory property, and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust. Unless otherwise disclosed
in the related Prospectus Supplement, it is not anticipated that any REMIC will
recognize "net income from foreclosure property" subject to federal income
taxation. The holders of Residual Interest Securities will generally be
responsible for the payment of any taxes imposed on the REMIC. To the extent not
paid by the holders or otherwise, however, taxes will be paid out of the trust
fund and will be allocated pro rata to all outstanding classes of securities of
the REMIC.
69
<PAGE>
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
the 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 that quarter. and by allocating that
amount among the holders (on that day) of the Residual Interest Securities in
proportion to their respective holdings on that 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 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 from 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 that type of
bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the end
of the calendar quarter in which the loss arises. A holder's basis in a Residual
Interest Security will initially equal the holder's purchase price, and will
subsequently be increased by the amount of the REMIC's taxable income allocated
to the holder, and decreased (but not below zero) by the amount of distributions
made and the amount of the REMIC's net loss allocated to the holder. Any
disallowed loss may be carried forward indefinitely, but may be used only to
offset income of the REMIC generated by the same REMIC. The ability of holders
of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which those 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 the payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of the
excess.
Sale or Exchange. A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and the holder's adjusted
basis in the Residual Interest Security at the time of the sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a Residual Interest Security will be disallowed if
the selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after the disposition.
Excess Inclusions. The portion of the REMIC taxable income of a holder of a
Residual Interest Security consisting of "excess inclusion" income may not be
offset by other deductions or losses, including net operating losses, on the
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511 (e.g., an organization described under Code
Section 401(a) or 501(c), with certain limited exceptions), the holder's excess
inclusion income will be treated as unrelated business taxable income of the
holder. In addition, under Treasury regulations yet to be issued, if a real
estate investment trust, a regulated investment company, a common trust fund, or
certain cooperatives were to own a Residual Interest Security, a portion of
dividends (or other distributions) paid by the
70
<PAGE>
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. We refer you to "--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 the 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 these 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 that quarterly period of
(1) 120% of the long term applicable federal rate on the startup day multiplied
by (2) the adjusted issue price of the Residual Interest Security at the
beginning of that quarterly period. The adjusted issue price of a Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price (calculated in a manner analogous to the determination of the issue price
of a Regular Interest Security), increased by the aggregate of the daily
accruals for prior calendar quarters, and decreased (but not below zero) by the
amount of distributions made on the Residual Interest Security before the
beginning of the quarter. The long-term federal rate, which is announced monthly
by the Treasury, is an interest rate that is based on the average market yield
of outstanding marketable obligations of the United States government having
remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. We refer you to "--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 the
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 the Residual
Interest Security at the time of the transfer. In addition, if a Disqualified
Organization holds an interest in a passthrough 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
71
<PAGE>
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 (1) 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 (2) 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
for certain transfers of residual interests by Foreign Persons to United States
Persons. We refer you to "--Tax Treatment of Foreign Investors."
Mark to Market Rules. Prospective purchasers of a REMIC Residual Interest
Security should be aware that the Treasury has issued final regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Interest
Security acquired after January 3, 1995 cannot be marked-to-market. The
Mark-to-Market Regulations replace the temporary regulations which allowed a
REMIC Residual Interest Security to be marked-to-market provided that it was not
a negative value residual interest and did not have the same economic effect as
a negative value residual interest. Prospective purchasers of a REMIC Residual
Interest Security should consult their tax advisors regarding the application of
the Mark-to-Market Regulations.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction, or credit, by the IRS in a unified
administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As specified in the related prospectus supplement if a REMIC or
partnership election is not made, in the opinion of Stradley, Ronon, Stevens &
Young, LLP, special counsel to the Depositor, the trust fund relating to a
series of securities will be classified for federal income tax purposes as a
grantor trust under Subpart E, Part I of Subchapter J of the Code and not as an
association taxable as a corporation (the securities of that series, the
"Pass-Through Certificates"). In some series there will be no separation of the
principal and interest payments on the Loans. In these 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 these 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 on the
Loans, and paid directly its share of the Servicing Fees. In the case of
Pass-Through Certificates other than Stripped Securities, this 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, this 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 these Servicing Fees under Section 162 or Section 212 of the Code to
the extent that these 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 the
holder's regular tax liability only to the extent that these fees, when added to
other miscellaneous itemized deductions, exceed 2% of adjusted gross income and
may not be deductible to any extent in computing the holder's alternative
minimum tax liability. In addition, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount (which amount will be adjusted for inflation in
taxable years beginning
72
<PAGE>
after 1990) will be reduced by the lesser of (1) 3% of the excess of adjusted
gross income over the applicable amount or (2) 80% of the amount of itemized
deductions otherwise allowable for that 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
on 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 based upon
the Loans underlying the Certificate, rather than the Certificate itself. 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. We refer you to "--Taxation of Debt Securities--Market Discount" and
"--Premium."
In the case of market discount on a Pass-Through Certificate attributable
to Loans originated on or before July 18, 1984, the holder generally will be
required to allocate (e.g., on a ratable or straight line basis) the portion of
the discount that is allocable to a Loan among the principal payments on the
Loan and to include the discount allocable to each principal payment in ordinary
income at the time the principal payment is made. This 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" when
referring to principal payments and "stripped coupons" when referring 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 the
stripped interest is purchased with an issue price equal to its purchase price
or, if more than one stripped interest is purchased, the ratable share of the
purchase price allocable to the stripped interest.
Servicing fees in excess of reasonable servicing fees ("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.
73
<PAGE>
In the case of any pool of debt instruments, such as Stripped Securities
and other Pass-Through Certificates, the yield on which may be affected by
reason of prepayments, the daily portion of the OID will be determined, using a
reasonable prepayment assumption, by allocating to each day in any accrual
period its ratable portion of the excess (if any) of: (i) the sum of the present
value of all remaining payments under the debt instrument as of the close of
such period and the payments during the accrual period of amounts included in
the stated redemption price of the debt instrument, over (ii) the adjusted issue
price of the debt instrument at the beginning of such period.
If the Loans prepay at a rate faster than the Prepayment Assumption a
holder's recognition of income may be accelerated. If, however, the Loans prepay
at a rate slower that the prepayment assumption, in some circumstances a
holder's recognition of income may be decelerated.
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 (1) 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; (2) the non-Interest
Weighted Securities are subject to the contingent payment provisions of the
Contingent Regulations; or (3) 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 these 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)(5)(B) of the Code and "loans secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C)(v) of the Code; 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 regarding trust funds as to which a
partnership election is made, a holder's tax basis in its security is the price
the 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
74
<PAGE>
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 (1) the amount that would have been includible in the
holder's income if the yield on the Regular Interest Security had equaled 110%
of the applicable federal rate as of the beginning of the holder's holding
period, over (2) the amount of ordinary income actually recognized by the holder
from the 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 these 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 regarding 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% for 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
(1) fails to furnish the Trustee with its taxpayer identification number
("TIN"),
(2) furnishes the Trustee an incorrect TIN,
(3) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or
(4) under certain circumstances, fails to provide the Trustee or the
holder's securities broker with a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and
that the holder is not subject to backup withholding.
Backup withholding will not apply, however, to certain payments made to holders,
including payments to certain exempt recipients (such as exempt organizations)
and to certain Foreign Persons (as defined below) who provide appropriate
ownership statements as to status as a Foreign Person. Holders should consult
their tax advisers as to their qualification for exemption from backup
withholding and the procedure for obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during that year and the
amount of tax withheld, if any, from 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 or partnership (or other entity properly treated as a
corporation or partnership for federal income tax purposes) created or organized
in or under the laws of the United States or any political subdivision thereof,
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 persons 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 regarding 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, the interest will normally qualify as portfolio interest
(except where (1) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer, or (2) 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 these 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 the
rate were reduced or eliminated by an applicable tax treaty) on, among other
things, interest and other fixed or
75
<PAGE>
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 this 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
these amounts to be taken into account at an earlier time in order to prevent
the avoidance of tax. These 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 these amounts will be distributed at or after
the time at which the excess inclusions accrue and not later than the calendar
year following the calendar year of accrual. If a 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. We refer you to "--Taxation of Holders of Residential
Securities--Excess Inclusions"
Foreign Persons normally use Form W-8 to certify their status. The Treasury
has issued final regulations that modify the information and forms (e.g., Form
W-8) that must be provided to certify status as a Foreign Person. Generally, the
regulations apply to payments made to Foreign Persons after December 31, 2000.
Foreign Persons should consult their own tax advisers concerning use of the
appropriate form(s) to certify their foreign status.
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 should not
be an association (or publicly traded partnership or taxable mortgage pool)
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 (1) the trust fund will be eligible to be classified
as a partnership and (2) the nature of the income of the trust fund will exempt
it from the rule that certain publicly traded partnerships are taxable as
corporations or the issuance of the securities has been structured as a private
placement under an IRS safe harbor, so that the trust fund will not be
characterized as a publicly traded partnership taxable as a corporation.
If the trust fund were taxable as a corporation for federal income tax
purposes, the trust fund would be subject to corporate income tax on its taxable
income. The trust fund's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any corporate income tax could
materially reduce cash available to make payments on the Notes and distributions
on the Certificates, and Certificateholders could be liable for any tax of this
type that is unpaid by the trust fund.
76
<PAGE>
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The trust fund will agree, and the
holders of asset-backed notes will agree by their purchase of notes, to treat
the notes as debt for federal income tax purposes. Special counsel to the
Depositor will, except as otherwise provided in the related prospectus
supplement, advise the Depositor that the notes will be classified as debt for
federal income tax purposes. The discussion below assumes this characterization
of the notes is correct.
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., generally 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 for any
given series of notes, additional tax considerations relating to the 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 the
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 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 the note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
and gain previously included by the noteholder in income resulting from the note
and decreased by the amount of bond premium (if any) previously amortized and by
the amount of principal payments previously received by the noteholder on the
note. Any gain or loss of this type 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 (1) is not actually or constructively a "10 percent shareholder"
of the trust fund or the Seller (including a holder of 10% of the outstanding
asset-backed 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 (2) provides the Owner Trustee or other person who is otherwise
required to withhold United States tax from payments on 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
77
<PAGE>
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 this 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.
The Treasury has issued final regulations that modify the information and
forms (e.g., Form W-8) that must be provided to certify that a Beneficial Owner
of a note is a Foreign Person. Generally, the regulations apply to payments made
to Foreign Persons after December 31, 2000. Foreign Persons should consult their
own tax advisers concerning use of the appropriate form(s) to certify that they
are a Foreign Person.
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 (1) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person and (2) 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 or 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 Depositor, the IRS successfully asserted that one or
more of the notes did not represent debt for federal income tax purposes, the
notes might be treated as equity interests in the trust fund. If so treated, the
trust fund might be taxable as a corporation with the adverse consequences
described above (and the taxable corporation would not be able to reduce its
taxable income by deductions for interest expense on Notes recharacterized as
equity). Alternatively, and most likely in the view of special counsel to the
Depositor, the trust fund might be treated as a publicly traded partnership that
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the notes as equity interests in a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including pension
funds) might be "unrelated business taxable income," income to foreign holders
generally would be subject to United States tax and United States tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of the trust fund's
expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment of the Trust Fund as a Partnership. The trust fund and the
Servicer will agree, and the holders of asset-backed certificates will agree by
their purchase of the 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, if any, the partners of the partnership being
the certificateholders (or if there is a single Certificateholder for federal
income tax purposes, to disregard the Trust Fund as an entity separate from the
single Certificateholder). However, the proper characterization of the
arrangement involving the trust fund, the certificates, the notes, if any, 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. Generally, provided
such certificates are issued at or close to face value, any characterization of
this type 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. You should note that
the federal tax law is unclear with respect to the status of certificates issued
by a partnership qualifying as "loans secured by an interest in real property."
A partnership may be regarded as an aggregate of its partners or an entity
separate and apart from its partners. If it is determined that the partnership
is an entity and the certificates represent equity in the partnership it is
unlikely that the certificates will constitute loans secured by an interest in
real property under Code section 7701(a)(19)(C). If, however, it is determined
that the partnership is an aggregate of its partners, certificates classified
as equity in the partnership might constitute loans secured by an interest in
real property as defined in Code section 7701(a)(19)(C) to the extent that the
assets held by the partnership qualify as such. If the certificates are
classified as debt in the partnership it is unlikely that the certificates will
qualify as loans secured by an interest in real property within the meaning of
Code section 7701(a)(19)(C). The following discussion assumes that the
certificates represent equity interests in a partnership.
78
<PAGE>
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 for any given series of certificates, additional tax considerations
relating to those 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 the 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 on 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 (1) the interest that accrues on
the certificates in accordance with their terms for that month, including
interest accruing at the Pass-Through Rate for that month and interest on
amounts previously due on the certificates but not yet distributed; (2) 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; (3) prepayment premium payable to the certificateholders for that month;
and (4) any other amounts of income payable to the certificateholders for that
month. This 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 certificateholders. 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 this
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 these taxes. In addition, because tax allocations and tax
reporting will be done on a uniform basis for all certificateholders but
certificateholders may be purchasing certificates at different times and at
different prices, certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the trust fund.
The taxable income allocated to a certificateholder that is a pension,
profit sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account) will constitute "unrelated business taxable
income" generally taxable to this type of holder under the Code to the extent
that the 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. These deductions might be disallowed to the individual in whole or
in part and might result in the holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the holder over the life of
the trust 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 these 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.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sole or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
contribute its assets and liabilities to a new partnership in exchange for
interests in that new partnership,
79
<PAGE>
and the Trust (as part of the termination) would be treated as distributing the
newly-created partnership interests to the partners in liquidation. The Trust
may not be able to comply with certain technical requirements that might apply
when such a constructive termination occurs due to a lack of data. As a result,
the Trust may be subject to certain tax penalties and may incur additional
expenses if it is required to comply with those requirements.
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 discount in income currently as it accrues
over the life of the Loans or to offset any premium against interest income on
the Loans. As indicated above, a portion of market discount income or premium
deduction may be allocated to certificateholders.
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 on the 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
those certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of that 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 these 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, this 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 that 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 this type of a monthly convention may not be permitted by
existing regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust 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 that
election. As a result, certificateholders
80
<PAGE>
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. These 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-1 information to nominees that fail to provide
the trust fund with the information statement described below and these nominees
will be required to forward this information to the Beneficial Owners of the
certificates. Generally, holders must file tax returns that are consistent with
the information return filed the trust fund or be subject to penalties unless
the holder notifies the IRS of all inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust fund
with a statement containing certain information on the nominee, the Beneficial
Owners and the certificates so held. This information includes
(1) the name, address and taxpayer identification number of the nominee,
and
(2) as to each Beneficial Owner
(a) the name, address and identification number of the person,
(b) whether the person is a United States Person, a tax-exempt entity
or a foreign government, an international organization, or any
wholly owned agency or instrumentality of either of the
foregoing, and
(c) certain information on certificates that were held, bought or
sold on behalf of the person throughout the year.
In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust 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
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, in that capacity, 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 from the perspective of
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 these 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 this income were effectively
connected to a United States trade or business, at a rate of 35% for holders
that are Foreign Persons taxable as corporations and 39.6% for all other holders
who are Foreign Persons. Subsequent adoption of Treasury regulations or the
issuance of other
81
<PAGE>
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 on
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
the 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 this 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 from the guaranteed payments.
The Treasury has issued final regulations that modify the information and
forms (e.g., Form W-8) that must be provided to certify that a holder is a
Foreign Person. Generally, the regulations apply to payments made to Foreign
Persons after December 31, 2000. Foreign Persons should consult their own tax
advisers concerning use of the appropriate form(s) to certify that they are a
Foreign Person.
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 regarding the various state and
local tax consequences of an investment in the securities.
ERISA CONSIDERATIONS
The following describes certain considerations under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the Code, which
apply only to securities of a series that are not divided into subclasses. If
securities are divided into subclasses the related prospectus supplement will
contain information concerning considerations relating to ERISA and the Code
that are applicable to those 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 these plans, accounts or arrangements are invested) (collectively,
"Plans") subject to ERISA and on persons who are fiduciaries of those 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 those 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 the 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
these 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 plan which is qualified and exempt from taxation
82
<PAGE>
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 the 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 of the 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 those certificates.
PTE 83-1 permits, subject to certain conditions, transactions which might
otherwise be prohibited between Plans and Parties in Interest of 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
those mortgage pools by Plans. If the general conditions (discussed below) of
PTE 83-1 are satisfied, investments by a Plan in certificates that represent
interests in a pool consisting of 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 (1) securities issued
in a series consisting of only a single class of securities; and (2) securities
issued in a series in which there is only one class of those securities;
provided that the securities in the case of clause (1), or the securities in the
case of clause (2), 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: (1) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing those loans, and for indemnifying securityholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (2) the existence of a pool trustee who is
not an affiliate of the pool sponsor; and (3) a limitation on the amount of the
payment retained by the pool sponsor, together with other funds inuring to its
83
<PAGE>
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 for the securities in a series issued without a subordination
feature and for the securities 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 (this subordination, pool insurance or other
form of credit enhancement being the system of insurance or other protection
referred to above) relating 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 for 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 83-1. The
Underwriter Exemptions contain an expanded definition of "certificate" which
includes an interest which entities 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.
Regardless of whether the notes are treated as debt or equity for purposes
of ERISA, the acquisition or holding of notes by or on behalf of a Plan could
still be considered to give rise to a prohibited transaction if the issuer, the
Trustee, or any of their respective affiliates is or becomes a party in interest
or a disqualified person with respect to such Plan or in the event that a
subsequent transfer of a note is between a Plan and a party in interest or
disqualified person with respect to such Plan. However, one or more exemptions
may be available with respect to certain prohibited transaction rules of ERISA
that might apply in connection with the initial purchase, holding and resale of
the notes, depending in part upon the type of Plan fiduciary making the decision
to acquire notes and the circumstances under which such decision is made. Those
exemptions include, but are not limited to, (i) PTCE 96-23, regarding
investments determined by in-house asset managers, (ii) PTCE 95-60, regarding
investments by insurance company pooled accounts; (iii) PTCE 91-38, regarding
investments by bank collective investment funds; (iv) PTCE 90-1, regarding
investments by insurance company pooled separate accounts; and (v) PTCE 84-14,
regarding transactions negotiated by qualified professional asset managers.
Before purchasing notes, a Plan subject to the fiduciary responsibility
provisions of ERISA or described in Section 4975(e)(1) (and not exempt under
Section 4975(g)) of the Code should consult with its counsel to determine
whether the conditions of any exemption would be met. A purchaser of a note
should be aware, however, that even if the conditions specified in one or more
exemptions are met, the scope of the relief provided by an exemption might not
cover all acts that might be construed as prohibited transactions.
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;
84
<PAGE>
(3) the certificates required by the Plan have received a rating at
the time of the acquisition that is one of the three highest generic rating
categories from Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
Duff & Phelps Credit Rating Co. ("DCR") or Fitch Investors Services, L.P.
("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group as defined below,
(5) the sum of all payments made to and retained by the 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 pool sponsor pursuant to the
assignment of the loans to the trust fund represents not more than the fair
market value of the loans; the sum of all payments made to and retained by
the servicer and any other servicer represents not more than reasonable
compensation for that person's services under the agreement pursuant to
which the loans are pooled and reimbursements of that person's reasonable
expenses in connection therewith;
(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; and
(7) in the event that the obligations used to fund the trust have not
been transferred to the trust on the Closing Date, additional obligations
(as specified in the Underwriter Exemptions) may be transferred to the
trust during the Funding Period in exchange for amounts credited to the
Pre-Funding Account, provided that the Pre-Funded Amount does not exceed
25% of the initial aggregate principal amount of the Certificates and/or
Notes of the related series of securities and provided that certain other
conditions set forth in the Underwriter Exemptions are satisfied.
The Underwriter Exemptions provide that the term "trust" does not include
any investment pool unless, among other things, it meets the following
requirements:
(1) the corpus of the trust fund must consist solely of assets of the
type that have been included in other investment pools;
(2) certificates in these 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
(3) certificates evidencing interests in these 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:
o 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 and at least 50 percent of the aggregate interest in the
trust is acquired by persons independent of the Restricted Group,
o the 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,
o 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
o immediately after the acquisition, no more than twenty-five percent (25%)
of the assets of the Plan with respect to which the 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 Depositor, the
related Underwriter, the Trustee, the Servicer, any insurer for the Loans, any
obligor for Loans included in the trust fund constituting more than five
85
<PAGE>
percent (5%) of the aggregate unamortized principal balance of the assets in the
trust fund, or any affiliate of these 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 who proposes to cause a Plan to purchase securities
should consult with its 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 this 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 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 persons,
trusts, corporations, partnerships, associations, business trusts, and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulations to the same extent
as, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any of those entities. Under SMMEA, if a
state enacts legislation prior to October 4, 1991 specifically limiting the
legal investment authority of any of those entities relating to "mortgage
related securities," securities will constitute legal investments for entities
subject to the legislation only to the extent provided therein. Approximately
twenty-one states adopted this legislation prior to the October 4, 1991
deadline. SMMEA provides, however, that in no event will the enactment of any
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 the contractual commitment was made or the securities were acquired
prior to the enactment of the 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 any regulations prescribed by the
applicable federal authority. 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, these "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 this type of 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
86
<PAGE>
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 those
investors.
METHOD OF DISTRIBUTION
Securities are being offered hereby in series from time to time through any
of the following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers, and
3. By placement directly by the Depositor with institutional investors.
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 the
series is being offered, the nature and amount of any underwriting discounts or
additional compensation to the 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 that series if any securities of that type 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 the 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 the
offering and any agreements to be entered into between the Depositor and
purchasers of securities of that 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 rating of the securities offered hereby would be based on, among other
things, the adequacy of the value of the Trust Fund Assets and any credit
enhancement of that class and will reflect that Rating Agency's assessment
solely of the likelihood that holders of a class of securities of that class
will receive payments to which those securityholders are entitled under the
related Agreement. The rating will not constitute an assessment of the
87
<PAGE>
likelihood that principal prepayments on the related Loans will be made, the
degree to which the rate of prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the series of
securities. The 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. The rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause the 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 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 of a
series, the rating might also be lowered or withdrawn among other reasons,
because of an adverse change in the financial or other condition of a credit
enhancement provider or a change in the rating of that credit enhancement
provider's long term debt.
The amount, type and nature of credit enhancement, if any, established for
a series of securities will be determined on the basis of criteria established
by each Rating Agency rating classes of that series. These criteria are
sometimes based upon an actuarial analysis of the behavior of mortgage loans in
a larger group. This analysis is often the basis upon which each Rating Agency
determines the amount of credit enhancement required for each class. There can
be no assurance that the historical data supporting any 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 resulting in the outstanding principal balances of the Loans in a
particular trust fund and any secondary financing on the related mortgaged
properties becoming 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 of any trust fund. To the extent that
these losses are not covered by credit enhancement, the losses will be borne, at
least in part, by the holders of one or more classes of the securities of the
related series.
AVAILABLE INFORMATION
Copies of the registration statement of which this prospectus forms a part
and the exhibits to the registration statement are on file at the offices of the
Securities and Exchange Commission in Washington, D.C. The Depositor is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended, and files reports and other information with the Commission. Reports
and information on file with the Commission, including the registration
statement and filings made by the Depositor can be inspected without charge at
the public reference facilities maintained by the Commission or may be copied at
rates prescribed by the Commission. The public reference facilities are at:
o 450 Fifth Street, N.W., Washington, D.C. 20549
o Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661
o Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048.
In addition, the Commission maintains a web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Depositor, that file electronically with
the Commission.
88
<PAGE>
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, after the date of this prospectus and prior to the termination of any
offering of the securities issued by the 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 these documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes of this prospectus to the
extent that a statement contained herein (or in the accompanying prospectus
supplement) or in any other subsequently filed document which also is or is
deemed to be incorporated by reference modifies or replaces that statement. Any
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 for 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 any 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
that 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 the
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 that series. These
requests should be directed to the corporate trust office of the Trustee or the
address of the 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 that other entity.
89
<PAGE>
INDEX OF DEFINED TERMS
Accrual Securities.................................23
Act.................................................2
Advances...........................................25
Agreement..........................................12
AIV................................................17
Amortizable Bond Premium Regulations...............66
APR............................................14, 41
Balloon Payment....................................13
BBA................................................30
Belgian Cooperative................................33
Beneficial Owners..................................31
BIF................................................42
Book-Entry Securities..............................31
Calculation Agent..................................29
Capitalized Interest Account.......................44
CEDEL..............................................31
CEDEL Participants.................................32
CERCLA.............................................54
Claimable Amount...................................60
Code...............................................61
Collateral Value...................................14
Combined Loan-to-Value Ratio.......................14
Commission.........................................35
Companion Class....................................28
Contingent Regulations.............................63
Credit Enhancement.................................83
Cut-off Date.......................................11
Cut-off Date Principal Balance.....................22
DCR................................................84
Debt Securities....................................62
Debt-to-Income Ratio...............................16
Definitive Security................................31
Depositor......................................11, 15
Disqualified Organization..........................70
DOL................................................82
EPA................................................54
Equity One.....................................12, 15
Equity One Standards...............................16
ERISA..............................................82
Euroclear..........................................31
Euroclear Operator.................................33
Euroclear Participants.............................33
European Depositories..............................31
Excess Servicing...................................72
Fannie Mae.........................................48
Federal Reserve....................................15
FHA................................................13
FHLMC..............................................47
Financial Intermediary.............................31
Fitch..............................................84
FNMA...............................................48
Foreign Person.....................................74
Freddie Mac........................................47
Full Doc...........................................17
Funding Period.....................................43
Garn-St Germain Act................................56
Home Equity Loans..................................14
HUD................................................58
Insurance Proceeds.................................42
Insured Expenses...................................42
IRS................................................63
L/C Bank...........................................35
L/C Percentage.....................................35
Liquidation Expenses...............................42
Liquidation Proceeds...............................42
Loan Indices.......................................31
Loans..............................................11
Lockout Periods....................................13
Mark-to-Market Regulations.........................71
Master Servicing Agreement.........................12
Mixed Use Loan.....................................12
Mixed Use Properties...............................13
Moody's........................................36, 84
Morgan.............................................33
Mortgage...........................................41
NCUA...............................................86
NIV................................................17
OID................................................62
OID Regulations....................................62
PAC................................................27
Parties in Interest................................82
Pass-Through Certificates..........................71
Pass-Through Rate..............................11, 23
Pay-Through Security...............................63
Percentage Interests...............................49
Permitted Investments..............................36
Plans..............................................82
PNA................................................15
Pool Insurer.......................................37
Pooling and Servicing Agreement....................11
Popular............................................15
Pre-Funded Amount..................................43
Prepayment Assumption..............................63
Prime Rate.........................................31
Principal Prepayments..............................24
Property Improvement Loans.........................58
PTE 83-1...........................................82
Purchase Agreement.................................11
Purchase Price.....................................21
Rating Agency..................................36, 87
Ratio Strip Securities.............................72
RCRA...............................................54
Record Date........................................22
Reference Banks....................................29
Refinance Loan.....................................14
90
<PAGE>
Regular Interest Securities........................62
Relevant Depository................................31
Relief Act.........................................57
REMIC..........................................23, 61
Reserve Account....................................23
Reserve Interest Rate..............................29
Residential Loan...................................12
Residual Interest Security.........................69
Restricted Group...................................85
Retained Interest..................................22
Revolving Credit Line Loans........................12
Rules..............................................32
S&P................................................84
SAIF...............................................42
Secured Creditor Exclusion.........................54
Securities Index...................................31
Security Account...................................42
Sellers............................................11
Senior Securities..................................34
Servicer...........................................12
Servicing Fee..................................47, 71
Short-Term Note....................................76
Single Family Properties...........................13
Single Family Securities...........................82
SMMEA..............................................85
Stripped Securities................................71
Subordinated Securities............................34
Subsequent Loans...................................44
Sub-Servicer.......................................12
Sub-Servicing Agreement............................44
TAC................................................28
Terms and Conditions...............................33
Thrift Institutions................................70
Tiered REMICs......................................67
TIN................................................74
Title I Loans......................................58
Title I Program....................................58
Title V............................................57
Treasury Index.....................................30
Trust Agreement....................................12
Trust Fund Assets..................................11
Trustee............................................11
Underwriter Exemptions.............................83
United States Person...............................74
VA.................................................13
VA Guaranty........................................47
Variable Rate Debt Securities......................64
91
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered under this
Registration Statement, other than underwriting discounts and commissions
SEC Registration Fee................................................ $111,200
Printing and Engraving Expenses..................................... 25,000
Legal Fees and Expenses............................................. 160,000
Trustee Fees and Expenses........................................... 40,000
Accounting Fees and Expenses........................................ 25,000
Blue Sky Fees and Expenses.......................................... 10,000
Rating Agency Fees.................................................. 120,000
Miscellaneous....................................................... 2,800
Total............................................................... $494,000
- ----------
* 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 $200,000,000 of the 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
that 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, for 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 that 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 that action or suit was brought shall
determine that, despite the adjudication of liability but in view of all the
circumstances of the case, that person is fairly and reasonably entitled to
indemnity for those 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 (1)
is or was a director or officer of the Registrant or (2) is or was serving at
the request of the Registrant as a director or officer (or its equivalent) of
another enterprise, except as to any action, suit or proceeding brought by or on
behalf of a director or officer without prior approval of the Board of Directors
of the Registrant. The Registrant does not maintain liability insurance coverage
for its directors, officers or other persons; however, these persons are covered
by a liability insurance policy maintained by Popular, Inc. for itself and its
subsidiaries.
II-1
<PAGE>
ITEM 16. EXHIBITS.
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant (1)
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Trust Agreement (2)
4.3 Form of Indenture (2)
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to legality of
the securities
8.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to certain tax
matters (included in Exhibit 5.1)
23 Consent of Stradley, Ronon, Stevens & Young, LLP (included in
Exhibits 5.1 and 8.1 hereof)
- ----------
(1) Previously filed with Registration Statement on Form S-3 (File No.
333-24599) originally filed April 4, 1997 and incorporated herein by
reference.
(2) 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.
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;
(A) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Act");
(B) 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 fund 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;
(C) To include any material information regarding the plan
of distribution not previously disclosed in this
Registration Statement or any material change to the
information in this Registration Statement;
provided, however, that paragraphs (a)(1)(A) and (a)(1)(B) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities
II-2
<PAGE>
offered therein, and the offering of the 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 the 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 that type
of indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
those 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 that
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 indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of the
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 (1) 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 (2) it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wilmington, Delaware on the 22nd day of July,
1999.
Equity One ABS, Inc.
By /s/ Cameron E. Williams
-----------------------
Cameron E. Williams
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Cameron E. Williams Director and President (Chief Executive July 22, 1999
- ----------------------------- Officer)
Cameron E. Williams
/s/ Dennis Kildea Director, Vice President, Treasurer and July 22, 1999
- ----------------------------- Assistant Secretary (Chief Financial/
Dennis Kildea Accounting Officer)
/s/ John N. Martella Director, Vice President, Secretary and July 22, 1999
---------------------------- Assistant Treasurer
John N. Martella
/s/ George P. Warren, Jr. Director, Vice President and Assistant July 22, 1999
- ----------------------------- Secretary
George P. Warren, Jr.
/s/ Gilbert B. Warren Director July 22, 1999
Gilbert B. Warren
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- -------- ----------------------
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant (1)
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Trust Agreement (2)
4.3 Form of Indenture (2)
5.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to legality
of the securities
8.1 Opinion of Stradley, Ronon, Stevens &, Young, LLP as to certain
tax matters (included in Exhibit 5.1)
23 Consent of Stradley, Ronon, Stevens & Young, LLP (included in
Exhibits 5.1 and 8.1)
- ----------
(1) Previously filed with Registration Statement on Form S-3 (File No.
333-24599) originally filed April 4, 1997 and incorporated herein by
reference.
(2) 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.
RESTATED CERTIFICATE OF INCORPORATION
OF
EQUITY ONE ABS, INC.
Equity One ABS, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Equity One ABS, Inc. The Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on March 26, 1997.
2. This Restated Certificate of Incorporation has been duly adopted in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware, as amended (the "GCL"), and, pursuant to such Sections of the GCL,
this Restated Certificate of Incorporation restates, integrates and further
amends the provisions of the Certificate of Incorporation of the Corporation.
3. The text of the Restated Certificate of Incorporation of the Corporation
is hereby restated and further amended to read in its entirety as follows:
FIRST: The name of the Corporation is EQUITY ONE ABS, INC. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 3411 Silverside Road, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at
such address is Organization Services, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage solely in the following
activities, subject to applicable laws and regulations:
a. To acquire, purchase, own, hold, sell, assign, transfer,
pledge or otherwise dispose of:
(1) interests in (A) loan agreements, promissory notes or
other evidences of indebtedness (the "Mortgage Loans") secured by
mortgages, deeds of trust, pledge agreements or other security
devices creating first and/or subordinate liens on one- to
four-family residential properties, detached or semi-detached
one- to four-family dwelling units, townhouses, rowhouses,
individual condominium units, individual units in planned unit
developments, and certain other dwelling units (the "Single
Family Properties") or mixed use properties which include one- to
four-family residential dwelling units and space used for retail,
professional or other commercial uses (together with the Single
Family Properties, the "Properties"), (B) closed-end and/or
revolving home equity loans (the "Home Equity Loans") secured by
first and/or subordinate liens on Single Family Properties and/or
(C) home improvement sale contracts and installment sale
agreements (the "Home Improvement Contracts" and, together with
the Home Equity Loans and the Mortgage Loans, the "Loans") that
are either unsecured or secured primarily by subordinate liens on
Single Family Properties or by purchase money security interests
in the home improvements financed thereby;
(2) mortgage-backed securities insured and/or guaranteed as
to timely payment of interest and/or principal by the Government
National
<PAGE>
Mortgage Association, Fannie Mae or Federal Home Loan Mortgage
Corporation; and
(3) mortgage pass-through certificates, mortgage pay-through
notes, collateralized mortgage obligations and other asset-backed
securities and instruments issued by a trust (including a
business trust), a financial institution or other entity engaged
generally in the business of mortgage lending, a public agency or
instrumentality of a state, local or federal government, or a
limited purpose corporation engaged in the business of
establishing trusts and acquiring and selling residential loans
to such trusts and selling beneficial interests in such trusts.
b. To act as settlor or depositor of trusts formed under a trust
agreement, pooling and servicing agreement, master servicing
agreement, servicing agreement or other agreement to issue one or more
series (any of which series may be issued in one or more classes) of
trust certificates ("Certificates") representing interests in Loans
and/or to issue pursuant to an indenture or other agreement one or
more series (any of which series may be issued in one or more classes)
of bonds, notes or other evidences of indebtedness ("Debt
Obligations") collateralized by Loans and/or other property and to
enter into any other agreement in connection with the authorization,
issuance, sale and delivery of Certificates and/or Debt Obligations
(collectively, the "Securities").
c. To acquire, own, hold, pledge, sell, transfer, assign or
otherwise deal with Securities, including Securities representing a
senior interest in Loans ("Senior Interests"), representing a
subordinated interest in Loans ("Subordinated Interests") or a
residual interest in Loans ("Residual Interests").
d. To apply proceeds from Loans, funds received in respect of
Securities, Senior Interests, Subordinated Interests or Residual
Interests and any other income, as determined by the Corporation's
Board of Directors.
e. To engage in any lawful act or activity and to exercise any
powers permitted to corporations organized under the GCL that are
incidental to and necessary or convenient for the accomplishment of
the foregoing purposes.
FOURTH: The total number of shares of all classes of capital stock
that the Corporation shall have authority to issue is 1,000 shares of
common stock, and the par value of such shares shall be $0.01 per share.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
Gilbert B. Warren
103 Springer Building
3411 Silverside Road
Wilmington, DE 19810
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
2
<PAGE>
a. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
b. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors shall have concurrent power with
the stockholders to make, alter, amend, change, add to or repeal the
bylaws of the Corporation.
c. The number of directors of the Corporation shall initially be
five and thereafter shall be as from time to time fixed by, or in the
manner provided in, the bylaws of the Corporation. Election of
directors need not be by written ballot unless the bylaws so provide.
d. At least two directors of the Corporation will be Independent
Directors. An "Independent Director" shall mean a director of the
Corporation who is not at the time of initial appointment or at any
time thereafter and has not been at any time during the preceding five
(5) years: (1) a stockholder, director (other than in the capacity of
an Independent Director as defined herein), officer, employee,
partner, attorney or counsel of the Corporation or any of its
affiliates; (2) a customer, supplier or other person who derives more
than 10% of its purchases or revenues from its activities with the
Corporation or any of its affiliates; (3) a person or other entity
controlling or under common control with any such stockholder,
partner, customer, supplier or other person; or (4) a member of the
immediate family of any such stockholder, director, officer, employee,
partner, customer, supplier or other person. (As used herein, the term
"control" means the possession, directly or indirectly, of the power
to direct or cause the direction of management, policies or activities
of a person or entity, whether through ownership of voting securities,
by contract or otherwise.)
e. In addition to the powers and authority hereinabove or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject nevertheless
to the provisions of the GCL, this Certificate of Incorporation and
the bylaws of the Corporation; provided, however, that no bylaw
hereafter adopted by the stockholders shall invalidate any prior act
of the directors that would have been valid if such bylaw had not been
adopted. The Corporation's Board of Directors will duly authorize all
of the Corporation's actions.
f. The Corporation will: (1) maintain books and records separate
from any other person or entity; (2) maintain its bank accounts
separate from any other person or entity; (3) not commingle its assets
with those of any other person or entity and will hold all of its
assets in its own name; (4) conduct its own business in its own name;
(5) ensure that a footnote is added to the consolidated financial
statements of the Corporation indicating that the assets of the
Corporation are not available to the creditors of its corporate
parent; (6) pay its own liabilities and expenses only out of its own
funds; (7) observe all corporate and other organizational formalities;
(8) enter into transactions with affiliates only if each such
transaction is intrinsically fair, commercially reasonable, and on the
same terms as would be available in an arm's length transaction with a
person or entity that is not an affiliate; (9) pay the salaries of its
own employees from its own funds; (10) maintain a sufficient number of
employees in light of its contemplated business operations; (11) not
guarantee or become obligated for the debts of any other entity or
person; (12) not hold out its credit as being available to satisfy the
obligations of any other person or entity; (13) not acquire the
obligations or securities of its affiliates or shareholders, as
appropriate; (14) not make loans to any other person or entity, incur
any indebtedness or buy or hold evidence of indebtedness issued by any
other person or entity
3
<PAGE>
(except for cash and investment-grade securities); (15) allocate
fairly and reasonably any overhead expenses that are shared with an
affiliate, including paying for office space and services performed by
any employee of any affiliate; (16) use separate stationary, invoices,
and checks bearing its own name; (17) not pledge its assets for the
benefit of any other person or entity; (18) hold itself out as a
separate identity; (19) correct any known misunderstanding regarding
its separate identity; (20) not identify itself as a division of any
other person or entity; (21) maintain adequate capital in light of its
contemplated business operations.
EIGHTH: The Corporation shall not issue, assume or guarantee any debt
securities unless such debt securities are acceptable to the rating
agencies that have rated any outstanding Securities and such issuance,
assumption or guarantee will not result in the downgrade or withdrawal of
the rating then assigned to any outstanding Securities then rated by such
rating agency.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of the Corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
the Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of the
GCL, order a meeting of the creditors or class of creditors and/or of the
stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors and/or on all the stockholders or class of stockholders of the
Corporation, as the case may be, and also on the Corporation.
TENTH: Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation, for so long as any rated Securities remain
outstanding, shall not:
a. engage in any business or activity other than those set forth
in Article THIRD;
b. dissolve or liquidate, in whole or in part;
c. consolidate or merge with or into any other entity or convey
or transfer its properties and assets substantially as an entirety to
any entity, unless:
(1) the entity (if other than the Corporation) formed or
surviving the consolidation or merger or which acquires the
properties and assets of the Corporation, is organized and
existing under the laws of the State of Delaware, expressly
assumes the due and punctual payment of, and all obligations of
the Corporation, and has a Certificate of Incorporation
containing provisions identical to the provisions of Articles
THIRD, SIXTH, SEVENTH, EIGHTH, TENTH and FOURTEENTH of this
Certificate of Incorporation; and
4
<PAGE>
(2) the Corporation receives written confirmation from each
rating agency then rating any outstanding Securities that such
merger, consolidation or transfer will not result in the
downgrade or withdrawal of the rating then assigned to any
Securities then rated by such rating agency; and
d. without the affirmative vote of 100% of the members of the
Board of Directors of the Corporation, institute proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition
seeking or consent to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Corporation or a substantial part
of its property, or make any assignment for the benefit of creditors,
or admit in writing its inability to pay its debts generally as they
become due.
ELEVENTH: The Board of Directors, by the affirmative vote of a
majority of the whole Board, and irrespective of any personal interest of
its members, shall have authority to provide reasonable compensation of all
directors for services, ordinary or extraordinary, to the Corporation as
directors, officers or otherwise.
TWELFTH: Meetings of stockholders and directors may be held within or
without the State of Delaware, as the bylaws of the Corporation may
provide. The books and records of the Corporation may be kept (subject to
any provision contained in the GCL) outside the State of Delaware.
THIRTEENTH: Each person who is or was a director or officer of the
Corporation, and each person who serves or has served at the request of the
Corporation as a director or officer (or its equivalent) of another
enterprise, shall be indemnified by the Corporation to the fullest extent
authorized by applicable law in effect from time to time.
FOURTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provisions contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation; provided
that no such amendment of Articles THIRD, SIXTH SEVENTH, EIGHTH, TENTH and
FOURTEENTH shall be effective without the Corporation having received
confirmation from each rating agency rating any outstanding Securities that
such amendment shall not result in the termination or lowering of the
rating of such Securities.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by a duly authorized officer of the Corporation this 23rd day of
September, 1998.
/s/ George P. Warren, Jr.
------------------------------
George P. Warren, Jr.
Vice President
5
================================================================================
Equity One ABS, Inc.
Depositor
Equity One, Inc. (DE)
A Seller and the Servicer
---------------------, ---------------------,
---------------------, ---------------------, ---------------------,
--------------------- and ---------------------,
Sellers
and
---------------------
Trustee
-----------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of
---------------------
-----------------------------------
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES
---------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PRELIMINARY STATEMENT.............................................................................................1
ARTICLE I DEFINITIONS............................................................................................3
Adjusted Mortgage Rate............................................................................................3
Adjusted Net Mortgage Rate........................................................................................3
Advance...........................................................................................................3
Agreement.........................................................................................................3
Amount Held for Future Distribution...............................................................................3
Applicable Group..................................................................................................3
Available Funds...................................................................................................3
Bankruptcy Code...................................................................................................4
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..............................................................................................5
Certificate Registrar.............................................................................................5
Certificateholder or Holder.......................................................................................5
Class.............................................................................................................5
Class A Certificates..............................................................................................5
Class A-___ Available Funds Shortfall.............................................................................5
Class A-___ Available Funds Shortfall.............................................................................5
Class A-___ Distributable Funds...................................................................................6
Class A-___ Distributable Funds...................................................................................6
Class A-___ Monthly Spread Account Deposit Amount.................................................................6
Class A-___ Monthly Spread Account Deposit Amount.................................................................6
Class A-___ Spread Account Deposit Amount.........................................................................6
Class A-___ Spread Account Deposit Amount.........................................................................6
Class R Certificates..............................................................................................6
Class Certificate Balance.........................................................................................6
Class Interest Shortfall..........................................................................................6
Class Unpaid Interest Amounts.....................................................................................6
Closing Date......................................................................................................7
Closing Place.....................................................................................................7
Code..............................................................................................................7
i
<PAGE>
Collateral Value..................................................................................................7
Combined Loan-to-Value Ratio......................................................................................7
Corporate Trust Office............................................................................................7
Cross-Collateralization Amount....................................................................................7
Custodial Agreement...............................................................................................7
Custodian.........................................................................................................7
Cut-off Date......................................................................................................7
Cut-Off Date Group I Principal Balance............................................................................8
Cut-Off Date Group II Principal Balance...........................................................................8
Cut-off Date Pool Principal Balance...............................................................................8
Cut-off Date Principal Balance....................................................................................8
Defective Loan....................................................................................................8
Definitive Certificates...........................................................................................8
Deleted Loan......................................................................................................8
Denomination......................................................................................................8
Depositor.........................................................................................................8
Depository........................................................................................................8
Depository Participant............................................................................................8
Determination Date................................................................................................8
Distribution Account..............................................................................................8
Distribution Account Deposit Date.................................................................................9
Distribution Date.................................................................................................9
Due Date..........................................................................................................9
Eligible Account..................................................................................................9
Equity One-Delaware...............................................................................................9
Equity One-Florida................................................................................................9
Equity One-Minnesota..............................................................................................9
Equity One-New Hampshire..........................................................................................9
Equity One-New York...............................................................................................9
Equity One-North Carolina.........................................................................................9
Equity One-Pennsylvania..........................................................................................10
Equity One-West Virginia.........................................................................................10
ERISA............................................................................................................10
Escrow Account...................................................................................................10
Event of Default.................................................................................................10
Excess Proceeds..................................................................................................10
Expense Rate.....................................................................................................10
FDIC.............................................................................................................10
FHLMC............................................................................................................10
FIRREA...........................................................................................................10
FNMA.............................................................................................................10
Group............................................................................................................10
ii
<PAGE>
Group I Loans....................................................................................................10
Group II Loans...................................................................................................10
Group Principal Balance..........................................................................................11
I&I Payments.....................................................................................................11
Indirect Participant.............................................................................................11
Insurance Agreement..............................................................................................11
Insurance Policy.................................................................................................11
Insurance Proceeds...............................................................................................11
Insured Amount...................................................................................................11
Insured Expenses.................................................................................................11
Insurer..........................................................................................................11
Insurer Default..................................................................................................11
Insurer's Monthly Premium........................................................................................11
Interest Accrual Period..........................................................................................11
Interest Distribution Amount.....................................................................................12
Investment Letter................................................................................................12
Latest Possible Maturity Date....................................................................................12
Liquidated Loan..................................................................................................12
Liquidation Proceeds.............................................................................................12
Loan Losses......................................................................................................12
Loans............................................................................................................12
Loan Schedule....................................................................................................12
Majority in Interest.............................................................................................13
Monthly Statement................................................................................................13
Moody's..........................................................................................................13
Mortgage.........................................................................................................13
Mortgage File....................................................................................................13
Mortgage Note....................................................................................................13
Mortgage Rate....................................................................................................14
Mortgaged Property...............................................................................................14
Mortgagor........................................................................................................14
Net Available Funds..............................................................................................14
Net Prepayment Interest Shortfalls...............................................................................14
Nonrecoverable Advance...........................................................................................14
Notice...........................................................................................................14
Notice of Final Distribution.....................................................................................14
Officer's Certificate............................................................................................14
Opinion of Counsel...............................................................................................14
Optional Termination.............................................................................................15
Original Loan....................................................................................................15
OTS..............................................................................................................15
Outstanding......................................................................................................15
iii
<PAGE>
Outstanding Loan.................................................................................................15
Ownership Interest...............................................................................................15
Pass-Through Rate................................................................................................15
Paying Agent.....................................................................................................15
Percentage Interest..............................................................................................15
Permitted Investments............................................................................................15
Permitted Transferee.............................................................................................16
Person...........................................................................................................17
Policy...........................................................................................................17
Pool Principal Balance...........................................................................................17
Preference Claim.................................................................................................17
Prepayment Interest Excess.......................................................................................17
Prepayment Interest Shortfall....................................................................................17
Prepayment Period................................................................................................18
Primary Mortgage Insurance Policy................................................................................18
Principal Prepayment.............................................................................................18
Principal Prepayment in Full.....................................................................................18
Prospectus Supplement............................................................................................18
Purchase Price...................................................................................................18
PTCE 95-60.......................................................................................................18
Qualified Insurer................................................................................................18
Rating Agency....................................................................................................19
Record Date......................................................................................................19
Refinance Loan...................................................................................................19
Relief Act.......................................................................................................19
Relief Act Reductions............................................................................................19
REMIC............................................................................................................19
REMIC Change of Law..............................................................................................19
REMIC Provisions.................................................................................................19
Remittance Amount................................................................................................19
REO Property.....................................................................................................20
Request for Release..............................................................................................20
Required Insurance Policy........................................................................................20
Responsible Officer..............................................................................................20
Rule 144A Letter.................................................................................................20
Scheduled Payment................................................................................................20
Securities Act...................................................................................................20
Sellers..........................................................................................................20
Servicer.........................................................................................................20
Servicer Advance Date............................................................................................20
Servicing Advances...............................................................................................20
Servicing Amount.................................................................................................21
iv
<PAGE>
Servicing Fee....................................................................................................21
Servicing Fee Rate...............................................................................................21
Servicing Officer................................................................................................21
S&P..............................................................................................................21
Specified Spread Account Requirement.............................................................................21
Spread Account...................................................................................................22
Spread Account Draw..............................................................................................22
Spread Account Excess............................................................................................22
Startup Day......................................................................................................22
Stated Principal Balance.........................................................................................22
Step-down Date...................................................................................................22
Streamlined Documentation Loan...................................................................................22
Subservicer......................................................................................................22
Substitute Loan..................................................................................................22
Substitution Adjustment Amount...................................................................................23
Tax Matters Person...............................................................................................23
Tax Matters Person Certificate...................................................................................23
Transfer.........................................................................................................23
Transfer Affidavit...............................................................................................23
Transferor Certificate...........................................................................................23
Trustee..........................................................................................................23
Trustee Fee......................................................................................................23
Trustee Fee Rate.................................................................................................23
Trust Fund.......................................................................................................23
Voting Rights....................................................................................................23
Weighted Average Adjusted Net Mortgage Rate......................................................................24
ARTICLE II CONVEYANCE OF LOANS;
REPRESENTATIONS AND WARRANTIES...................................................................................24
SECTION 2.01. Conveyance of Loans...............................................................................24
SECTION 2.02. Acceptance by Trustee of the Loans................................................................27
SECTION 2.03. Representations, Warranties and Covenants of the Sellers and the Servicer.........................29
SECTION 2.03A. Additional Obligations of Equity One-Delaware.....................................................31
SECTION 2.04. Representations and Warranties of the Depositor as to the Loans...................................32
SECTION 2.05. Delivery of Opinion of Counsel in Connection with Substitutions...................................32
SECTION 2.06. Execution and Delivery of Certificates............................................................33
SECTION 2.07. REMIC Matters.....................................................................................33
SECTION 2.08. Covenants of the Servicer.........................................................................33
ARTICLE III ADMINISTRATION AND SERVICING OF LOANS................................................................34
SECTION 3.01. Servicer to Service Loans.........................................................................34
SECTION 3.02. Subservicing; Enforcement of the Obligations of Servicers.........................................35
v
<PAGE>
SECTION 3.03. Rights of the Depositor and the Trustee in Respect of the Servicer................................35
SECTION 3.04. Trustee to Act as Servicer........................................................................35
SECTION 3.05. Collection of Loan Payments; Certificate Account; Distribution Account;
Spread Account....................................................................................36
SECTION 3.06. Payment of Taxes, Assessments, Hazard Insurance Premiums and Similar
Items; Escrow Accounts............................................................................39
SECTION 3.07. Access to Certain Documentation and Information Regarding the Loans...............................39
SECTION 3.08. Permitted Withdrawals from the Certificate Account and
Distribution Account..............................................................................40
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance of Primary
Insurance Policies................................................................................41
SECTION 3.10. Enforcement of Due-on-Sale Clauses; Assumption Agreements.........................................42
SECTION 3.11. Realization Upon Defaulted Loans; Repurchase of Certain Loans.....................................43
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files...................................................46
SECTION 3.13. Documents Records and Funds in Possession of Servicer to be Held for the
Trustee...........................................................................................46
SECTION 3.14. Servicing Compensation............................................................................47
SECTION 3.15. Access to Certain Documentation...................................................................48
SECTION 3.16. Annual Statement as to Compliance.................................................................48
SECTION 3.17. Annual Independent Public Accountants'Servicing Statement; Financial
Statements........................................................................................48
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds....................................................49
SECTION 3.19. Optional Removal of Servicer by the Insurer.......................................................49
ARTICLE IIIA SPREAD ACCOUNT; POLICY.............................................................................50
SECTION 3A.01 Establishment of Spread Account; Deposits in SpreadAccount; Permitted
Withdrawals from Spread Account...................................................................50
SECTION 3A.02 Policy............................................................................................51
ARTICLE IV DISTRIBUTIONS AND ADVANCES BY THE SERVICER...........................................................53
SECTION 4.01. Advances..........................................................................................53
SECTION 4.02. Priorities of Distribution........................................................................53
SECTION 4.03. Monthly Statements to Certificateholders..........................................................55
SECTION 4.04. Bloomberg Reporting...............................................................................57
ARTICLE V THE CERTIFICATES......................................................................................57
SECTION 5.01. The Certificates..................................................................................57
SECTION 5.02. Certificate Register; Registration of Transfer and Exchange of Certificates.......................58
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.................................................63
SECTION 5.04. Persons Deemed Owners.............................................................................63
SECTION 5.05. Access to List of Certificateholders' Names and Addresses.........................................63
SECTION 5.06. Maintenance of Office or Agency...................................................................64
vi
<PAGE>
ARTICLE VI THE DEPOSITOR AND THE SERVICER.......................................................................64
SECTION 6.01. Respective Liabilities of the Depositor and the Servicer..........................................64
SECTION 6.02. Merger or Consolidation of the Depositor or the Servicer..........................................64
SECTION 6.03. Limitation on Liability of the Depositor, the Sellers, the Servicer and Others....................65
SECTION 6.04. Limitation on Resignation of Servicer.............................................................65
SECTION 6.05. Indemnification...................................................................................66
ARTICLE VII DEFAULT.............................................................................................66
SECTION 7.01. Events of Default.................................................................................66
SECTION 7.02. Trustee to Act; Appointment of Successor..........................................................68
SECTION 7.03. Notification to Certificateholders................................................................69
ARTICLE VIII CONCERNING THE TRUSTEE............................................................................70
SECTION 8.01. Duties of Trustee.................................................................................70
SECTION 8.02 Certain Matters Affecting the Trustee..............................................................71
SECTION 8.03. Trustee Not Liable for Certificates or Loans......................................................73
SECTION 8.04. Trustee May Own Certificates......................................................................73
SECTION 8.05. Trustee's Fees and Expenses.......................................................................73
SECTION 8.06. Eligibility Requirements for Trustee..............................................................74
SECTION 8.07. Resignation and Removal of Trustee................................................................74
SECTION 8.08. Successor Trustee.................................................................................75
SECTION 8.09. Merger or Consolidation of Trustee................................................................76
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.....................................................76
SECTION 8.11. Tax Matters.......................................................................................77
SECTION 8.12. Periodic Filings..................................................................................79
SECTION 8.13. Appointment of Custodians.........................................................................80
SECTION 8.14. Trustee May Enforce Claims Without Possession of Certificates.....................................80
SECTION 8.15. Suits for Enforcement.............................................................................80
ARTICLE IX TERMINATION..........................................................................................80
SECTION 9.01. Termination upon Liquidation or Purchase of all Loans.............................................80
SECTION 9.02. Final Distribution on the Certificates............................................................81
SECTION 9.03. Additional Termination Requirements...............................................................82
ARTICLE X MISCELLANEOUS PROVISIONS..............................................................................83
SECTION 10.01. Amendment........................................................................................83
SECTION 10.02. Recordation of Agreement; Counterparts...........................................................85
SECTION 10.03. Governing Law....................................................................................85
SECTION 10.04. Intention of Parties.............................................................................85
SECTION 10.05. Notices..........................................................................................87
SECTION 10.06. Severability of Provisions.......................................................................88
SECTION 10.07. Assignment.......................................................................................88
SECTION 10.08. Limitation on Rights of Certificateholders.......................................................89
vii
<PAGE>
SECTION 10.09. Inspection and Audit Rights......................................................................90
SECTION 10.10. Certificates Nonassessable and Fully Paid........................................................90
SECTION 10.11. The Closing......................................................................................90
SECTION 10.12. Interpretation...................................................................................90
SECTION 10.13. Rights of the Insurer............................................................................90
SECTION 10.14. No Partnership...................................................................................91
</TABLE>
viii
<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of ____________, 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"), ____________, a ____________ corporation ("____________"),
____________, a ____________corporation ("____________"), ____________, a
____________ corporation ____________, a ____________ corporation
("____________"),____________, a ____________ corporation ("____________"),
____________, a ____________ corporation ____________, a ____________
corporation ("____________" and, together with ____________, ____________,
____________, ____________, ____________, ____________ and ____________, the
"SELLERS") and ____________, a ____________ corporation organized under the laws
of the State of ____________, as trustee (the "TRUSTEE").
WITNESSETH THAT
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby conveyed to the
Trustee in return for the Certificates. The Trust Fund for federal income tax
purposes will consist of a single REMIC. The Certificates will represent the
entire beneficial ownership interest in the Trust Fund. The 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 (1) Denomination Minimum
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-____ $ % $ $
- ---------------------------------------------------------------------------------------------------------------------
Class A-____ $ % $ $
- ---------------------------------------------------------------------------------------------------------------------
Class R $ N/A $ N/A
=====================================================================================================================
</TABLE>
(1) On any Distribution Date following the Call Option Date, the Pass-Through
Rate for the Class A-____ Certificates shall be ____ % and the Pass-Through Rate
for the Class A-____ 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 I
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 and either
the Class A-___ or Class A-___ Certificates, the aggregate amount held in the
Certificate Account relating to the Applicable Group at the close of business on
the related Determination Date on account of (i) Principal Prepayments relating
to the Applicable Group received after the Prepayment Period corresponding to
such Distribution Date and Liquidation Proceeds relating to the Applicable Group
received in the month of such Distribution Date and (ii) all Scheduled Payments
due after the Applicable Group's Loans' respective Due Dates in the calendar
month preceding the month of such Distribution Date.
Applicable Group: Either the Group I Loans or the Group II Loans as the
case may be, but with respect to the Class A-___ Certificates, the Group I
Loans, and with respect to the Class A-___ Certificates, the Group II Loans.
Available Funds: As to any Distribution Date and either the Class A-___ or
Class A-___ Certificates, the sum of (a) the aggregate amount held in the
Certificate Account relating to the Applicable Group at the close of business on
the related Determination Date net of the Amount Held for Future Distribution
relating to the Applicable Group and net of amounts permitted to be withdrawn
from the Certificate Account pursuant to clauses (i)-(viii), inclusive, of
Section 3.08(a) relating to the Applicable Group and amounts permitted to be
withdrawn from
3
<PAGE>
the Distribution Account pursuant to clauses (i)-(iii) inclusive of Section
3.08(b) relating to the Applicable Group, (b) the amount of the related Advance,
if any, relating to the Applicable Group and (c) in connection with Defective
Loans, as applicable, the aggregate of the Purchase Prices and Substitution
Adjustment Amounts relating to the Applicable Group 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.
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 ____."
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 and with
respect to either the Class A-___ Certificates or the Class A-___ Certificates,
the sum of (a) the principal portion of each Scheduled Payment due on each Loan
in the Applicable Group on such Loan's Due Date in the calendar month preceding
the month of such Distribution Date, (b) the Stated Principal Balance of each
Loan in the Applicable Group that was repurchased by a Seller or the Servicer
pursuant to this Agreement as of such Distribution Date, (c) the Substitution
Adjustment Amount in connection with any Deleted Loan from the Applicable Group
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Loans in the
Applicable Group that are not yet Liquidated
4
<PAGE>
Loans received during the calendar month preceding the month of such
Distribution Date, (e) with respect to each Loan in the Applicable Group 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 on Loans in the
Applicable Group received during the related Prepayment Period and (g) the
principal portion of any Loan Losses on Loans in the Applicable Group incurred
during the calendar month preceding the month of such Distribution Date.
Certificate Register: The register maintained pursuant to Section 5.02.
Certificate Registrar: ____________ 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-___ and Class A-___
Certificates.
Class A-___ Available Funds Shortfall: As to any Distribution Date, the
amount, if any, by which the amount of Available Funds relating to the Class
A-___ Certificates for such Distribution Date is less than the aggregate amount
required to be distributed to, or in respect of, the Class A-___ Certificates
pursuant to Section 4.02 (a)(i)-(v).
Class A-___ Available Funds Shortfall: As to any Distribution Date, the
amount, if any, by which the amount of Available Funds relating to the Class
A-___ Certificates for such Distribution Date is less than the aggregate amount
required to be distributed to, or in respect of, the Class A-___ Certificates
pursuant to Section 4.02(b)(i)-(v).
5
<PAGE>
Class A-___ Distributable Funds : The sum of (i) the amount of Available
Funds relating to the Class A-___ Certificates, (ii) any Spread Account Draw for
the Class A-___ Certificates, (iii) any Insured Amounts for the Class A-___
Certificates and (iv) any Cross-Collateralization Amount for the Class A-___
Certificates.
Class A-___ Distributable Funds : The sum of (i) the amount of Available
Funds relating to the Class A-___ Certificates, (ii) any Spread Account Draw for
the Class A-___ Certificates, (iii) any Insured Amounts for the Class A-___
Certificates and (iv) any Cross-Collateralization Amount for the Class A-___
Certificates.
Class A-___ Monthly Spread Account Deposit Amount: On any Distribution
Date, the amount equal to the product of (i) 100% and (ii) the amount of the
Class A-___ 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.
Class A-___ Monthly Spread Account Deposit Amount: On any Distribution
Date, the amount equal to the product of (i) 100% and (ii) the amount of the
Class A-___ 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.
Class A-___ Spread Account Deposit Amount: As to any Distribution Date, the
amount by which (A) Class A-___ Distributable Funds exceeds (B) the sum of the
amounts distributed pursuant to Section 4.02(a)(i)-(vii).
Class A-___ Spread Account Deposit Amount: As to any Distribution Date, the
amount by which (A) Class A-___ Distributable Funds exceeds (B) the sum of the
amounts distributed pursuant to Section 4.02(b)(i)-(vii).
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
6
<PAGE>
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: ____.
Closing Place: The offices of Messrs. Stradley, Ronon, Stevens and Young,
LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103.
Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
Collateral Value: With respect to any Loan, other than Refinance Loans, an
amount equal to the lesser of (a) the appraised value of the related Mortgaged
Property based on an appraisal obtained by the originator from an independent
fee appraiser at the time of the 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 is the
appraised value of the Mortgaged Property based upon the appraisal obtained at
the time of refinancing.
Combined Loan-to-Value Ratio: With respect to any Loan and as to any date
of determination, 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 Second Lien Loan, the outstanding principal balance of the related
first lien mortgage loan on the date of origination of such Second Lien Loan,
and the denominator of which is the Collateral Value of the related Mortgaged
Property.
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 ________________________________
(Attention: ________________, facsimile number: ____) and which is the address
to which notices to and correspondence with the Trustee should be directed.
Cross-Collateralization Amount: As to any Distribution Date and the Class
A-___ or Class A-___ Certificates, the amount to be transferred by the Trustee
pursuant to Section 4.02(b)(vi) or Section 4.02(a)(vi), respectively.
Custodial Agreement: As defined in Section 8.12.
Custodian: As defined in Section 8.12.
Cut-off Date: ____.
7
<PAGE>
Cut-Off Date Group I Principal Balance: $____.
Cut-Off Date Group II Principal Balance: $____.
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.
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 ____ st 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.
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, _________________, as trustee for the registered holders of Equity One
ABS, Inc. Mortgage Pass-Through Certificates, Series ____." 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.
8
<PAGE>
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 ____ 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 ____, ____.
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, 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-____: ____, a ____ corporation.
Equity One-____: ____, a ____ corporation.
Equity One-____: ____, a ____ corporation.
Equity One-____: ____, a ____ corporation.
Equity One-____: ____, a ____ corporation.
9
<PAGE>
Equity One-____: ____, a ____ corporation.
Equity One-____: ____, a ____ 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.
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: Fannie Mae, a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, or any successor thereto.
Group: Either the Group I Loans or the Group II Loans, as the case may be.
Group I Loans: The mortgage loans identified as such on the Loan Schedule.
Group II Loans: The mortgage loans identified as such on the Loan Schedule.
10
<PAGE>
Group Principal Balance: With respect to any Distribution Date and either
the Group I Loans or the Group II Loans, the aggregate of the Stated Principal
Balances of the Loans in such Group that were Outstanding Loans (including Loans
in foreclosure and REO Properties) on their Due Dates in the calendar month
preceding the month of such Distribution Date.
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 ____
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: ____, a ____ company organized and created under the laws of the
State of ____, 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.
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.
11
<PAGE>
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) that 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 applicable to such defaulted Loans.
Loan Losses: The aggregate 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 allocable to principal 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.
Loans: Group I and Group II Loans, collectively.
Loan Schedule: The list of Group I Loans and Group II Loans (as from time
to time amended by the Servicer to reflect the addition of Substitute Loans to
the Applicable Group and the deletion of Deleted Loans from the Applicable Group
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;
12
<PAGE>
(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;
(viii) the Mortgage Rate; and
(ix) for Group I Loans only, the principal balance of the Loan at
origination.
Such schedule shall also set forth the total of the amounts described under
(iv) above for the Group I Loans, the Group II Loans and 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 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 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 second 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.
13
<PAGE>
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 and either the Class A-___
or Class A-___ Certificates, the amount equal to Available Funds for such Class
less the amounts required to be distributed on such Distribution Date pursuant
to Section 4.02(a)(i)-(iii) or 4.02(b)(i)-(iii), respectively.
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.
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.
14
<PAGE>
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.
Paying Agent: ____ 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
15
<PAGE>
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 the highest long-term and one of the two 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 the highest long term rating and one of the
two highest short term 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 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
16
<PAGE>
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 Persons 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.
Pool Principal Balance: The sum of the Group Principal Balances for the
Group I Loans and the Group II Loans.
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 ____, ____, 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 ____ 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
17
<PAGE>
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 ____ th
day of the calendar month preceding the month of such Distribution Date (or, in
the case of the first Distribution Date, from the Cut-off Date) through the ____
th 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 ____ 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 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
18
<PAGE>
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 for the purpose of refinancing 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.
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 and either the Class A-___
Certificates or the Class A-___ Certificates, the sum of the Interest
Distribution Amount for such Class and the Certificate Formula Principal Amount
for such Class for such Distribution Date.
19
<PAGE>
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.
Second Lien Loan: Any Loan secured by a mortgage that is second in lien
priority.
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-____; Equity One-____; Equity One-____; Equity
One-____; Equity One-____; Equity One-____; and Equity One-____.
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 ____ 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
20
<PAGE>
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, ____ % 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, 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, 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) $____ (____
% times the Cut-off Date Pool Principal Balance); (b) the greatest of (1) the
sum of the principal balances of the three largest Loans as of such date; (2)
____ % times the Cut-off Date Pool Principal Balance; and (3) ____ % times the
aggregate principal balance of all Loans that are balloon loans, as described in
the Prospectus Supplement, with original terms of less than ____ months and (c)
two times the excess of (i) one-half the aggregate principal balance of the
Loans which are ____ or more days delinquent (including Loans in foreclosure and
REO Properties) over (ii) five times the sum of the Class A-___ Monthly Spread
Account Deposit Amount and the Class A-___ 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)
$____ (____ % times the Cut-off Date Pool Principal Balance) and (B) ____ %
times the outstanding Pool Principal Balance as of such date; (b) the greatest
of (1) the sum of the principal balances of the three largest Loans as of such
date; (2) ____ % times the Cut-off Date Pool Principal Balance; and (3) ____ %
times the aggregate principal balance of all Loans that are balloon loans, as
described in the Prospectus Supplement, with original terms of less than ____
months; and (c) two times the excess of (i) one-half the aggregate principal
balance of the Loans which are ____ or more days
21
<PAGE>
delinquent (including Loans in foreclosure and REO Properties) over (ii) five
times the sum of the Class A-___ Monthly Spread Account Deposit Amount and the
Class A-___ 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, ____, as trustee for the registered holders of Equity One ABS, Inc.
Mortgage Pass-Through Certificates, Series ____." 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 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, the unpaid principal balance of
such Loan as of its most recent 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
____ Distribution Date or (b) the date upon which the outstanding Pool Principal
Balance is less than ____ % of the Cut-off Date Pool Principal Balance.
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 not
in excess of, and not more than ____ % less than, the Stated Principal
Balance(s) of the Deleted Loans (such Stated Principal Balances to be measured
as of the respective Due Dates in the month of substitution); (ii) have a
Mortgage Rate not lower than, and not more than ____ % per annum higher than,
that of the Deleted Loan(s); (iii) have a Combined Loan-to-Value Ratio not
higher than that of the Deleted Loan(s); (iv) have a debt to income ratio not
higher than that of the Deleted Loan(s); (v) have been
22
<PAGE>
originated pursuant to the same underwriting standards as the Deleted Loan(s);
(vi) have a remaining term to maturity not greater than, and not more than one
year less than, that of the Deleted Loan(s); and (vii) 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: ____ 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 as of 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.
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
23
<PAGE>
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
and either the Group I or Group II Loans, the weighted average of the Adjusted
Net Mortgage Rates of the Outstanding Loans in such Group, 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) Subject to its substitution and repurchase obligations hereunder, each
Seller, concurrently with the execution and delivery hereof, hereby irrevocably
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 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 irrevocably 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
24
<PAGE>
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 ____ as trustee for the benefit
of the Certificateholders of Equity One ABS, Inc. Mortgage Pass-Through
Certificates Series ____ 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 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
25
<PAGE>
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 recorded Mortgage or such original recorded 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 recorded Mortgage and each such original recorded 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 within one year following the Closing Date each original
recorded Mortgage, and each such original recorded 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 original recorded Mortgage or any related interim recorded
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 original
recorded Mortgage or original recorded 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 recorded Mortgage is not delivered and, in connection
with the payment in full of the related Loan, 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 an original recorded Mortgage is
lost after recordation in a public recording office, the appropriate Seller
shall deliver 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.
26
<PAGE>
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 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
27
<PAGE>
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; provided, that any Loan that does not constitute a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code shall be subject to a
substitution or repurchase as provided in Section 2.05(b) of this Agreement. 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
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.
28
<PAGE>
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-____, Equity One-____, Equity
One-____, Equity One-____, Equity One-____, Equity One-____ and Equity
One-____, in their capacities as Sellers, hereby make the representations
and warranties set forth in Schedules IIA through IIH 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) The 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-____, Equity One-____, Equity One-____,
Equity One-____, Equity One-____, Equity One-____ and Equity One-____, in their
capacities as Sellers, hereby make the representations and warranties set forth
in Schedules IIIA through IIIH 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.
(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
29
<PAGE>
(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.
Notwithstanding the preceding sentence, any Loan that does not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code shall
be subject to substitution or repurchase as provided in Section 2.05(b) of this
Agreement. 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 the relevant
Class will include the monthly payment due on any Deleted Loan from the
Applicable Group 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 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.
30
<PAGE>
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 Stated Principal Balance of all such
Substitute Loans is less than the aggregate Stated Principal Balance of all such
Deleted Loans (such Stated Principal Balances to be measured as of the
respective Due Dates 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 the Trustee that all of the
representations and warranties of the other Sellers described in Section 2.03
and set forth in Schedules IIB through IIH and IIIB through IIIH 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 through IIIH
31
<PAGE>
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
irrevocably 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, and/or (ii) cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding.
(b) Upon discovery by the Depositor, the 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
32
<PAGE>
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 and, for the purposes of Section
860C of the Code, the taxable income of the REMIC shall be computed under an
accrual method of accounting.
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 statement of a material fact or omit to
state a material fact necessary to make such information, certificate, statement
or report not misleading.
33
<PAGE>
ARTICLE III
ADMINISTRATION AND SERVICING
OF LOANS
SECTION 3.01. Servicer to Service Loans.
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.
34
<PAGE>
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 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
35
<PAGE>
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.
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:
36
<PAGE>
(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;
(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
37
<PAGE>
(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.
(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
38
<PAGE>
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 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,
39
<PAGE>
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 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;
40
<PAGE>
(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;
(ix) on or prior to the Distribution Account Deposit Date, to withdraw
an amount equal to the Available Funds for both the Class A-___ Certificates and
the Class A-___ Certificates 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
41
<PAGE>
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 Second Lien Loan, in an amount equal to the lesser of the combined
principal balance of such Second Lien Loan and the related first lien mortgage
loan 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 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 as
allowed by law, and shall allow the cancellation of any such Primary Mortgage
Insurance Policy as required by law. 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
42
<PAGE>
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
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
43
<PAGE>
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 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. In
order to facilitate sales of REO Properties by the Servicer, upon the Servicer's
request, the Trustee shall promptly provide the Servicer with appropriate
limited durable powers of attorney or such other documentation as may reasonably
be required by the Servicer or purchasers of REO Properties to consummate such
sales. 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.
44
<PAGE>
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 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
45
<PAGE>
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 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
46
<PAGE>
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 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 for
Loans in a particular Group with respect to any Distribution Date shall be
reduced (i) by an amount equal to the aggregate of the Prepayment Interest
Shortfalls relating to such Group, if any, with respect to such Distribution
Date, up to the full amount of the aggregate Servicing Fee for Loans in such
Group, and (ii) with respect to the first Distribution Date, an amount equal to
any amount relating to such Group 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 for each of the Group
I Loans to the extent necessary to maintain the Weighted Average Adjusted Net
Mortgage Rate of the Loans in such Group at a rate no less than ____ %.
Notwithstanding the second preceding sentence, the Servicer shall, on each
Distribution Date, reduce its Servicing Fee for each of the Group II Loans to
the extent necessary to maintain the Weighted Average Adjusted Net Mortgage Rate
of the Loans in such Group at a rate no less than: (i) on or prior to the Call
Option Date for so long as Equity One, Inc. is the Servicer, ____ % and (ii)
after the Call Option Date, ____ %.
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.
47
<PAGE>
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 ____ 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 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 ____ 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
48
<PAGE>
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 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, ________% of the Pool Principal Balance as of the end of
the related Interest Accrual Period or (b) on or after the Step-Down Date,
________% 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.
49
<PAGE>
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, ____, as trustee for the registered holders of Equity
One ABS, Inc. Mortgage Pass-Through Certificates, Series ____." 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 Class A-___ Monthly Spread
Account Deposit Amount transferred by the Trustee pursuant to Section
4.02(a)(viii) and the Class A-___ Monthly Spread Account Deposit Amount
transferred by the Trustee pursuant to Section 4.02(b)(viii); and
(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 lesser of (A) the excess of (1) the sum of the Remittance Amounts
for the Class A-___ and Class A-___ Certificates for such Distribution
Date over (2) the sum of the Net Available Funds for the Class A-___
and the Class A-___ Certificates for such Distribution Date or (B) all
remaining amounts in the Spread Account (any such amount, the "SPREAD
ACCOUNT DRAW"); and
(ii) to the extent that the amount 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);
50
<PAGE>
(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 remaining principal as well as
any other 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.
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, with respect to either the Class A-___ Certificates
or the Class A-___ Certificates, the sum of the related Net Available Funds, the
related Cross-Collateralization Amount and the related Spread Account Draw is
insufficient to pay the Remittance Amount for such Class 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
51
<PAGE>
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.
(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.
(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.
52
<PAGE>
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.
SECTION 4.02. Priorities of Distribution.
(a) On each Distribution Date, the Trustee shall distribute the following
amounts from Class A-___ Distributable Funds, to the extent available, to the
parties and in the priorities indicated:
(i) first, to the Insurer, the portion of the Insurer's Monthly
Premium based upon the Class Certificate Balance of the Class A-___
Certificates;
(ii) second, to the Trustee, the portion of the Trustee Fee based
upon the Group Principal Balance of the Group I Loans, 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
aggregate Servicing Fee relating to the Group I Loans, except to the
extent previously paid by withdrawals under Section 3.08, and (ii) any
other amounts expended by the Servicer in connection with Group I Loans
and reimbursable thereto under this Agreement but not previously
reimbursed;
(iv) fourth, to the Class A-___ Certificates, the related Interest
Distribution Amount;
53
<PAGE>
(v) fifth, to the Class A-___, Certificates, an amount equal to the
lesser of (A) the Certificate Formula Principal Amount for the Class
A-___ Certificates or (B) the amount necessary to reduce the Class
Certificate Balance of the Class A-___ Certificates to zero;
(vi) sixth, to the Class A-___ Certificates to fund any Class A-___
Available Funds Shortfall;
(vii) seventh, to the Insurer, any I&I Payments then due and owing,
except to the extent paid pursuant to clause (b)(vii) below; and
(viii) eighth, for deposit into the Spread Account, the Class A-___
Monthly Spread Account Deposit Amount.
(b) On each Distribution Date, the Trustee shall distribute the
following amounts from Class A-___ Distributable Funds, to the extent
available, to the parties and in the priorities indicated:
(i) first, to the Insurer, the portion of the Insurer's Monthly
Premium based upon the Class Certificate Balance of the Class A-___
Certificates;
(ii) second, to the Trustee, the portion of the Trustee Fee based
upon the Group Principal Balance of the Group II Loans, 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
aggregate Servicing Fee relating to the Group II Loans, except to the
extent previously paid by withdrawals under Section 3.08, and (ii) any
other amounts expended by the Servicer in connection with Group II Loans
and reimbursable thereto under this Agreement but not previously
reimbursed;
(iv) fourth, to the Class A-___ Certificates, the related Interest
Distribution Amount;
(v) fifth, to the Class A-___, Certificates, an amount equal to the
lesser of (A) the Certificate Formula Principal Amount for the Class
A-___ Certificates or (B) the amount necessary to reduce the Class
Certificate Balance of the Class A-___ Certificates to zero;
(vi) sixth, to the Class A-___ Certificates to fund any Class A-___
Available Funds Shortfall;
(vii) seventh, to the Insurer, any I&I Payments then due and owing,
except to the extent paid pursuant to clause (a)(vii) above; and
54
<PAGE>
(viii) eighth, for deposit into the Spread Account, the Class A-___
Monthly Spread Account Deposit Amount.
(c) On each Distribution Date, following all distributions made pursuant
to clauses (a) and (b) above, the Trustee shall distribute the Spread Account
Excess, if any, to the Class R Certificateholders.
(d) 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 amount of (i) Net
Prepayment Interest Shortfalls on Loans in the Applicable Group and (ii)
Relief Act Reductions on Loans in the Applicable Group incurred during the
calendar month preceding the month of such Distribution Date.
(e) If on any Distribution Date a Spread Account Draw is made by both
the Class A-___ and Class A-___ Certificates and the amount of funds on
deposit in the Spread Account is insufficient to cover both Spread Account
Draws, funds on deposit in the Spread Account shall be distributed to each
Class on a pro rata basis in proportion to the respective amounts of the
Spread Account Draw for each such Class.
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) with respect to each Group, 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 a 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;
55
<PAGE>
(v) the Pool Principal Balance and the Group Principal Balances for
the following Distribution Date;
(vi) with respect to each Group, 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) with respect to each Group, 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) with respect to each Group, 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 each Group and 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 of the close of
business on the last day of the Prepayment Period preceding such
Distribution Date and the date of acquisition thereof;
(xi) with respect to each Group, 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) with respect to each Group, the Cross-Collateralization
Amount;
(xiii) with respect to each Group, the Spread Account Draw;
(xiv) the Class A-___ and Class A-___ Monthly Spread Account
Deposit Amounts, the percentage of the Class A-___ and Class A-___
Spread Account Deposit Amounts used to determine such Class A-___ and
Class A-___ Monthly Spread Account Deposit Amounts, the Class A-___ and
Class A-___ Spread Account Deposit Amounts, the Spread Account Excess
and the allocation of such Spread Account Excess to Class R
Certificateholders pursuant to Section 3A.01;
(xv) the amount on deposit in the Spread Account after the
Distribution Date;
(xvi) the Specified Spread Account Requirement; and
56
<PAGE>
(xvii) the amount equal to the sum of the Stated Principal Balances
of the three Loans in the Mortgage Pool with the largest individual
Stated Principal Balances.
(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), (viii)-(xi) and (xvii) 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)-(xvi) of the
statement described in (a) above.
(c) Within a reasonable period of time after the end of each calendar
year, but in no case later than the time prescribed by the Code and
applicable Treasury regulations, 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.
SECTION 4.04. Bloomberg Reporting.
On each Distribution Date, the Servicer shall provide to the Trustee
current information of the type set forth in Schedule I hereto presented in a
format substantially similar to Exhibit L attached hereto and the Trustee
shall then post such information on its internet bulletin board, or otherwise
make such information available to Bloomberg L.P.
ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
The Certificates shall be substantially in the forms attached hereto as
exhibits. The Certificates shall be issuable in 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
57
<PAGE>
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.
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.
58
<PAGE>
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.
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
59
<PAGE>
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
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
60
<PAGE>
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
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.
61
<PAGE>
(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, 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
62
<PAGE>
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 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
63
<PAGE>
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 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.
64
<PAGE>
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 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
65
<PAGE>
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 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 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;
66
<PAGE>
(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 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
67
<PAGE>
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,
4thereupon 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 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
68
<PAGE>
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 no such delegation and
assignment shall become effective unless each Rating Agency acknowledges that
its rating of the Certificates in effect immediately prior to such delegation
and assignment will not be qualified or reduced as a result of such
delegation and assignment 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.
69
<PAGE>
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.
70
<PAGE>
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 re-recording, 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, Tax Matters Person 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, Tax Matters Person 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,
71
<PAGE>
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;
72
<PAGE>
(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
73
<PAGE>
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
74
<PAGE>
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
75
<PAGE>
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
76
<PAGE>
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
77
<PAGE>
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 described in the Prospectus Supplement; (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
78
<PAGE>
in any administrative or judicial proceedings relating to an examination
or audit by any governmental taxing authority, request an administrative
adjustment as to any taxable year of the REMIC, enter into settlement
agreements with any governmental taxing agency, extend any statute of
limitations relating to any tax item of the REMIC, and otherwise act on
behalf of the REMIC in relation to any tax matter or controversy involving
it.
In order to enable the Trustee to perform its duties as set forth
herein, the Depositor shall provide, or cause to be provided, to the Trustee
within ten (10) days after the Closing Date all information or data that the
Trustee requests in writing and determines to be relevant for tax purposes to
the valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows
of the Certificates and the 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.
79
<PAGE>
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) subject to the last
sentence of this Section 9.01, 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
80
<PAGE>
applicable Pass-Through Rate and (ii) 100% of 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.
81
<PAGE>
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
82
<PAGE>
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
83
<PAGE>
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.
84
<PAGE>
SECTION 10.02. Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages
are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the 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 ____, 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 ____, 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,
85
<PAGE>
deliver to the Depositor on the Closing Date the financing statements
described in Schedule IV. 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 ____, 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 ____, 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, the assets constituting the Trust
Fund 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 ____, 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 ____, 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.
86
<PAGE>
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 ____, 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 ____, 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
87
<PAGE>
5. the final payment to Certificateholders.
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-____, ____, Attention: President,
facsimile number: ____, (d) in the case of ____, ____, Attention: President,
facsimile number: ____, (e) in the case of ____, ____, Attention: President,
facsimile number: ____, (f) in the case of ____, ____, Attention: President,
facsimile number: ____, (g) in the case of ____, ____, Attention: President,
facsimile number: ____, (h) in the case of ____, ____, Attention: President,
facsimile number: ____, (i) in the case of ____, ____, Attention: President,
facsimile number: ____, (j) in the case of the Trustee____, ____, Attention:
____, facsimile number: ____, or such other address as the Trustee may
hereafter furnish to the Depositor or Servicer, (k) in the case of the
Insurer, ____, ____, Attention: ____, facsimile number: ____ 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 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.
88
<PAGE>
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 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.
89
<PAGE>
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 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.
90
<PAGE>
(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.
* * * * * *
91
<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:
__________, as Trustee
By:
-------------------------------------------
Name:
Title:
Equity One, Inc. (DE), as a Seller and Servicer
By:
-------------------------------------------
Name:
Title:
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
92
<PAGE>
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
__________, as a Seller
By:
-------------------------------------------
Name:
Title:
93
<PAGE>
SCHEDULE I
Loan Schedule
[SEE ATTACHED]
S-I-1
<PAGE>
SCHEDULE IIA
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, as
trustee.
(11) 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.
(12) 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.
(13) 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 breach of any term or
provision of the charter or by-laws of Seller or (b) materially
S-IIA-1
<PAGE>
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.
(14) 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.
(15) 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.
(16) 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.
(17) 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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 _________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the State of
________ and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by 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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 ________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the State of
________and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by 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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 ________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the State of
________and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by 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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 ________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the State of
________and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by 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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 ________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the State of
________and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by 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 breach of any term or
provision of the charter or by-laws of Seller or (b) materially
S-IIF-1
<PAGE>
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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 ________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the Commonwealth
of ________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 _____
Representations and Warranties of Equity One-________
Equity One-________ ("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 ________, as
trustee.
(1) Seller is duly organized as a ________corporation and is
validly existing and in good standing under the laws of the State of
________and is duly authorized and qualified to transact any and all
business contemplated by the Pooling and Servicing Agreement to be
conducted by 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 _____
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 ________, 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 the Pooling and Servicing Agreement, and
the fulfillment of or compliance with the terms
S-IIX-1
<PAGE>
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 _____
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 ________, 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 ________% (by
principal balance) of the Loans set forth on Schedule I were between 30
and 59 days contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIA-1
<PAGE>
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 (a) ________% of the Group I Loans and (b)
________% of the Group II Loans are 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
S-IIIA-6
<PAGE>
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.
(45) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIA-7
<PAGE>
SCHEDULE IIIB
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIB-1
<PAGE>
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-IIIB-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-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 under the Flood
Disaster Protection Act of 1973, as amended, and if Seller has received
S-IIIB-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-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 (a) ________% of the Group I Loans and (b)
________% of the Group II Loans are 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
S-IIIB-6
<PAGE>
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.
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIB-7
<PAGE>
SCHEDULE IIIC
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIC-1
<PAGE>
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 (a) ________% of the Group I Loans and (b)
________% of the Group II Loans are 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
S-IIIC-6
<PAGE>
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.
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIC-7
<PAGE>
SCHEDULE IIID
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIID-1
<PAGE>
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 (a) ________% of the Group I Loans and (b)
________% of the Group II Loans are 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
S-IIID-6
<PAGE>
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.
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIID-7
<PAGE>
SCHEDULE IIIE
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIE-1
<PAGE>
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 Group I Loans and (b) ________%
of the Group II Loans are 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
S-IIIE-6
<PAGE>
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.
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIE-7
<PAGE>
SCHEDULE IIIF
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIF-1
<PAGE>
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 (a) ________% of the Group I Loans and (b)
________% of the Group II Loans are 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
S-IIIF-6
<PAGE>
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.
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIF-7
<PAGE>
SCHEDULE IIIG
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIG-1
<PAGE>
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-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-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 Group I Loans and ________% of
the Group II Loans are 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>
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIG-7
<PAGE>
SCHEDULE IIIH
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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 ________, 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 ________% (by
principal balance) of the Loans were between 30 and 59 days
contractually delinquent.
(3) No Loan had a Combined Loan-to-Value Ratio at origination in
excess of ________%. For purposes of determining the date of origination
on which each Loan's Combined 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 second 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
Second Lien Loan, which shall be subject to prior liens approved by
Seller), encumbrance or security interest and had full right and
S-IIIH-1
<PAGE>
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 Group I Loans and (b) ________%
of the Group II Loans are 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
S-IIIH-6
<PAGE>
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.
(1) Each Group I Loan conforms to the following guidelines of FNMA
and FHLMC: at origination (i) each Loan in a first lien position had a
principal balance not exceeding (a) $________in the case of a one-family
dwelling, (b) $________in the case of a two-family dwelling, (c)
$________in the case of a three-family dwelling and (d) $________in the
case of a four-family dwelling, and (ii) each Second Lien Loan (a) had a
principal balance not exceeding $________and (b) had a principal balance
which, when added to the principal balance of the related senior loan at
such time, did not exceed $________in the aggregate.
S-IIIH-7
<PAGE>
SCHEDULE IV
LIST OF FINANCING STATEMENTS:
PERFECTION OF GRANT OF SECURITY INTEREST
BY SELLERS TO DEPOSITOR
================================================================================
SELLER LOCATION
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S-IV-1
<PAGE>
SCHEDULE V
LIST OF FINANCING STATEMENTS:
PERFECTION OF GRANT OF SECURITY INTEREST
BY DEPOSITOR TO TRUSTEE
================================================================================
DEPOSITOR LOCATION
================================================================================
- --------------------------------------------------------------------------------
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: : _______
First Distribution Date: : _______
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 _____
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 fixed rate mortgage loans divided into
two groups, Group I and Group II (collectively, the "LOANS"). Mortgage
loans in both groups are secured by first or second liens on one- to
four-family residential properties and Group II also includes mortgage
loans secured by first liens on mixed commercial/residential use
properties. Subject to certain cross-
A-1
<PAGE>
collateralization provisions contained in the Agreement (as defined
below), the Class A - [ ] Certificates represent an interest in the
mortgage loans in Group [ ].
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 Group [ ]
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), _______, _______, _______, _______, _______, _______, and
_______ (in such capacity, collectively, the "SELLERS") and Equity One, Inc.
(DE) as servicer (in such capacity, the "SERVICER"), and ________, as trustee
(the "TRUSTEE"). To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
This Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned by an
authorized signatory of the Trustee.
* * *
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated , 19 , as Trustee
------------ ----- --------
Countersigned:
By:
----------------------------
By:
-----------------------------
Authorized Signatory of
, as Trustee
--------
A-2
<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.
B-1
<PAGE>
Certificate No. :
Cut-off Date : _______
Equity One ABS, Inc.
Mortgage Pass-Through Certificates, Series _____
evidencing the distributions allocable to the Class R Certificates with
respect to a Trust Fund consisting primarily of a pool of fixed rate
mortgage loans divided into two groups, Group I and Group II
(collectively, the "Loans"). Mortgage loans in both groups are secured
by first or second liens on one- to four-family residential properties
and Group II also includes mortgage loans secured by first liens on
mixed commercial/residential use properties.
Equity One ABS, Inc., as Depositor
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 (set forth on the face hereof) 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), _______, _______,
_______, _______, _______, _______, and _______ (in such capacity,
collectively, the "SELLERS") and Equity One, Inc. (DE) as servicer (in such
capacity, the "SERVICER"), and ________, as trustee (the "TRUSTEE"). To the
extent not defined herein, the capitalized terms used herein have the
meanings assigned in the Agreement. This Certificate is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
Any distribution of the proceeds of any remaining assets of the Trust
Fund will be made only upon presentment and surrender of this Class 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 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
B-2
<PAGE>
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.
* * *
B-3
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: , 19
-------- --
--------,
as Trustee
By:
--------------------------
Countersigned:
By:
-------------------------
Authorized Signatory of
--------,
as Trustee
B-4
<PAGE>
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 of Certificates affected by such amendment evidencing the requisite
Percentage Interest, as provided in the Agreement. Any such consent by the
Holder
C-1
<PAGE>
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 ________% of the aggregate Cut-off Date Principal Balance 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.
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-2
<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.
C-3
<PAGE>
EXHIBIT D
Form Of Initial Certification Of Trustee
[date]
[Depositor]
[Servicer]
[Sellers]
- ---------------------
- ---------------------
Re: The Pooling & Servicing Agreement dated as of ________ among
Equity One, Inc. (DE), ________, ________, ________, ________,
________ ________, as Sellers, Equity One, Inc. (DE) as
Servicer, and Equity One ABS, Inc. as Depositor and ________
as Trustee, Mortgage Pass-Through Certificates, Series
_________
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.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the Pooling and Servicing Agreement.
--------,
as Trustee
By:
----------------------------------
Name:
Title:
D-1
<PAGE>
EXHIBIT E
Form Of Final Certification Of Trustee
[date]
[Depositor]
[Servicer]
[Seller]
- ---------------------
- ---------------------
Re: The Pooling & Servicing Agreement dated as of ________ among
Equity One, Inc. (DE), ________, ________, ________, ________,
________ ________, as Sellers, Equity One, Inc. (DE) as
Servicer, and Equity One ABS, Inc. as Depositor and ________
as Trustee, Mortgage Pass-Through Certificates, Series
_________
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
(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
E-1
<PAGE>
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
(vii) 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.
--------,
as Trustee
By:
----------------------------------
Name:
Title:
E-2
<PAGE>
EXHIBIT F
Form Of Transfer Affidavit
Equity One ABS, Inc.
Mortgage Pass-Through Certificates
Series _____
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),
_____________, _____________, _____________, _____________, _____________,
_____________, and _____________, as sellers, Equity One, Inc. (DE) as
servicer and ________, as Trustee. Capitalized terms used, but not defined
herein or in Exhibit 1 hereto, shall have the meanings ascribed to such terms
in the Agreement. The Transferee has authorized the undersigned to make this
affidavit on behalf of the Transferee.
2. The Transferee is, as of the date hereof, and will be, as of the date
of the Transfer, a Permitted Transferee. The Transferee is acquiring its
Ownership Interest in the Certificate either (i) for its own account or (ii)
as nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the same form as this affidavit.
The Transferee has no knowledge that any such affidavit is false.
3. The Transferee has been advised of, and understands that (i) a tax
will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (ii) such tax will be imposed on the transferor, or,
if such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability
for the tax if the subsequent Transferee furnished to such Person an
affidavit that such subsequent Transferee is a Permitted Transferee and, at
the time of Transfer, such Person does not have actual knowledge that the
affidavit is false.
4. The Transferee has been advised of, and understands that a tax will
be imposed on a "pass-through entity" holding the Certificate if at any time
during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that such tax will not be imposed for any period with
F-1
<PAGE>
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.
* * *
F-2
<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__.
F-3
<PAGE>
EXHIBIT 1
to EXHIBIT F
Certain Definitions
"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.
"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 Persons 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
<PAGE>
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 other than a Permitted
Transferee, all payments
F-5
<PAGE>
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: _______________
- --------
- ---------------------------
- ---------------------------
Attention:
----------------------------
---------------
Re: Equity One ABS, Inc. Mortgage Pass-Through Certificates,
Series _____, 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: _______________
- --------
- ---------------------------
- ---------------------------
Attention:
----------------------------
---------------
Re: Equity One ABS, Inc. Mortgage Pass-Through Certificates,
Series _____, 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: _______________
- --------
- ---------------------------
- ---------------------------
Attention:
----------------------------
---------------
Re: Equity One ABS, Inc. Mortgage Pass-Through Certificates,
Series _____, 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
I-1
<PAGE>
respect to the Certificates, (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 subject to a repurchase agreement and (vii)
currency, interest rate and commodity swaps.
I-6
<PAGE>
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 _____
To: Attn:
----------------------------- -----------------------------
-----------------------------
Re: The Pooling & Servicing Agreement dated as of ________
among Equity One, Inc. (DE), ________, ________,
________, ________, ________ ________, as Sellers, Equity
One, Inc. (DE) as Servicer, and Equity One ABS, Inc. as
Depositor and ________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 (_______________________ 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
[SEE ATTACHED]
K-1
<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
viii
<PAGE>
EXHIBITS
EXHIBIT A....................................................................A-1
EXHIBIT B....................................................................B-1
EXHIBIT C....................................................................C-1
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
ix
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
July 22, 1999
Equity One ABS, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Re: REGISTRATION STATEMENT ON FORM S-3 OF EQUITY ONE ABS, INC.
Ladies and Gentlemen:
We have acted as counsel to and for Equity One ABS, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the U.S. Securities and Exchange Commission of a registration statement on Form
S-3 (File No. 333-81237) (the "Registration Statement") relating to the issuance
from time to time in series of up to $400,000,000 in aggregate principal amount
of Asset Backed Certificates and Asset Backed Notes (the "Securities"). As set
forth in the Registration Statement, each series of Securities will be issued on
behalf of a trust (a "Trust Fund") to be formed pursuant to either (i) a pooling
and servicing agreement (a "Pooling and Servicing Agreement") among the Company,
one or more sellers of assets underlying the Securities (the "Seller" or
"Sellers"), a trustee (the "Trustee") and a servicer or (ii) a trust agreement
(a "Trust Agreement") among the Company, one or more Sellers and a Trustee. As
set forth in the Registration Statement, each series of Securities will be
issued under and pursuant to the conditions of either (i) a Pooling and
Servicing Agreement or (ii) a Trust Agreement and an indenture (an "Indenture")
between an indenture trustee (an "Indenture Trustee") and a Trustee. The term
"Agreement," when used in this opinion letter with reference to a series of
Securities, means either (i) a Pooling and Servicing Agreement or (ii) a Trust
Agreement and an Indenture. The Seller(s), the Trust Fund, the Trustee and, if
applicable, the Indenture Trustee (together with any other relevant parties)
with respect to a series of Securities will be identified in the prospectus
supplement for such series of Securities contemplated by the Registration
Statement.
We have examined copies of the Company's Restated Certificate of
Incorporation, the Company's Bylaws and forms of each Agreement (including the
forms of Securities included therein), all as filed as exhibits to the
Registration Statement, and such other records, documents and statutes as we
have deemed necessary for purposes of this opinion letter.
Based upon the foregoing and subject to the qualifications set forth below,
we are of the opinion that:
1. When (a) an Agreement has been duly authorized, executed and
delivered by all necessary action on the part of the parties to such
Agreement (subject to the terms of such Agreement being otherwise in
compliance with applicable law at such time), (b) a series of Securities of
a Trust Fund has been duly authorized and executed by the Trustee for such
Trust Fund and, if applicable, authenticated by the Indenture Trustee for
such Securities in accordance with the terms of such Agreement (subject to
the terms of such Securities being otherwise in compliance with applicable
law at such time), and (c) such Securities have been issued and delivered
against payment therefor as described in the Registration Statement and the
prospectus supplement for such Securities and in accordance with
<PAGE>
Equity One ABS, Inc.
July 22, 1999
Page 2
the terms of such Agreement, such series of Securities will be (i) legally
and validly issued, fully paid and nonassessable and (ii) in the case of
Asset Backed Notes, binding obligations of such Trust Fund.
2. The information set forth in the prospectus forming a part of the
Registration Statement (the "Prospectus") under the caption "Federal Income
Tax Consequences," to the extent it constitutes matters of law or legal
conclusions, is correct in all material respects. The opinions set forth in
the Prospectus under the heading "Federal Income Tax Consequences" are
hereby confirmed.
In rendering the foregoing opinions, we express no opinion as to the laws
of any jurisdiction other than (i) with respect to the opinion set forth in
paragraph 1 above, the laws of the State of Delaware (excluding choice of law
principles therein) and (ii) with respect to the opinion set forth in paragraph
2 above, the Internal Revenue Code of 1986, as amended, the applicable Treasury
Regulations promulgated thereunder, the present positions of the Internal
Revenue Service as set forth in published revenue rulings and revenue
procedures, present administrative positions of the Internal Revenue Service,
and existing judicial decisions, all of which are subject to change either
prospectively or retroactively.
This opinion letter is given only with respect to laws and regulations
presently in effect. We assume no obligation to advise you of any changes in law
which may occur, whether the same are retroactively or prospectively applied, or
to update or supplement this letter in any fashion to reflect any facts or
circumstances which hereafter come to our attention.
The opinion expressed in paragraph 1 above is limited and qualified in all
respects by the effects of general principles of equity, whether applied by a
court of law or equity, and by the effects of bankruptcy, insolvency,
reorganization, moratorium, arrangement, fraudulent conveyance or fraudulent
transfer, receivership, and other laws now or hereafter in force affecting the
rights and remedies of creditors generally (not just creditors of specific types
of debtors) and other laws now or hereafter in force affecting generally only
creditors of specific types of debtors.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus and each prospectus supplement, without
admitting that we are "experts" within the meaning of the Securities Act of
1933, as amended, or the Rules and Regulations of the U.S. Securities and
Exchange Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: /s/ David R. Landrey
---------------------------
David R. Landrey, a Partner
